Stephanie Zimmerling, MASc Mining Engineering // Feb 20, 2015
The EITI has published an interesting read on Implementing EITI as the Subnational Level (https://eiti.org/document/implementing-eiti-subnational-level). The document is from 2011, and therefore may be somewhat outdated, however, includes the EITI’s ‘Rationale for Subnational Implementation’. The Rational highlights increased transparency and knowledge of revenues from the extractive industry at the local level. EITI anticipates that this increased knowledge will empower citizens to hold governments accountable and be knowledgeable to criticize decisions made by their local government. The report includes case studies of emerging countries reporting EITI at a subnational level. Included in the report are Ghana, Indonesia, Mongolia, Nigeria, the Democratic Republic of Congo (DRC), and Peru. As a first step of this year’s project, reports have been produced internally on Ghana, Indonesia, the DRC and Peru with the goal of ultimately informing subnational reporting in Mongolia. While we have a developed a strong understanding of the situations in our countries of choice, we still have yet to breach the hurdles facing Mongolia.
This report expands on the early efforts Mongolia has made with regards to subnational reporting, where companies have disclosed unilaterally direct subnational payments. The report expands upon Mongolia’s taxation system and highlights the dependence of the regional and local governments on the central government for revenue transfers. The report provides additional details on the system in place for revenue distribution from the extractive industry. While some money is transferred from the central government, revenue collected from mining companies at a regional level is dominated by donations made by the extractive industry to local governments. There is currently no efficient reporting system to capture these donations and the EITI report has revealed this payment flow holds the most discrepancies. Accounting and administering donations can be very complex as donations are typically made off-budget. In Mongolia, the central government discounts transfers made by mining companies to ensure equality among non-mining regions. As a result, the subnational government is discouraged from reporting these revenues and the money is therefore unaccounted for.
In 2008, 6 districts of Ulaanbaatar, 18 aimags (provinces) and 57 soums (districts) reported their company receipts. All three EITI reconciliation reports released to date (2011) reveal large discrepancies in data accounting. Company payments largely exceeded government receipts indicating that the government did not report all revenue collected from the mining industry. These discrepancies are predominantly the result of donations made regionally. This has been identified by the EITI as one of the main challenges with subnational reporting in Mongolia.
Sources:
Aguilar, J., Caspary, G., & Seiler, V. (2011). Implementing EITI at the Subnation Level.