Mining for Sustainable Development (M4SD)
Our chapter is one of 20 national chapters participating in Transparency International’s global Mining for Sustainable Development (M4SD) Programme, coordinated by TI Australia. The M4SD Programme complements existing efforts to improve transparency and accountability in the extractive industries by focusing specifically on the start of the mining decision chain: the point at which governments grant and award mineral licenses.
The first phase of the Programme (2016-2017) focused on understanding the problem. A corruption risk assessment was undertaken which identified a total of 14 risks, stemming from 52 systemic, regulatory and institutional vulnerabilities to corruption in awarding mineral licenses. With an understanding of the nature and causes of corruption risks, national chapters will develop and implement solutions to tackle priority corruption risks in Phase 2 (2018-2020). The chapters will work with key stakeholders from government, the mining industry, civil society and affected communities to improve transparency, accountability and integrity in the decision-making related to the approval of mining projects.
The participation of Transparency International Mongolia in the Programme is supported by the Australian Department of Foreign Affairs and Trade (ADFAT). Globally, the M4SD Programme is also funded by the BHP Billiton Foundation.
THE STAGE ONE REPORT
The main focus of the study was the analysis of the three License Allocation Mechanisms utilized in Mongolia. The key principle, no license applicant should be discriminated against or favoured, is neglected in several points in the design of the main modes of license allocation in Mongolia, First-Come-First-Served for exploration licenses (suspended since the end of 2015) and the license tender (in practice since 2014). As a result, weak spots in these systems can be exploited in corrupt schemes and - arguably more severely – lead to uncertainties which deter quality investment. No corruption risks were identified regarding the right-of-first refusal mechanism by which exploration licence holders have a priority right to convert an exploration license into a mining license.
The report further elaborates on the three most important licence applicants’ obligations. The Detailed Environmental Impact Assessment is the key document to specify all environmental obligations and the Final Exploration Report is the main source for the development of the geological information system. To ensure accuracy, Mongolia relies on a system of third-party assessor companies compiling information and specialized councils evaluating them, but conflict of interest and limited accountability result in opportunities for corruption in return for approvals. No enforcement for inclusion of affected communities and non-disclosure of agreements significantly increase the risk of collusion and jeopardize potential yields for affected communities from the negotiation of Community Development Agreements.
Capacity constraints to govern approximately 3,700 exploration and mining licenses emphasize the importance of a robust Governance Framework in the form of due diligence, data management, the license cadastre. While impact of corruption is moderate in these systems, shortcomings may jeopardize the efficiency of the overall governance framework, with very severe and long-lasting implications for the sector.
Finally, the report elaborates on the Prevention of Speculation. Speculation, the application for exploration licenses with the intention of selling them later, and, without investing in exploration impedes the development of the mining sector and increases the risk of corruption. Existing measures for Prevention of License Stockpiling remain largely inefficient and certain license holder rights regarding license transfers facilitate speculation. The disclosure of beneficial owners is another important mechanism which could constrain speculation and many other forms of corruption and financial crimes, but is not enforced in Mongolia.
Transparency International Mongolia launched the report on Tuesday 29 August among key stakeholders.
Fact sheet available here.
Full report available here.