# **Informing Analytical Work: Input to the Mongolia Mining Sector CGAC**

As Mongolia’s new democracy and market economy mature, Mongolian society is increasingly concerned about corruption and weak governance. As a significant source of revenue, the mining sector is particularly susceptible to rent seeking and corruption; in a recent survey, Mongolian citizens ranked mining as the second-most corrupt sector, after land utilization.<sup>14</sup> The government has made important strides toward improving transparency and accountability in the sector, including its ongoing effort to implement the Extractive Industries Transparency Initiative (EITI). Still, problems persist in ensuring transparency and efficiency in the production and management of mineral resources. In particular, the current system for granting mining licenses is _ad hoc_ , discretionary, and under-regulated, and manual processing opens the door to manipulation and corruption in the issuance of mining permits.

Such concerns were part of the focus of a Country Governance and Anticorruption (CGAC) Assessment conducted in 2007 as part of a Bank-wide initiative for which Mongolia was a pilot country. The Mongolia CGAC undertook broad governance analysis to inform the Country Partnership Strategy. A problem-driven political economy framework was used to identify a series of potential reform steps across various elements of the natural resource value chain, including mining licensing, public financial management, public investment planning and procurement, and social transfer policies. These findings provided a springboard to help mainstream the Bank-wide governance and anti-corruption (GAC) agenda and methodology in the sectors, and the CGAC team worked closely with country management, technical and sector colleagues, and Mongolian stakeholders to identify the key measures needed to achieve “good enough” governance in the mining sector. As part of this initiative, the country team employed the ABSM to help assess the prospects for improving sector governance to make effective use of growing mining revenues. With national parliamentary elections slated for the following month and mining sector issues at the top of the political agenda, this pilot of the ABSM was conducted at a pivotal time. Among other issues related to transparency and accountability, the ABSM analysis focused on reform of the mining licensing and cadastre systems. Following is a brief review of the analysis on this issue.

**Framing the question.** The issue of mining transparency in Mongolia encompassed procedures for awarding mining exploration licenses, including the degree to which these procedures are transparent, as well as the maintenance and public availability of cadastre records. License application and allocation procedures are highly complex and opaque, making it difficult for Mongolian citizens to learn about, evaluate, and challenge ongoing and proposed mining activities. There are some 29 steps in the application process and the cadastre system is not computerized. The resulting delays have tarnished the reputation of the cadastre office, as has the perceived role of patronage and favoritism in determining license awards. In response, the cadastre office has begun developing procedures and manuals to reduce the informality and discretion of license granting procedures and to streamline the number of necessary steps. The parliament holds authority over broader mining policy decisions, raising questions as to whether politicians and government officials will initiate changes that limit their power in the sector. The ABSM was applied to help gauge the level of political commitment for reform in this area, including improved regulation, information dissemination, and computerization of cadastre records.

> 14 Asia Foundation and United States Agency for International Development (2008) _Mongolia Corruption Benchmarking Survey 2006-2008._

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