Category Archives: Weekly Reflections

The Unexpected Conclusions to our Mongolian EITI Project

Jonathan Brasnett, MAAPPS // May 9, 2015

Ulaanbaatar, Mongolia. A city of 1.3 million, the home to more than one third of Mongolia’s population, and among one of the most polluted cities in the world. It is also considered to be a bastion of democracy in a continent that is predominantly governed by authoritarian leaders and corrupt bureaucracies. In spite of this democratic system, the country lacks a certain efficiency that would enable it to dig its way out of financial difficulties and stimulate the development that is so sorely needed. Upon landing in this capital city, the beauty of both the country and its culture were instantly obvious to me. So too, unfortunately, was its lack of development, equality and most importantly, government accountability.

Our team of researchers spent the semester (from January to April) studying the Extractive Industry Transparency Initiative (EITI) and the ways in which it has been implemented throughout the world. My own assignment involved researching the implementation of resource-revenue reporting (particularly sub-national reporting) in the Islamic Republic of Mauritania in western Africa. It became instantly clear that this country’s government is characterized by greed and corruption which make implementation of transparency and accountability initiatives very difficult. As a result, it ranked very low in its implementation of sub-national reporting for the purpose of our project. By contrast, however, Mongolia ranked very high as its EITI secretariat has been able to create offices and reporting structure in the Aimag (provincial) and Sum (district) levels which would report their own resource-revenue transfers between companies and local governments, as well as transfers from the national government to sub-national levels. Among the countries we studied for our project, Mongolia ranked relatively high in terms of democracy, rule of law and civil society participation, and comparatively low in terms of corruption. This inevitably led our naive team to conclude that Mongolia was advanced in sub-national reporting and EITI implementation, and that there was much room for hope that resource extraction could lead to accountable revenue sharing and subsequent high levels of development. Right? Wrong.

The reality on the ground was very different and this became clear through the various meetings we attended with the EITI Secretariat, Ministry of Mining officials, local journalists and Western researchers/observers. Despite the high levels of bureaucratic involvement among the national and sub-national levels of government, Mongolia lacks government accountability and any checks on their power. While the reporting of resource-revenues continues to progress and improve, we had arrived with high hopes of influencing the government to implement accessible means for rural civil society organizations to understand the EITI reports and demand government accountability. This is clear paradox, as we quickly learned that the government has no interest in making such information more accessible to its citizens. While the government officials and foreign ambassadors live in extravagant, luxurious houses which are closed off from the rest of Ulaanbaatar, the majority of Mongolians continue to live in poor conditions and the rural nomadic herders continue to see low levels of infrastructural development in the countryside. It seems to an outside observer like myself that the wealth from resource extraction goes into the pockets of those with power, while those whose lives are most affected by the extraction see no improvements to their quality of life. All the while, the Mongolian journalists who would like to make a difference seem unable to challenge these norms and are instead tasked with solving the problem of information accessibility themselves.

In my first two days on the ground in Mongolia, I have learned more about the difficult realities of public policy than I had in my previous eight months of studying in a policy program at the University of British Columbia. The reality of democracy, especially in newly developed democracies like Mongolia, is that bureaucratic inefficiencies and corrupt government censorship and control result in the inability of ambitious policy-makers like ourselves and many of the people we have met to make the changes that are desperately needed. This is not to say that the government has done nothing to improve Mongolians lives; there are high levels of literacy and education, an increasing prominence of English and other languages (Mandarin, Russian, etc.), healthcare seems to receive some investment and there seem to be many development projects in the works, at least in the capital. But these are things that need to be seen across the country, and not just in the capital which is home to the largest part of the population. Despite all the negative governance issues we uncovered since arriving in Mongolia, however, I still have hope that this beautiful country with such an amazingly rich culture can make changes to its governing apparatus that would create an accountable system which seeks to improve the lives of all Mongolians. If anything, the flaws we uncovered simply motivated me and my colleagues to work more tirelessly to bring changes to places that need our guidance.

SOCIAL LICENSE TO OPERATE

Mario Ramirez, MASc Mining Engineering // April 30, 2015

Is the future of the mining industry depending on the legacy it leaves behind?

It might be!

During recent years a good percentage of mining projects have been delayed due to lack of social acceptance or Social license to operate (SLO). Last year, the Prospectors and developers association of Canada, presented a report about “the relationship between capital markets and environmental and social risks[1]”.  This report shows that during the last 8 years 31 out of 67 (46%) mining projects have been delayed and 54 out of 102 oil and gas projects have also suffered delays due to Social acceptance or environmental concerns.  For the mining sector out of the 46% projects delayed, 42% of those were due to social opposition, and another 35% due to environmental concerns.  Another important piece of information is the graph shown by Ernest&Young in its yearly report about Business risks facing mining and metals[2]. This year, SLO ranks in the top 3 risks for this business.

Social License to operate (SLO) is becoming more important than ever.  Stakeholders, meaning, the people, communities and organizations affected by a mining project have shown more interest in learning and have become actively involved in projects affecting their surroundings or ways of life.  Therefore, companies need to allow its stakeholders to have a broader and better understanding of the project’s goals and objectives.  Basically SLO is defined as existing when a project has the ongoing approval within the local community and other stakeholders, ongoing approval or broad social acceptance and, most frequently, as ongoing acceptance[3].

ONGOING is one of the key words in the quote above, and ACCEPTANCE another.  In the pyramid of earning a social license to operate, if a project is only accepted it is expected to still have a good deal of opposition, threats and watchful monitoring.  Therefore, for a project to really be socially accepted it needs to go a couple steps up from only the acceptance level.  The next step would be to gain approval or support, in this step the company is seen as a good neighbor.  However, for a mining project to achieve the highest level, the company needs to reach the psychological identification step, meaning, have full support from most, if not all, stakeholders and achieve co-management of projects.

On the other hand, ONGOING means that the psychological identification should be present in all phases of the mining life cycle which begins with the exploration phase, and ends with the post-closure one.  If at any point of the cycle, the psychological identification breaks, the mining projects begin to show the effects of such rupture almost immediately.

Looking at the question posed in the beginning, my answer would be YES.  The future of the mining industry is becoming more and more dependent on the current legacy it leaves behind (sustainable practices), and this legacy dictate the Social License to Operate for future projects.

[1] http://www.pdac.ca/docs/ default-source/public-affairs/ erm-presentation—pdac-2014o. pdf?sfvrsn=4
[2] http://www.ey.com/GL/en/ Industries/Mining—Metals/ Business-risks-in-mining-and- metals
[3] http://socialicense.com/ definition.html

SOME more THOUGHTS ON SUSTAINABLE MINING

Mario Ramirez, MASc Mining Engineering // April 26, 2015

Sustainable mining as it is addressed today should probably need to be re-defined or renamed since mining cannot be sustainable itself because the minerals that are extracted are finite and will be exhausted at some point in time.   However, the strategies, programs, and projects that the mining industry takes in regards to communities, ecosystems, and some mining processes can be called “sustainable” and lead to “sustainability”.

Sustainable development is a broad topic used not only in mining but in other public and private sectors.  The concept of sustainability covers how human activities impact the economic development of an area or region, also covers the environmental activities and social well-being of the people and ecosystem affected by production projects.  This concept can be the differentiating point between the success or failure of a project.  The basic but very important requirements for sustainable development can be summarized in the 4M concept:

1.      Minimize energy Waste

2.      Minimize materials utilization

3.      Minimize environmental impact

4.      Maximize Social satisfaction and engagement.

During some of my readings, I came across a set of handbooks developed by the Australian government through the department of Industry and Science. These handbooks are widely known as the “Leading Practice Sustainable Development Program for the Mining Industry” and are another aid for companies and regulatory agencies to learn and put in action sustainable practices.  Each handbook provides case studies of both positive and negative consequences and actions taken by different companies and how those actions have benefited or in some cases affected the performance and reputation of a mine project.

Sharing the knowledge found on those handbooks, I believe, is very important not only for developed countries but especially for those societies where mining is a new industry.  Using this information will allow national agencies, communities and companies develop their own strategies based on others experiences.

I leave you the link below to find more about this amazing treasure of knowledge:

http://www.industry.gov.au/ resource/Programs/LPSD/Pages/ LPSDhandbooks.aspx

Lifting more than its weight – Mongolia and its EITI pursuit

Bulgan Batdorj MASc candidate in Mining Engineering // April 26, 2015

The inspiration of Mongolia joining the EITI has sprung in 2005. There were many studies conducted by Open Society Foundation in Mongolia, Publish What You Pay and many other independent researchers to corroborate its objective to promote and strengthen the governance of extractive sector in Mongolia. The initiative was seen as an important tool for Mongolian officials to help them to regulate the booming industry which has the potential to either develop the country or destroy it.

Since then for a decade, Mongolia and its slowly progressing democracy (and its economy) has gone through crisis, boom growth and endless political manipulation. It is rather amazing to see that EITI Mongolia has survived the big waves without losing their objectives. They have published 8 reports and each report is highly praised for their comprehensiveness. The Mongolia granted a Compliant country status in 2010 and on its 5th anniversary the EITI secretariat in Mongolia is anticipating the adoption of the Law on Extractive Industry’s Transparency.

With this law, the EITI secretariat will have regular funding will start to focus on educating and advocating the public on how to monitor the wealth of the country being earned and spent. Till now, much of the focus was to campaign the extractive industry and the government officials, especially in an unstable environment of legislation and constant changes in the government officials and structures. Also, the secretariat is pursuing to give the information to the locals and the communities those are affected by the mining activities. Although localizing the EITI in Mongolia is not an easy task, much of a progress already been achieved by the EITI secretariat and its stakeholders.

Extractive industry transparency and the transparency overall, seems to be the important step for the country and the community to take before moving on to accountability and good governance. According to our class studies, many countries are struggling to embrace the EITI for the right purposes due to many reasons, but in Mongolia, the EITI secretariat is certainly lifting more than its weight.

EITI Report: Chinese companies reporting in Mongolia and other EITI Implementing Countries

Justin Kwan, MAAPPS // April 13, 2015

While researching about sub-national reporting the other day, a re-tweet from EITI’s official Twitter account caught my eye. The retweet came from Lizzie Parsons Senior Advisor in China for Global Witness, an organization which attempts to “break links between natural resources, conflict and corruption.” Her tweet linked to a recent March 2015 EITI report which discusses the transparency of Chinese organizations in the extractive industry. In one sense, China’s growing economic presence around the world warrants a rightful investigation into its business practices, since corruption as a whole appears to be a large problem in the country. One does not have to look too far to see that Xi Jinping recently launched one of the nation’s largest Chinese anti-corruption campaigns. However, there is a lack of context as to why EITI launched such a report, its origins, and why other countries have not received similar audits. These questions remained unanswered.

The findings of the report are especially interesting since it states not only that “there does not appear to be any cases in which a company based in China has refused to collaborate with a host country implementing the EITI” but rather there is an “increasing number of Chinese companies are disclosing information in EITI countries where they are required to report.” In fact, the companies that were based in Western countries were seen as equally contributing to delays compared to Chinese companies. Furthermore, Chinese companies were reported to have been involved in the extractives industries of at least 23 of the 38 EITI implementing countries which published reports. Here, I would like to highlight the results of two Asia Pacific countries.

In Mongolia, our main case study, it was interesting to see that there are at least ten Chinese companies active in Mongolia as well as two joint venture projects.  On the whole, the information that Chinese companies disclosed went “beyond financial disclosure” although ironically, the largest Chinese Company, PetroChina Dachin Tamsag, and the Chinese-Mongolian joint venture Chinhua MAK Nariin Sukhait both did not disclosure their financial information. While Chinese companies continued to grow within the Mongolian market, the 2012 Strategic Entities Foreign Investment Law passed in Mongolia prevented foreign companies from obtaining more than 49% of shares of a company until it was reversed in 2013 when overseas investment dropped by 43%. While Mongolia may not necessarily want Chinese investments entering into the company, the opposite has happened. But when given the choice between protecting national interests or increasing economic prosperity, a difficult choice must be made. This is extremely problematic for Mongolia given the fact that the country is heavily reliant on Chinese transit routes for exporting its extractive resources.

Mongolia however is not the only country to have raised concerns about Chinese investments. Myanmar, another EITI candidate country has also express public concern with Chinese operations in the Shwe Myanmar-China gas pipeline project which is operated by Chinese company CNPC. The focus however in Myanmar has centred upon environmental degradation and land use by Chinese companies, despite the fact that “Chinese companies [are trying] to gain a more positive image by investing in environment and corporate CSR projects.” Quite interestingly, with the opening up of the country, Myanmar’s civil society has continued to protest the pipeline project as well as the Letpadaung copper mine (which has Chinese company Wanbao as one of the two sponsors in the joint-venture). This suggests not only the potential for civil society to also become involved in the process of subnational reporting when more formal initiatives become active in the country, but also that Myanmar’s civil society continues to grow and is becoming a strong and active voice in discussions. While Myanmar may not be as developed as Indonesia or the Philippines in its timeline for subnational reporting implementation, these points do however suggest great hope for increasing transparency in Myanmar’s extractive resource sector.