Policy - Agreement

Big company vs. small town governor

2019 | April | 018


Resource-rich countries have found a solution to sharing the burden of their budget shortcomings with mining companies, resulting in numerous benefits. The “Community Partnership Agreement” was officially introduced in Mongolia and has been stipulated by law since 2015. Unfortunately, this solution may prove counter-productive and even become one of the biggest challenges in the future.

The first and most successful attempt was made in cooperation with Oyu Tolgoi LLC in Umnugobi Province through the Partnership Agreement. Under this multi-stakeholder agreement that relies on the mining giant, Oyu Tolgoi has made over USD five million in investments in Umnugobi Province every year. The responsibility of organizing and overseeing the process of awarding contracts, which will be funded and implemented by this investment, and subsequently reporting on its progress was delegated to the “Gobi Oyu Development Support Fund” NGO, established with the local administration. Both parties concur that the agreement has significantly improved the lifestyle and business environment in the soums of Dalanzadgad and Khanbogd, and Oyu Tolgoi eagerly shares this positive experience with other companies operating in Mongolia.

However, the Partnership Agreement method seems oversized for other soums. B.Sambuu, Governor of Tuv Province, speaks proudly about the establishment of the “Zaamar Region Development Fund” NGO. It was modeled on the Gobi Oyu Development Fund NGO. “A benchmark sum was set on the money invested from mining companies. For instance, a minimum of MNT 100 million from companies licensed to mine and MNT 50 million from companies licensed to explore. Although it may seem like a large amount, it is next to nothing compared to their revenues from selling the resources of these lands,” he added.

Meanwhile, someone who speaks of another “good” and “right” fund established in Khovd Province is scrutinizing the methods of the Governor of Zaamar. The “Khushuut Development Fund” has a similar purpose and content as the Zaamar fund. However, according to Kh.Baasankhuu, a Specialist at the Investment and Development Policy Planning Department of the Governor’s Office of Khovd Province, the latter fund was established as a local NGO that collects and spends money invested by companies, which means that first, this can be constituted as bribery, and second, having a budget with unregulated spending is not lawful. The Khushuut Development Fund is financed through the agreement signed with MonEnCo LLC, which operates at the Khushuut mine in Khovd Province. The main difference is that the funds received are pooled into the provincial budget, and its spending is discussed and approved by the Citizens’ Representatives’ Council (CRC).

At the same time, people were not happy that the Partnership Agreement was signed with the provincial administration, as it lowers benefits to the development of citizens and the soum within the mine’s area of impact. “I have raised on several occasions the need for a flood dam for our soum. But they built a playground instead,” says N.Narantugs, a CRC representative from Dornogobi Province. “We are not being heard. The principle of listening to the people is mentioned in all the rules and procedures. But it’s only on paper,” he criticized.

B.Sambuu expressed his opposition to signing the Partnership Agreement with the provincial governor’s office, explaining that by giving the power to the provincial administration, not enough money is allocated to the soums. He added that the Zaamar Development Fund could not receive funds from several companies this year, but that they will “for sure.” The local “authorities” seem to think they have struck gold out of nowhere with the Partnership Agreement. As Kh.Baasankhuu points out, “the bigger a team we can put at the negotiation table, the bigger the amount we can sign regarding the agreement.” There was even an attempt in Sukhbaatar Province to concentrate the investment money in the Local Development Fund and increase it through small and medium enterprise loans. However, it was eventually stopped due to violations of certain provisions of the Law on Anti-Corruption.

I have raised on several occasions the need for a flood dam for our soum. But they built a playground instead,” says N.Narantugs

In the case of Khovd Province, the practice is to allocate 30 percent of the money concentrated in the Fund to the soums where mines operate and the remainder to other soums equally. Unfortunately, the expectation that giving power to the provincial authorities could improve spending is yet to be met. In Bulgan Province, the Social Responsibility Agreement signed between Uguuj Bayan Khangai LLC and the Governor’s Office of Buregkhangai soum in 2016 stipulated to invest MNT 63 million into four commitments, including “Connecting the new apartment complex to central heating, portable water and sanitation lines” and “Renovating the old hot water facility into a fitness center and connecting it to water and heating systems.” The following year, a Partnership Agreement on Local Development Support was signed with the Governor’s Office of Bulgan Province. Although this agreement has more detailed provisions than the former, it was agreed only to “Make amendments to and re-publish the province encyclopedia” in anticipation of the 80th anniversary of Bulgan Province, without specifying any budget.

Thanks to the efforts by the Extractive Industries Transparency Initiative (EITI) to systemize the reporting process within the minerals industry, we are now able to access and read the various contracts signed at the local level. Currently, 436 contracts are registered on the website www.iltodgeree.mn (“transparent agreement”). By making these and other concealed contracts open to the public, they provide valuable information for understanding and untangling these complex relationships.

In the end, leaving local agreements without proper regulation or providing local administrations with enough legal loopholes to arrange their own management resulted in this messy, confusing and uncontrolled situation. While each of these individual practices or experiences may have its own benefits and can be considered an improvement to some extent, it all depends on the soum and provincial administrations whether these solutions have positive or negative impacts. What is more, projects that span multiple provinces may become even more challenging.

Mining-concentrated local communities are expected to receive more money in the future. From this year, 50 percent of the exploration license fee will be concentrated into the local budget. This will be increased to 100 percent in the following year, and 10 percent of royalties will be paid to respective local governments. Residents and miners hope that this investment goes towards public wellbeing and other essential projects. This will ease the tension between locals and companies, create mutual understanding and make solutions easier to reach. Regrettably, the reality is that local residents do not possess the power to influence decisions regarding these investments, namely concerning whether money is being spent efficiently and for appropriate needs. Hence, it is time for the government to address this issue more seriously and establish specific regulations.


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