EITI in Mongolia 2006- 2013 Reality and Prospects Mongolia EITI Secretariat

General - Legal aspects The Resolution #1 of Mongolian Government declares that Mongolia implements EITI in Mongolia, on January 3rd,2006. The Mongolia 2006 Mineral law, article 48.10, requires a license holder on extractive industries to publicize amount of sales of products and paid taxes and fees to state and local budgets on yearly basis before end of 1st quarter of the following year. The Resolution # 80 endorsed by Government of Mongolia (functions of State central and local administrative bodies in relation to EITI implementation) in 2007, and defines what functions and tasks are assigned to: Ministry of Finance, Ministry of Industry and Trade, Ministry of Environment, General Department of National Taxation, Customs Office, Mineral Authorities, State property Committee, local Governments Rules out about forming sub- national Councils headed by Deputy Governor of Provincial Government. The Resolution # 80 was replaced by Government of Mongolia in June 2012 and reformed National Council and Working group.

General - Legal aspects Memorandum of Tripartite cooperation for EITI in Mongolia, signed on April 25, 2006, which guidelines all the stakeholders to have cooperation for implementation of EITI in Mongolia. The EITI reporting templates # 1,2,3,4 were endorsed by joint order of Chairman of National Statistical Committee and Finance Minister in April 2007 and renewed in March, 2008. The templates are with instructions how to produce and publicize. These templates have been updated into 7 in January, 2011. Amongst, new template for the exploring companies, oil companies, for local authorities, basic elements of license transparency. Mongolia EITI Communications strategy is endorsed in June 2009, by Working Group. The Mongolia EITI mid- term strategy 2010- 2014, is endorsed by National Council, in June 24, 2010.

Companies reported since 2006 General-Organizational chart Mongolia EITI and Stakeholders Multi-stakeholders working group Government Ministries, agencies, local governments National Council chaired by Prime Minister Extractive Industries Mongolia National Mining, Coal Ass. & Companies- more than 500 Companies reported since 2006 Mongolia EITI Secretariat Civil Society Coalition of NGOs – more than 20 NGOs

General- Multi-stakeholders Organizations and Secretariat National Council: Purpose - Creation of conditions of core principle to implement EITI in Mongolia including political, legal and organizational conditions. Highest Governing body. Established in January 4, 2006 and renewed last time in June, 2012. Chaired by Prime Minister, deputy chairperson- Minister for Mining. Present Membership: 4 from Parliament and its subdue body, 6 from Government, 10 from Companies and 10 from Civil Society. Multi-stakeholders working group: Purpose- Assistance of implementation of core principle. Consultative body with decision making status. Established in March 31, 2006 and renewed last time in June 2012. Chaired by Senior adviser to Prime Minister. Present Membership: 11 from Government, 10 from Companies, 11 from Civil society, and 1 from Secretariat. Mongolia EITI Secretariat: Purpose- day to day coordination of EITI in Mongolia. Established under the Decree No. 62 of Prime Minister of Mongolia in June 20, 2007. 2 full time staff

EITI Reporting of individual Companies and Government for 2006- 2011 64 companies reported for 2006 102 companies reported for 2007 113 companies reported for 2008 129 companies reported for 2009 263 companies reported for 2010 301 companies reported for 2011 Government On 134 companies for 2006 Each 184 companies for 2007 and 2008 On 363 companies for 2009 On 478 companies for 2010 On 518 companies for 2011 It is estimated more than 1.800 companies engaged in extractive companies, majority is companies holding exploring licenses and companies producing sand, gravel and other construction materials

Mongolia EITI Reconciliation Reports and Validation The Mongolia EITI Reconciliation report- 2006, is made by Australian audit firm Crane and White Associates, endorsed by the National Council in May, 2008 EITI sub report- 2006 is made by Mongolian Certified accountants institute, endorsed by Working Group in September, 2008 The Mongolia EITI Reconciliation report- 2007, is made by consortium of Mongolian and Malaysia Ernst and Young audit firms, endorsed by National Council in November, 2009. The Mongolia EITI Validation Report- 2009, made by consortium of British Coffey International Development and Mongolian audit firm Dalaivan, approved by Working Group in January 2010, is endorsed by National Council in March, 2010. The Mongolia EITI Reconciliation report- 2008 is made in June, 2010 by consortium of Mongolian Ulaanbaatar Audit Corporation and British firm Hart Nurse, and is endorsed in June, 2010. The Mongolia EITI Reconciliation report- 2009 is completed in June, 2011 and the National Council endorsed in November, 2011. The Mongolia EITI Reconciliation report- 2010 is completed in December, 2011 and The National Council endorsed in May, 2012. The Mongolia EITI Reconciliation report- 2011 is completed in October, 2012 and The National Council endorseб in November, 2012.

Brief about Mongolia EITI 2006 Reconciliation report The tradeoff for selection Reconciliation– amount of total paid tax and fees of 200 million MNT (about USD 180.000) and above. (As it is impossible financially and physically to cover all companies, this tradeoff is applied as rule.) 25 leading companies were selected for first reconciliation report: 12 gold, 6 coal, 3 copper and molybdenum,1 fluorite, 1 oil,1 zinc,1 polymetal companies Companies are state, private, foreign ownership. Revenues of these 25 companies equals almost 30% of revenues of National budget of Mongolia for 2006 Discrepancies unexplained by the report - 25 billion MNT, from which 21 billion could be explained by Ministry of Finance of Mongolia later, and 4 billion was not.

Brief about Mongolia EITI 2007 Reconciliation report 38 leading companies were selected for second reconciliation report: 19 gold, 6 coal, 4 copper and molybdenum, 2 iron ore, 3 fluorite, 1 oil,1 zinc, 1 polimetal companies. Companies are state, private, foreign ownership. Revenues of these 38 companies equals almost 40% of revenues of National budget of Mongolia for 2007. The tradeoff for selection– amount of total paid tax and fees of 200 million MNT (about USD 180.000) and above. Discrepancies unexplained by the report – 775 million MNT.

Brief about Mongolia EITI 2008 Reconciliation report 46 leading companies were selected for third reconciliation report: 26 gold, 8 coal, 2 copper and molybdenum, 4 iron ore, 3 flourite, 1 oil,1 zinc,1 polimetal companies. Companies are state, private, foreign ownership. Revenues of these 46 companies equals almost 35% of revenues of National budget of Mongolia for 2008. The tradeoff for selection– amount of total paid tax and fees of 100 million MNT (about USD 80.000) and above. The unexplained discrepancies are about 425 MLN MNT

Brief about Mongolia EITI 2009 Reconciliation report 101 leading companies were selected for fourth reconciliation report: 53 gold, 14 coal, 3 copper and molybdenum, 6 iron ore, 6 flourite, 2 oil and other companies. Companies are state, private, foreign ownership. Revenues of these 101 companies equals almost 30% of revenues of National budget of Mongolia for 2009. The tradeoff for selection– amount of total paid tax and fees of 50 million MNT (about USD 43.000) and above. Discrepancies unexplained by the report – 58.1 million MNT.

Brief about Mongolia EITI 2010 Reconciliation report 150 leading companies were selected for fifth reconciliation report: 57 gold, 21 coal, 3 copper and molybdenum, 10 iron ore, 6 flourite, 10 oil and other companies. Companies are state, private, foreign ownership. Revenues of these 150 companies equals almost 35% of revenues of National budget of Mongolia for 2010. The tradeoff for selection– amount of total paid tax and fees of 50 million MNT (about USD 43.000) and above. Discrepancies unexplained by the report – 24.1 million MNT. New works: Pilot project reconciling at soum level – Khanbogd and Tsogtsetsii soums of South Gobi aimag Implementation status of Financial Ministerial order for accounting and reporting of donations from extractive industries Monitoring of application of international financial reporting and accounting standard Survey of natural protection and rehabilitation expenses. Survey of execution of annual mining plans by companies Watch on license holding status

Brief about Mongolia EITI 2011 Reconciliation report 200 leading companies were selected for sixth reconciliation report: 61 gold, 37 coal, 3 copper and molybdenum, 9 iron ore, 6 flourite, 10 oil, 45 exploring and other companies. Revenues of these 200 companies, and companies are state, private, foreign ownership, equals almost 40% of revenues of National budget of Mongolia for 2011. The tradeoff for selection– amount of total paid tax and fees of 40 million MNT (about USD 37.000) and above. Preliminary discrepancies unexplained by the report – 75 million MNT. New works: Implementation status of Financial Ministerial order for accounting and reporting of donations from extractive industries Monitoring of application of international financial reporting and accounting standard Assessment of participation of Government institutions and companies in reconciliation process Survey of natural protection and rehabilitation expenses. Survey of execution of annual mining plans by companies Watch on license holding status Survey on local contracts signed between companies and local authorities.

Validation of Mongolia EITI 2009- Quality assessment Deadline for Mongolia Validation EITI achieved was March 9, 2010. Mongolia is 3rd country, which achieved Validation. Validation process was completed by December 10, 2010 and preliminary report was submitted to Working group and the group approved it. A preliminary report states that Mongolia is compliant with all indicators of EITI, but 5 indicators may be reviewed again. The validator made a final report in February 2010 on recommendations of International EITI Secretariat and concluded that Mongolia had not met 5 indicators and recommended as close to compliance country. National Council agreed to recommendations and endorsed Validation report 2009 by March 5, 2010 International EITI Board approved the Report in April, 2010 and made a decision that Mongolia is “close to compliant” country and gave 6 –month additional tasks. Additional tasks: Define a materiality and cover all payments and revenues, on this basis to produce new Reconciliation, cover local authorities and donations. Reporting templates must be based on international accounting standard These additional tasks have been achieved by September, 2010 and International EITI board recognized Mongolia as compliant country after International Secretariat’s review in October 2010.

General: Achievement of additional tasks EITI compliance Additional tasks recommended by International EITI Board were achieved and Mongolia has got status of compliant country as of October 19th, 2010 National Council made a definition of materiality and instructed all payments to Central and local budgets except individual income tax will be reported. The trade-off for new Reconciliation by international and domestic auditors will be 50 MLN MNT. The trade-off for new Reconciliation by domestic auditors will be 10 MLN MNT. Reporting templates have been updated, there are 7 instead 4 previous ones in January 2011. The Parliament passed amendment to Mongolia Accounting law, based on this law, financial reporting standard and public financial reporting requirements are applied in both Companies and Government reports. Financial Ministerial order is issued on registration of donations on March 2010. The Government issued a resolution on provision of budget funds for reconciliation expenses for EITI report on yearly basis on July, 2010 and since then regularly financing Reconciliation expenses.

1. Lessons from Validation and Experience of EITI implementing countries The unprecedented transparency is achieved in both Government and companies activities: Sufficient payments to National budget, about 30- 40% were disclosed. (Azerbaijan- 79%, Ghana-1%, Liberia- 17%, Kazakhstan- 90%, Kyrgyzstan- 6%, Nigeria- 100%, Peru- 7%, Norway- 20%) Payments of leading companies operating in extractive industries were disclosed including payments to central and local budget, donations and respective revenues of Governments, even discrepancies Disaggregated by company and payment, including taxes up to 75%, charge up to 16, dividends 18%, donations 1%.(Liberia- forestry, Togo- water, Nigeria- production and sales) Deficiencies in collecting and accounting of payments at Central and local levels, inter- agencies were disclosed. Practical contribution towards to open society, good governance and responsible mining is made in Mongolia, into change of behaviors and approach both in Government and Company side. Tripartite experience became a good example and module for cooperation in other sectors. The society has got tremendous amount of correct information. Contribution was made towards building public trust. Better accountability of officials was achieved.

1. Lessons from Validation and Experience of EITI implementing countries The Mongolia EITI National council endorsed the Mongolia EITI Mid- term strategy 2010- 2014: Several new highlights of the Document: Mongolia will work towards: To pass law on EITI in Mongolia To follow- up and remediation of discrepancies To require liabilities for not reporting and underreporting To improve Government inter- ministerial, inter- agency, internal agency and national- local governmental coordination To pilot a physical audit (production and sales), transparency of mining licenses and audit of natural reclamation expenses To allocate funds for Mongolia EITI from National budget (Government began providing funds for Reconciliation work since 2010 starting from Mongolia EITI Report 2009 partly, and from 2010 completely)

1. Lessons from Validation and Experience of EITI implementing countries The Remediation work of unexplained discrepancies for 2006- 2011 has not been carried out after the Reports findings, and this work is planned to be completed this or next year. Legislation is not clear yet, and Mongolia EITI law is drafted, but no progress as there is no consensus between the Government ministries. The Government of Mongolia has to insure that all accounts of both Company and Government should be followed an international financial accounting standard. Ministry of Finance is commencing a project with World Bank for improving application of international financial accounting standard and financial reporting standard. The Mongolia EITI mid- term strategy 2010- 2014 was endorsed by National Council, which outlines basic directions next steps beyond EITI.

2. Post Validation activities of EITI compliant countries The Reporting templates have been updated. Previously, there were 4 reporting templates, one for companies, and three for Government. Now, there are 7 templates, 3 for companies (mining, exploring and oil) and 4 templates for Government entities (local authorities, agencies and ministries, consolidated Government, physical and license data) The report is disaggregated by company, by revenue and Government entities.(Taxation, minerals, petroleum, environment, customs, labor and care service, Ministry of Finance, local authorities especially about donations) 2010 EITI Report has some elements of license transparency in addition to routine reconciliation, which means it will some survey how company’s annual mining plan is achieved. 2011 EITI Report has disclosed findings of local contracts signed between Companies and Local authorities (39 contracts and 29 companies)

3.Communication as important tool for the EITI Mongolia EITI Secretariat recruited expert for communications this year and the Mongolia EITI communications strategy will be the basic guideline of implementation aspect. The Mongolia EITI 2009 Reconciliation 4th Report and Mongolia EITI 2010 Reconciliation 5th Report were edited into shorter version, printed and disseminated and both versions are available for general public. The Mongolia EITI website is updated and English version is ongoing and will over in November. The Mongolia EITI brochure in Mongolian and English are produced Mongolia EITI is working on Communications Work plan and complete within this year.

4. Ways to implement the EITI at sub-national level The EITI reporting template for local government is endorsed by relevant authorities. Local authorities are reporting since 2010 revenues under the Template No.3. Local authorities are reporting on 15 revenues collected at local level, including, land rent, water and forestry fee, vehicle, donations, various fees at local level and other in accordance with the template. Local Councils of EITI must be supported from the center for routine work, as now they are just producing annual EITI report. At present, 13 aimags out of 21 aimags have own Council, headed by Deputy- Governor, and represented by members from local government, company and civil society. Local Council can work not only for EITI also it can work locally to resolve various issues jointly using this structure. Pilot program in South Gobi aimag implemented with Reconciler for Mongolia EITI 2010 report. This pilot program involved 2 soums (Hanbogd and Tsogttsetsii), where the mega projects like Oyu Tolgoi copper and Tavan Tolgoi coal are ongoing.

5. Improving the quality of reports for revenue transparency The Mongolia EITI Working Group following preliminary findings of Mongolia EITI 2011 Reconciliation 6th report is reviewing EITI templates, TOR, materiality. EBRD/ASI along with the Working Group and Secretariat will organize series of training for Government, Company, Civil society, and media in 2012, which will cover topics how to report, and how to improve, how to communicate and disseminate information. Mongolia EITI law draft has some law requirements for better reporting and liabilities for miss and under reporting, therefore, the law is needed in this situation There will be some requirements on improving reports in Performance agreement of those officials who are involved in EITI due to their daily duties.

6. EITI in the national legislation Ministry of Mineral resources and Energy (Mining at present) has established Tripartite working group to draft EITI law in May, 2010. Mongolia EITI law has been drafted in September, 2010 and submitted to Ministry of Justice, however it is not yet passed yet. There is some caution about this law, no consensus between Government ministries like Ministry of Justice, which has not agreed to the draft, explaining that there should be very careful coordination with other legislations. Starting from August, 2011 EBRD commenced implementation of a technical assistance project, one of priorities of which is law and regulation of EITI in Mongolia. Mongolia EITI Working group was not satisfied with quality of draft law concept (stand alone law) in January 2012. Meanwhile, some amendments may take place in Petroleum law, Subsoil law and Mining law about transparency and EITI, through Ministry of Mining. Mongolia EITI law is expected to solve the most of challenges: Draft law is covering aspect of reporting, reconciliation, reconciler, discrepancies, resolution of them, clarity of sanctions, organizations of stakeholders, transparency of licensing, physical audit, natural reclamation cost and contract.

Next steps and actions The Mongolia EITI 2012 Reconciliation 7th Report is be produced in 2013, and selection of reconciler has just been launched, 7th Report will cover 200 companies, which is the same as in 2011 Report. The EBRD funded Mongolia EITI support program is expected to resume by January, 2013. The implementing consultant is Adam Smith International, and the major scope is support in drafting EITI legislation, institutional framework, communication improvement and training activities The preparations for Sydney Conference, May 23-24 are on going, EITI promotion materials will be developed and printed. The work-plan for 2013 and communication plan will be reviewed and will be in place shortly afterward.