The Board agreed that Mongolia has made meaningful progress overall in implementing the 2016 EITI Standard.

Outcome of the Validation of Mongolia.

Decision reference: 2017-01 / BC-224
Decision basis: 2016 EITI Standard, Requirement 8.3 EITI Validation deadlines and consequences

11 January 2017

Board decision

The Board came to the following decision regarding Mongolia's status:

The Board agrees that Mongolia has made meaningful progress overall in implementing the 2016 EITI Standard. In taking this decision the EITI Board noted the effective oversight provided by the Mongolian Multi-Stakeholder Working Group (MSWG), efforts to improve the accessibility of data through an online Data Portal, progress in establishing sub-national multi-stakeholder councils as well as the impact on public debate, particularly at the local level. The EITI Board highlighted that the EITI has provided a positive platform for discussion and debates about mining sector management, involving all stakeholders and the wider public. The EITI Board was encouraged by the government’s efforts to make government systems transparent and urged the MSWG to work towards further mainstreaming EITI disclosures.

The Board’s determination of Mongolia’s progress with the EITI’s requirements is outlined in the assessment card, below. The EITI Board agreed that Mongolia had not made satisfactory progress on requirements 1.4, 2.2, 2.3, 2.6, 4.5, 4.9, 5.2, 6.1, 6.2 and 7.4. The major areas of concern relate to MSG governance (#1.4), license allocations (#2.2), license registers (#2.3), state participation (#2.6), including SOE transactions (#4.5) and quasi-fiscal expenditures (#6.2), data quality (#4.9), subnational transfers (#5.2), social expenditures (#6.1) and documentation of impact (#7.4). The EITI Board disagreed with the validator on the following requirements: government engagement (#1.1), export data (#3.3) and in-kind revenues (#4.2).[1].

Accordingly, the EITI Board agreed that Mongolia will need to take corrective actions outlined below. Progress with the corrective actions will be assessed in a second validation commencing on 11 January 2018. Failure to achieve meaningful progress with considerable improvements across several individual requirements in the second Validation will result in suspension in accordance with the EITI Standard. In accordance with the EITI Standard, the Mongolian Multi-Stakeholder Group may request an extension of this timeframe, or request that Validation commences earlier than scheduled.

The Board’s decision followed a Validation that commenced on 1 July 2016. In accordance with the 2016 EITI Standard, an initial assessment was undertaken by the International Secretariat. The findings were reviewed an Independent Validator, who submitted a Validation Report to the EITI Board. Mongolia’s Multi-Stakeholder Working Group were invited to comment throughout the process. The Multi-Stakeholder Working Group’s comments on the report were taken into consideration. The final decision was taken by the EITI Board.

Corrective actions and strategic recommendations

The EITI Board agreed the following corrective actions to be undertaken by Mongolia. Progress in addressing these corrective actions will be assessed in a second Validation commencing on 11 January 2018:

In accordance with requirement 1.4.b.vi, the MSWG should ensure that there is an inclusive decision-making process throughout implementation, with each constituency being treated as a partner. The MSWG should agree and publish its procedures for nominating and changing multi-stakeholder group representatives. In accordance with requirement 1.4.b.iii, members of the MSWG should ensure that they liaise with their constituency groups.
In accordance with requirement 2.2.a, the government should ensure annual disclosure of which mining, oil, and gas licenses were awarded and transferred during the year, highlighting any non-trivial deviations from the applicable legal and regulatory framework governing license awards and transfers. In accordance with requirement 2.3, the government should also ensure that the dates of application for all oil, gas and mining licenses are publicly available and that the coordinates for oil and gas PSAs are published.
In accordance with requirement 2.6, the MSWG should provide an explanation of the prevailing rules and practices related to SOEs’ retained earnings and reinvestment. The government should also ensure annual disclosure of any changes in government ownership in SOEs or their subsidiaries, and provide a comprehensive account of any loans or loan guarantees extended by the state or SOEs to mining, oil, and gas companies. In accordance with requirement 6.2, the MSWG should consider the existence and materiality of any quasi-fiscal expenditures undertaken by SOEs and subsidiaries in the extractive industries, including subsidies, and ensure that any material quasi-fiscal expenditures are disclosed.
In accordance with requirement 4.5, the MSWG must ensure that the reporting process assesses the materiality and comprehensively discloses material payments to subnational government entities.
In accordance with requirement 4.9.b.iii and the standard Terms of Reference for the Independent Administrator agreed by the EITI Board, the MSWG and Independent Administrator should:

examine the audit and assurance procedures in companies and government entities participating in the EITI reporting process, and based on this examination, agree what information participating companies and government entities are required to provide to the Independent Administrator in order to assure the credibility of the data in accordance with Requirement 4.9. The Independent Administrator should exercise judgement and apply appropriate international professional standards^{^[1]} in developing a procedure that provide a sufficient basis for a comprehensive and reliable EITI Report. The Independent Administrator should employ his /her professional judgement to determine the extent to which reliance can be placed on the existing controls and audit frameworks of the companies and governments. The Independent Administrator’s inception report should document the options considered and the rationale for the assurances to be provided.
ensure that the Independent Administrator provides an assessment of comprehensiveness and reliability of the (financial) data presented, including an informative summary of the work performed by the Independent Administrator and the limitations of the assessment provided.
Ensure that the Independent Administrator provides an assessment of whether all companies and government entities within the agreed scope of the EITI reporting process provided the requested information. Any gaps or weaknesses in reporting to the Independent Administrator must be disclosed in the EITI Report, including naming any entities that failed to comply with the agreed procedures, and an assessment of whether this is likely to have had material impact on the comprehensiveness of the report.

In accordance with requirement 5.2.a, the MSWG should clarify the distinction between SOEs’ direct subnational payments and subnational transfers prior to data collection. The MSWG should ensure that the EITI Report includes the revenue sharing formula used to calculate transfers to individual aimags and soums, and that is discloses any discrepancies between budgeted and executed subnational transfers.
In accordance with requirement 6.1.a, the MSWG should agree a clear distinction between mandatory and voluntary social expenditures prior to data collection. Where mandatory social expenditures are provided in-kind, the MSWG should ensure that the nature and deemed value of such in-kind transactions are disclosed. Where beneficiaries of mandatory social expenditures is a third party, i.e. not a government agency, the MSWG should ensure that the name and function of the beneficiary be disclosed.
In accordance with requirements 7.4.a.iii and 7.4.a.iv and 7.4.b, the MSWG should, in preparing the next annual progress report, conduct an assessment of follow-up on EITI recommendations and impact of implementation based on consultations with a broad range of stakeholders.

The MSWG is encouraged to consider the other recommendations in the Validator’s Report and the International Secretariat’s initial assessment, and to document the MSWG’s responses to these recommendations in the next annual progress report.

[1] For example, ISA 505 relative to external confirmations; ISA 530 relative to audit sampling; ISA 500 relative to audit evidence; ISRS 4400 relative to the engagement to perform agreed-upon procedures regarding financial information and ISRS 4410 relative to compilation engagements.

Assessment of EITI requirements

Not met
Partly met
Mostly met
Fully met
Exceeded

Scorecard by requirement View more	Assessment View more
Overall Progress
MSG oversight
1.1Government engagement
There are regular, public statements of support from the government. A senior individual has been appointed to lead on the implementation of the EITI, and senior government officials are represented on the MSWG and National Council. Government has provided funding to implementation. However, the lack of full government participation in outreach and dissemination events and the recurrent gaps in funding for EITI implementation are a concern.
1.2Company engagement
Companies are actively and effectively engaged in the design, implementation, monitoring and evaluation of the EITI process. Industry representatives are taking part in outreach and efforts to promote public debate especially on regional level. The Minerals Law and model Production-Sharing Contract provide an enabling environment for company participation in the EITI and there do not appear to be any legal obstacles preventing company participation.
1.3Civil society engagement
Civil society are fully, actively and effectively engaged in the design, implementation, monitoring and evaluation of the EITI process. Stakeholders are taking part in outreach and efforts to promote public debate especially on regional level. There is an enabling environment for civil society participation in the EITI.
1.4MSG governance
The MSWG has been formed and includes self-appointed representatives from each stakeholder group with no suggestion of interference or coercion. Although the mechanism for civil society nominations on the MSWG restricts selection of members outside the PWYP and MECC coalitions, there is no evidence that non-member NGOs that would have liked to participate have been constrained from doing so. The ToR for the MSWG addresses the requirements of the EITI Standard, but stakeholders have highlighted certain deviations in practice, particularly related to voting. Certain MSWG decisions appear to be passed despite objections of one of the stakeholder groups, for instance in relation to data quality assurance procedures. Attendance of MSWG members is also inconsistent, with delegation of attendance to different representatives being common. these weaknesses have affected EITI implementation and contributed to inconsistent multi-stakeholder oversight of the technical aspects of EITI reporting, in particular with respect to data quality.
1.5Work plan
The MSWG has been formed and includes self-appointed representatives from each stakeholder group with no suggestion of interference or coercion. Although the mechanism for civil society nominations on the MSWG restricts selection of members outside the PWYP and MECC coalitions, there is no evidence that non-member NGOs that would have liked to participate have been constrained from doing so. The ToR for the MSWG addresses the requirements of the EITI Standard, but stakeholders have highlighted certain deviations in practice, particularly related to voting. Certain MSWG decisions appear to be passed despite objections of one of the stakeholder groups, for instance in relation to data quality assurance procedures. Attendance of MSWG members is also inconsistent, with delegation of attendance to different representatives being common. these weaknesses have affected EITI implementation and contributed to inconsistent multi-stakeholder oversight of the technical aspects of EITI reporting, in particular with respect to data quality.
Licenses and contracts
2.2License allocations
While the 2014 EITI Report provides some useful information on license awards and transfers, the exact numbers of licenses that were allocated or transferred remains unclear. The report also fails to disclose whether there were any deviations from the license allocation procedures.
2.3License register
Most aspects of 2.3 are addressed in the 2014 EITI Report and/or are publicly available through the MRAM cadastre and the eReporting system. However information on dates of application is not available for mining licenses. In the oil and gas sector, there is no information on dates of application, commodities produced and license coordinates.
2.4Policy on contract disclosure
The 2014 EITI Report clarifies government contract disclosure policy and provides a review of actual disclosure practice. There has been follow up by the MSWG to develop a contracts portal, amend the model oil and gas PSAs to remove confidentiality clauses and to disclose all PSAs.
2.1Legal framework
The 2014 EITI Report address the relevant laws, regulations and fiscal regime.
2.5Beneficial ownership	Not assessed
The MSWG has considered beneficial ownership disclosure in detail at several MSWG meetings and has conducted initial work on disclosure of legal ownership information (which includes some beneficial ownership disclosures) in the 2013 and 2014 EITI Reports.
2.6State participation
The 2014 EITI Report lists 21 extractives companies in which the state holds majority equity, some of the rules and practices governing financial transfers between government and SOEs and some details of loans and loan guarantees. However, the rules and practices related to SOEs’ retained earnings and reinvestment are not described. The report does not clarify any changes in ownership of extractives SOEs or their subsidiaries in 2014 and it remains unclear whether disclosures of loans or loan guarantees are comprehensive.
Monitoring production
3.1Exploration data
The 2014 EITI Report includes a detailed description of the extractive industries, including informal activities, and of significant exploration activities.
3.2Production data
The 2014 EITI Report includes volumes of production in mining and crude oil. While the location of mining production is provided for only some mining licenses, it is possible to reconstitute the location of production using the EITIM data portal.
3.3Export data
The 2014 EITI Report includes volumes of production in mining and crude oil. While the location of mining production is provided for only some mining licenses, it is possible to reconstitute the location of production using the EITIM data portal.
Revenue collection
4.3Barter agreements	Not applicable
The 2014 EITI Report details infrastructure provisions and notes that no barters exist.
4.6Direct subnational payments
The MSWG has considered subnational direct payments, disclosed and reconciled them in the 2014 EITI Report, disaggregated by payment stream. However, there is confusion between SOEs’ “subnational direct payments” and “subnational transfers”.
4.7Disaggregation
While the 2014 EITI Report does not present all data disaggregated by revenue stream and by company, the EITIM data portal provides access to this level of disaggregated information.
4.9Data quality
The MSWG has never undertaken a review of auditing practices prior to agreeing quality assurance procedures. Issues of data quality assurance (for both companies and government) are significant in 2014 EITI Report. While the eReporting system used for the 2014 EITI Report has addressed concerns over the confidentiality of EITI financial information pre-reconciliation, it does not appear to have resolved data quality assurance challenges. While the 2014 EITI Report provides overview of quality assurances, the materiality of omissions by reporting companies and government entities is not assessed.
4.1Comprehensiveness
The MSWG has agreed a definition of materiality and materiality thresholds. Although the IA does not provide an assessment of the comprehensiveness of the 2014 EITI Report, it is possible for readers to assess the materiality of omissions and reach conclusions about the overall comprehensiveness of the EITI Report.
4.2In-kind revenues	Not applicable
The 2014 EITI Report states that the two producing oil and gas PSA operators commercialise the state’s share of in-kind revenues (Profit Oil). There are no in-kind revenues in mining. The value of cash proceeds from the sale of the state’s Profit Oil is provided.
4.4Transportation revenues
The MSWG has considered whether government receives transportation revenues in the mining sector and disclosed revenues collected by Erdenes Mongol, even if a materiality threshold for such revenues is not explicit (it is only implied as 0). The MSWG does not seem to have considered the existence of transportation revenues in oil and gas however although we understand that no SOEs (under the EITI Standard’s definition) collected transportation revenues.
4.5SOE transactions
The MSWG has considered the transactions between SOEs and government and disclosed dividends from the 21 SOEs operating in the extractive industries. While the 2014 EITI Report includes SOEs’ payments to subnational government, there is confusion between “subnational direct payments” and “subnational transfers”.
4.8Data timeliness
The eReporting system has had a significant impact on timeliness of reporting and reconciliation of payments now takes place within 12 months of the end of the fiscal year under review.
Revenue allocation
5.1Distribution of revenues
The 2014 EITI Report discloses how revenues are allocated.
5.2Subnational transfers
The general formula for calculating subnational transfers is disclosed in the 2014 EITI Report, although the formula for calculating transfers to individual aimags and soums is not provided. Discrepancies between actual and calculated transfers are not disclosed.
5.3Revenue management and expenditures	Not assessed
The 2014 EITI Report discloses the management of earmarked revenues.
Socio-economic contribution
6.1Mandatory social expenditures
Although the MSWG has considered social expenditures in detail and disclosed these in the 2013 and 2014 EITI Reports, the distinction between mandatory and voluntary social expenditures seems to have been made by reporting entities themselves. The comprehensiveness of disclosures of mandatory social expenditures is unclear. The nature and basis for reporting in-kind expenditures is not described. No details on the identity of non-governmental recipients are provided.
6.2Quasi-fiscal expenditures
The 2014 EITI Report provides details of only one SOE’s quasi-fiscal expenditures, but the comprehensiveness of assessments of quasi-fiscal expenditures is unclear. There also appears to be confusion about the classification of a number of SOEs’ “payments to subnational governments”. The MSWG does not appear to have considered whether such expenditures exist, despite the widespread knowledge of subsidised state-owned coal sales to power plants.
6.3Economic contribution
The 2014 EITI Report expands on previous EITI Reports’ description of the contribution to the economy. It includes, in absolute and relative terms, the size of the extractive industries, their contribution to government revenue, exports and employment.
Outcomes and impact
7.2Data accessibility	Not assessed
EITI data is accessible, references international classifications, machine-readable and actively disseminated through the eReporting website.
7.4Outcomes and impact of implementation
The MSWG has produced annual progress reports documenting progress and outcomes of implementation, although not tracking its impact. It appears that only one of the three stakeholder groups provided input to the 2015 annual activity report. Further work on assessing impact is needed and stakeholder engagement in developing the annual progress report should be strengthened.
7.1Public debate
The MSWG has sought to ensure the EITI Report is comprehensible, accessible and actively promoted, particularly through aimag and soum level reports. EITI information has generated public debate, particularly at the subnational level.
7.3Follow up on recommendations
Recommendations of EITI Reports are followed up on by the MSWG, even if they are not consistently implemented.