New information on corporate governance, shareholding and contracts in Mongolia’s latest EITI Report
The abundance of Mongolia’s natural resources is matched by its extensive EITI reporting. Boasting sizeable reserves of copper and coal, gold, iron ore, zinc, uranium, fluorspar and petroleum, Mongolia exports some 15 different commodities to two major markets on its doorstep. In the recently published 2014 EITI Report, companies reveal information not just on their payments to government, but also their own corporate governance and shareholding.
“Mongolia’s 2014 EITI Report reflects our use of the EITI as a platform for reform,” says Banzragch Delgermaa, senior advisor to the Prime Minister of Mongolia and Secretary of the EITIM National Council. “As we expand the types of reporting required from companies, we have also been implementing the recommendations of past EITI Reports such as those covering contract transparency. The EITI is most useful where it is used for locally relevant reforms.”
Drawing assessments by the Ministry of Mines and the Open Society Forum, the 2014 EITI Report evaluates the quality of the governance of state-owned companies and discloses the shareholding of private companies using indicators such as shareholder rights, transparency and openness, extraordinary transactions and oversight structure. The average corporate governance ranking of 28%, lags well behind the average in other Asian countries like Hong Kong, Thailand and the Philippines.
The EITI Report also includes details of the first three layers of shareholders for 30 of the largest companies. This includes details of the ultimate beneficial owners of seven companies.
Mongolia is also using the EITI to drive reforms through the implementation of past EITI recommendations. Following the last EITI Report covering 2013, which highlighted confusion around the government’s policy on contract transparency, the MSG has sought to clarify the policy and open up agreements to public scrutiny. The January 2014 State Policy on Minerals affirms the government’s commitment to a transparent minerals sector and requires disclosure of all information related to contracts unless there are any legal constraints to doing so.
The Petroleum Authority has since produced new model production sharing agreements that do not have confidentiality clauses and is working with the MSG to open up contracts retroactively. Meanwhile the MSG has also launched a contracts database in November 2015 that includes the Oyu Tolgoi investment agreement and 11 development agreements between companies and local governments. The Ministry of Mining is developing a new deposit development agreement template in consultation with local governments and civil society organisations.
Such reforms are taking place on the backdrop of a growing fiscal squeeze caused by lower output and commodity prices.
From a peak of USD 1.7 billion in 2011, government revenues from the extractive industries have fallen annually, reaching USD 1.1 billion in 2014, a 5.5% fall per year. Whilst the single largest revenue stream, accounting for almost 35% of revenues, remains mining royalties, the second largest is, somewhat surprisingly for an economy reliant on mining, the state’s share of crude oil production.