Local Level Agreements in Mongolia: A Need for Government Leadership and Policy Clarity

By Byambajav D

Before any mineral exploration and mining can take place in Mongolia, the country’s 2006 Minerals Law requires that the host local government and license holders sign a “local level agreement” (LLA). LLAs typically include commitments and obligations that help enhance environmental protection, local content and infrastructure investments.

And yet the implementation of the law has been inconsistent, and local governments and mining companies alike have pled for clarification around LLAs’ objectives and scopes. With this in mind, the Natural Resource Governance Institute (NRGI) and the Open Society Forum (OSF) have worked together to improve the legal frameworks for LLAs as well as improve practices on the ground. We do this in various ways: establishing the independent monitoring of LLAs via civil society organizations; presenting research-informed policy recommendations; and facilitating regional capacity building workshops for all relevant actors.

There is now growing momentum to define the core objectives and principles of LLAs. But in order to attain true clarity around this issue, the national government itself must do a better job of facilitating a national dialogue. Below, I outline the main reasons why this is necessary, and suggest how the government can take the lead in improving LLAs.

Government-issued model agreement has caused more confusion

Mongolia’s national government showed a commitment to improving the uptake of LLAs when it issued a model for LLAs in 2016­­, called the “Model Agreement on Protecting the Environment, Developing Infrastructure related to Mine Operation and Plant Construction, and Creating Jobs.” Unfortunately, this five-page document did not provide much help to either local governments or mining companies—at best, it has been used as a reference, but most actors ignore it entirely because of its narrow scope and ambiguity about the model’s legal power. In fact, participants in regional workshops have said that the model has led to more confusion than clarity.

For it to become useful, the Ministry of Mining and Heavy Industry (MMHI) should revise the model agreement and define it as a hybrid document that consists of a) a mandatory framework that defines the core elements of an LLA and b) a non-binding guidance document for potential agreement processes and content that local governments and mining companies can adjust to their respective contexts and needs.

Mining-affected communities are marginalized in the current subnational revenue sharing system

In 2015, the national government took an important step when it increased the share of mining revenues for host areas: the budget law was amended to transfer 30 percent of royalty payments of non-mega-projects and 50 percent of license fees to host provinces and districts. However, that 30 percent figure was reduced to 10 percent by the end of 2016. Worse, in 2017 the revenue-sharing scheme was suspended entirely until 2020. LLAs are perceived by local governments and communities as the main mechanism through which they gain benefits from resource projects, and such unpredictable shifts in the revenues to which they are entitled creates both confusion and frustration. To remedy this, the national government––especially the Ministry of Finance and the MMHI­­––should urgently foster clarity around its sub-national revenue sharing policy and which financial flows should be included in LLAs.

State-owned enterprises (SOEs) should play by the same rules as private companies

All license holders should obey the LLAs requirement in the Minerals Law. However, EITI Mongolia reports show that SOEs do not establish LLAs in Mongolia. (The Erdenet Mining Corporation was the only SOE to establish an LLA, for three years beginning in 2013.) The lack of transparency and accountability of SOEs needs to be remedied if the overall governance of the country`s extractive sector is to improve. Local governments and mining-affected communities are increasingly frustrated by the weak performance of SOEs on environmental and social obligations—making these enterprises comply with the LLAs requirement can help improve their relations with local communities, as well as increase their contributions to local sustainable development.

Both the national government and donor-support civil society should adopt a collaborative and scaled-up approach

Mongolia’s civil society organizations (with support from donor organizations) are most concerned about ensuring consistent and effective implementation of the legal mandate around LLAs. They have developed toolkits and sourcebooks, provided capacity building, and directly engaged in agreement-making on this subject. But the impact of these sporadic efforts has largely been localized and subject to the changing winds of local political dynamics. The national government must take the lead in helping to consolidate these efforts into a larger, national push that can make a real difference.

The way forward for LLAs

Despite the inconsistent implementation of the LLA requirement in the Minerals Law, local governments and mining companies have established at least 100 LLAs in the past decade, and there are examples of good and bad practice. The lessons learned from these LLAs can help improve the existing regulatory framework and agreement-making on the ground. The government can reaffirm its commitment to promoting LLAs by leading a national dialogue on the core principles of legal and policy frameworks for LLAs in Mongolia, collaborating with donor organizations, and facilitating multi-stakeholder deliberation.

Note: This post first appeared on the blog of the Natural Resource Governance Institute on 17 April 2018.

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