Category Archives: EITI Mongolia

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.

Mongolia’s Pre-existing Bureaucratic Infrastructure and Sub-National Reporting

Jonathan Brasnett, MAAPPS // April 13, 2015

The Extractive Industry Transparency Initiative (EITI) issued an executive order in 2008 to begin implementing subnational reporting (SNR) in all member states. It seems that some states had pre-existing bureaucratic structures at the regional or subnational level that was more conducive to such a format of reporting than other states. Among these states are Indonesia, Peru, and most importantly for our own research purposes, Mongolia. While Mongolia’s central government in Ulan Bator is responsible for many governance jurisdictions and has done (and continues to do) an excellent job of legislating to promote EITI reporting (at the national level), there are also governments at the Aimag (province) and Sum (district) levels. At these levels, the bureaucratic structure may not compare to that of Canadian municipalities for obvious reasons like sparse population, vast uninhabitable territory, as well as a large percentage of the Mongolian population living a nomadic herder lifestyle, the institutions nevertheless exist that can facilitate SNR. Recent reforms and initiatives indicate the the accuracy of this last statement.

To begin with, a new budget transparency law (Law on Glass Accounts) came into force just this past January, which makes it obligatory for all government and legal agencies with any involvement in state affairs to make their budgetary and financial information accessible to its citizens. There is also a mandate to discuss and likely pass a law regarding the transparency of the extractive industry in Mongolia. These are actions which show that the Mongolian government is much further evolved than governments of many of the other countries we have studied throughout this course, all of which have made reference to the importance of transparency without taking action to mandate increased transparency. Another action which has been taken by the Mongolian EITI office has been to prepare twenty-five trainers, among which only four are government officials, three are industry representative while the remaining eighteen are “local and national level civil society representatives.” (www.eitimongolia.mn/en/node/ 4823)

So despite the fact that Mongolia is a sparsely populated, inhospitably landscaped country with a wealth in resources and a population that largely relies on a nomadic herding lifestyle for subsistence, the literacy rate of nearly 100% and recent democratic transition (1990) has proven conducive to a bureaucratic system capable of implementing the transparency initiative of the EITI, even at the sub-national level. It is impressive to see that understanding that civil society organizations obviously have in Mongolia to understand the need for such laws and training initiatives is indicative of the level of rapid development of democratic norms in Mongolian society. For civil societies to become active and start demanding accountability from government and industrial agencies shows that they understand their rights as citizens in a democratic country and have become determined to enforce these rights. By increasing the level of proliferation of lessons about EITI and sub-national reporting and the importance of demanding transparency from these actors to ensure adequate allocation of extractive industry revenue to the provision of social services, our team might be able to make a difference to the average Mongolian citizens.

The Role of Civil Society Groups in Subnational Reporting

Justin Kwan, MAAPPS // April 2, 2015

The last few weeks have been dedicated towards two different projects our Asia Pacific Policy Project team has been working on. Our team of five students has selected to write a paper, which will address the prospects for sub-national reporting in the 13 countries we have selected as our case studies.

Our entire team has looked at a variety of factors that may influence the prospects of subnational reporting (SNR). Thus, our goal is to determine which political, economic and societal conditions are most conducive to effective sub-national reporting. Our preliminary findings suggest that countries that uphold the rule of law, have stronger democratic institutions, and predominantly operate in mineral-based extractive industries are more likely to produce effective outcomes through sub-national reporting.

To supplement our own research, we look at a variety of indicators to help us draw our conclusions. Some indices include: Global Democracy Ranking, World Justice Project Rule of Law score, BTI Civil Society Participation Score, Transparency International Corruption Perceptions Index and GDP per Capita.

In particular however, I would like to focus our analysis on the potential connection between civil society participation and the potential outcomes for subnational reporting. In Indonesia, several civil society groups have expressed interest in subnational reporting and have been a vital part of helping collect data for SNR trial testing. For instance, Publish What You Pay (PWYP) Indonesia has conducted training sessions on EITI reporting and revenue sharing calculations. These civil society groups have also teamed up with EITI during Indonesia’s Anti-Corruption Day. In further personal correspondence, Indonesia’s civil society groups have also indicated that they are helping beta-test subnational reporting in certain areas.

Given Indonesia’s robust civil society, the country ranked fairly high within our case study countries with a score of 7 on BTI’s civil society participation score. I have advocated for our team to examine each country’s civil society participation with regards subnational reporting. While I find the BTI civil society participation score useful, in some ways, it is also problematic for our research. This is mainly because the score does not reveal the direct linkage between a country’s civil society and its engagement in projects related to subnational reporting. As such, the BTI score can only capture a general relationship between society and how they may initiate or help create the potential for reforms. Since there are different levels of civil society participation based upon different interests, it is rather important to examine the linkages between SNR and civil society groups. Currently, each member of our team will be asked to evaluate the formal conditions for SNR in their researched country, looking for the presence of subnational reporting in the stated EITI working plan, training sessions and/or workshops as well as formal reports issued by the member/candidate countries. After much debate, we will further look at civil society participation as a surrogate indicator for successful subnational reporting. Since civil society groups have played a fairly large role in helping implement subnational reporting in Indonesia, it will be interesting to see what influences civil society has on subnational reporting in other countries and whether or not any general trends can be concluded from the data we collected. Perhaps Indonesia is a unique case study when it comes to the relationship between civil society groups and subnational reporting. However, it is this particular specificity that makes the Indonesian story an important case study for other countries to learn how to engage with resource-revenue transparency issues.

Relevance of Vocational Education as an EITI Communication Venue

Christina Toepell, MAAPPS // April 1, 2015

One of the most effective ways to communicate the work of EITI to civil society on a sub-national level has been through workshops and trainings. In Nevada, two teacher workshops are being held each year to improve classroom knowledge on the role of mining and the mineral industry on a local level. In the Philippines, the NGO Bantay Kita is holding local workshops for all stakeholders – including the general public. What should EITI Mongolia do? Which communication venues are ideal for Mongolian engagement on a sub-national level? As any follower of this blog might notice, we have explored different approaches in the past weeks. Today I would like to make the case why workshops in vocational schooling are both relevant and necessary to boost EITI awareness and promote EITI literacy on a sub-national level.

Vocational education enrolment has been quadrupling in the past ten years, with numbers continuing to increase due to the help of a myriad of development projects. The focus on applied education on a secondary level played a major role during the socialist years of the second half of the 20thcentury but witnessed a harsh decline after the transition to market economy in the 1990s. When the nadir was reached with only 7,555 students remaining in vocational schools, the Mongolian government and outside development agencies started to see the need for skilled blue-collar workers and actively increased the quantity. Today, more than 40,000 students are enrolled in vocational education, but the demand is still not met. The NGO “Vocational Education & Technical Partnership” combines 31 development projects working on a qualitative and quantitative increase in vocational education with a total of USD 90M financial resources. Thus, vocational education is deeply entrenched in the values of the older generation, with a huge potential to grow in the upcoming years.

Approaching vocational students that are involved in the mineral resource sector themselves provides an important link to the issue and guarantees engagement and knowledge of the mining sector. Mining students are potential direct and indirect stakeholders: They will work as skilled labour employees in Mongolia’s mining sites and live in nearby town centers with their families. Thus, they will play an important role linking their mining company’s reports to EITI awareness of the general society in the region. Educating these crucial students on the work of EITI on a subnational level, financial literacy of the subnational reports and mining revenue flows to local projects will provide the students with sufficient knowledge to be more engaged into their work and act as EITI ambassadors in their local Soum.

Thus, the educational approach of EITI Mongolia cannot simply focus on university engineering students as development projects in Mongolia have done until the current day. EITI also needs to include vocational students and acknowledge their role as an increasing base of direct and indirect stakeholders in the country.

Finding effective channels to deliver EITI reports

Lotus Ruan, MAAPPS // March 30, 2015

Having gained sufficient knowledge of EITI national and subnational implementation in different countries, we’ve finally moved to subnational EITI reporting in Mongolia. While my knowledge of Mongolia is limited, a few weeks’ research has led to me to a better understanding of the overall Mongolia’s performance of EITI subnational reporting. I am starting to see the similarities and differences between Mongolia and the countries my team and I studied, which prompts me to come to the conclusion that what Mongolia needs the most for subnational reporting is not government or corporates’ involvement but theirs and the public’s better understandings of subnational EITI reports.

The status quo is that Mongolia is a leading EITI implementer. According to the EITI report in 2013, the number of companies participating in EITI in Mongolia is more than any other country in the world. However, Mongolia’s full potential as a supplier of relevant and useable extractives information is yet to be realized.

All Mongolians are affected directly directly and indirectly by the extractive sector, both positively and negatively. So citizens and corporates have a vested interest in knowing what taxes and royalties companies are paying to national, provincial and local government, who the beneficial owners are, what they are licensed to mine for. However,  a weakness in subnational EITI in Mongolia is that concerned individuals and companies, especially in the rural area, lack sufficient knowledge to understand key terms and budgetary charts in these reports, not to mention to realize how such reports could affect social and economic benefits. To me, transparency in itself is not enough; publishing data, however transparent or large amount it is (the EITI Mongolia report in 2012 is over 1,000 pages), is not enough. If the public, especially the extractive communities, does not know how to read the report and what those financial sheets mean, then these EITI reports will be much less effective in stirring a public conversation and engaging local communicates in holding the country’s government and corporates accountable.

In other words, transparency lies in the understanding of the data. While EITI reporting assists and has been proven quite successful in strengthening accountability and good governance, helping individuals and corporates in local communities understand EITI reports can lead to public supervision and contribute to the prevention of corruption or conflicts based around the extractive sectors. Considering the fact Mongolia is playing a relatively leading role in both national and subnational reporting, what our team should focus on is not merely raising public awareness but utilizing existing local expertise to walk the public through these information-loaded EITI reports.