On 18-20 June, in cooperation with The Press Institute (PI) and the Corporate Governance Development Center (CGDC), the project hosted a two-day workshop on ‘Corporate Governance for Investigative Journalists.’ Participants included twenty journalists from newspapers, television and online news media,  including nine members of the EPRC-sponsored Economics Journalism Club. The workshop investigative brought journalists together with facilitators from the three sponsoring institutions to learn about global best practices for corporate governance; how corporate governance will help improve competitiveness of firms; and how investigative journalists can play a catalytic role between the public and corporations. Lectures and discussions covered the following topics:

  • Introduction and history of investigative journalism
  • Introduction to corporate governance
  • Relationships between the shareholders, the board, and management
  • Ethics of investigative journalists
  • Techniques for effective interviews
  • The role of the board in transparency, disclosure, and corporate citizenship
  • Corporate social responsibility

Participants discussed contemporary international and Mongolian cases and were particularly interested in discussing the Anod Bank failure and the banking crisis in Mongolia and globally; the Ivanhoe and Rio Tinto mining deals in Mongolia; BP and the oil spill disaster in the Gulf of Mexico; corporate social responsibilities of shareholders; and how stock prices are formed and how they behave in the stock exchange.

The workshop responded to journalists’ and growing public interest in issues of coporate governance, business competitiveness, access to information, and analysis of political, financial, and economic issues. Following the workshop, five participants published articles and interviews highlighting the importance of corporate disclosure: “Companies without corporate governance will cease to exist,” by Ms. B. Ariunzaya of UB Times and “Who needs corporate governance,” by Ms. A. Tuya of The Peoples’ Rights, interviews with J.Unenbat and Demir Yener by A.Bold of The Century News, “Lack of GC means that company’s activity will not continue longer” by O.Nyamsuren of The Morning News, and two news websites news.mn and gogo.mn published articles about corporate governance issues.

On 16 June, the Cabinet Secretariat’s Open Government website sponsored a nationally televised chat between policy makers and citizens on ‘What does Mongolia’s Competition Authority do for me?’ The program included panelists MP N. Altanhuyag, First Deputy Prime Minister; Mr. Mandakh, Chairman of the Authority for Fair Competition and Consumer Protection; Mr. Myagmarjav Lkhachinbal, Executive Director of the Mongolian Meat Association; Mr. S. Demberel, Chairman of the Mongolian National Chamber of Commerce & Industry; Mr. B. Bold, CEO of Newcom Group; and Mr. G. Munkhbold, Attorney and CEO of Bold Partners Law Firm. In addition to the live chat, the show included clips of interviews with international competition expert, Pablo Garcia explaining best practices for competition authorities and MP D. Gankhuyag discussing the new competition law.

Throughout the hour-long program, citizens from around the country asked a total 168 questions, 59 by phone call and 109 by text messages. Questions centered on prices of meat, gasoline, and cell phone services. Overall the questions revealed that citizens do not have much information about  fair competition or the role of the Authority for Fair Competition.  Most questions were related to the excessive price increase in the meat industry, expressing frustration at paying MNT 6,000 per kilo of meat, while the country has 40 million animals. Individuals inquired what the government is doing to reduce the price of meat and if any studies had been conducted to identify the factors of excessive price increases.  Many others focused on the possibility of regulating meat ‘sellers’. Many citizens also asked about the new competition law and challenges that the Competition Authority is facing.

In June, Mongolia’s Parliament passed a Law on Competition in response to changes in the economic and business environment since the passage of the Unfair Competition Law of Mongolia in 1993 and the creation of the Authority for Fair Competition and Consumer Protection in 2005. The new law aims to support business growth and competitiveness through introducing the culture of competition and imposes greater penalties for the breach of competition by business entities.

The Stakeholders Talks programs are a continuation of the Open Talks series, sponsored by the Cabinet Secretariat’s Open Government website, and provide a platform for dialogue between citizens and senior level decision makers from the public sector, business, and civil society. Previous Stakeholders Talks and Open Talks programs have included national multimedia chats between citizens and policy makers on topics such as tax reform, housing finance, the national action plan, transportation, and others. Support for the last three national chats came from the project in collaboration with the Open Society Forum (OSF) and the Mongolian National Public Radio and Television(MNPRTV).

On 28 May, the Economic Journalism Club (EJC), with support from the project, hosted its first roundtable discussion on the Role of Stock Markets in Corporate Governance at The Press Institute. Twelve journalists from print and television media stations attended the event. The goal of the roundtable discussion was to enhance EJC members’ knowledge of how stock exchanges can contribute to strengthening corporate governance practices in listed companies, particularly through increasing disclosure and transparency.

In his opening remarks, Dr. Demir Yener, Senior Finance and Corporate Governance Advisor, EPRC, noted that stock exchanges have an important role in monitoring corporate governance through listing and applying disclosure standards and monitoring compliance. Through these methods, a stock exchange facilitates the interaction between the investors, the issuers, and the intermediaries. Without adequate disclosure and transparency, stocks cannot reach their full potential price, and value creation in the market suffers.

Following Dr. Yener, Ms. M. Enkhtuya, Senior Specialist of the Mongolian Stock Exchange (MSE); Mr. S. Tulgaa, Deputy Chairman of Financial Regulatory Committee (FRC); and Mr. Azamat Joldasbekov, former Chairman of Kazakhstan Stock Exchange (KSE), gave brief comments on the topic before opening to questions from the journalists. Both Ms. Enkhtuya and Mr. Tulgaa noted that many companies in Mongolia’s stock exchange fail to meet the listing requirements. There are currently 345 listed shareholding companies in the Mongolian Stock Exchange, but only 14 companies fully meet the requirements for listed companies. The FRC moved to suspend trading on shares of 166 companies because they did not comply with these requirements. Mr. Azamat Joldasbekov shared his experiences as former chairman of the Kazakhstan Stock Exchange (KSE), and noted that several years ago the KSE had similar problems, but resolved them by steadily establishing tougher requirements for listed shareholding companies.

Journalists engaged in an active discussion with panelists and asked many questions about the recent case of Anod Bank and their Initial Public Offering (IPO) that resulted in bankruptcy and seriously damaged investor confidence in the Mongolian financial markets. In advance of the roundtable discussion, participants received two articles, including one about the role of stock exchanges in bringing self-regulatory oversight on their listed companies, and another on the Mongolian Stock Exchange as background reading for the discussion. The event generated several newspaper articles—linked to the project website through the ‘In the News’ panel of this newsletter, and a television interview with Dr. Demir Yener on corporate governance.

EPRC helped establish The Economic Journalism Club at the Press Institute in partnership with other international organizations, the Ministry of Finance, and local academic institutions. The club has more than forty members who are investigative journalists specializing in economic development issues and representing all of Mongolia’s daily newspapers and television news stations. Planned club activities for the coming months include a workshop on microeconomic issues and a roundtable on the impact of Central Bank policies on inflation.

From 30 April to 20 May, the General Department of Taxation (GDT), the Cabinet Secretariat of Government of Mongolia (GSGOM), Information, Communication Technology and Post Authority (ICTPA), and the project sponsored a series of four briefing sessions to familiarize Mongolian policy makers and IT stakeholders with digital signatures, the legal, regulatory, and institutional framework requirements; and lessons learned from other countries.

Larry Marchese, an international expert on electronic signature and e-commerce brought by the project in response to GDT’s request, delivered the series of presentations to participants from CSGOM, GDT, ICTA, Parliament Administration Office, Ministry of Justice and Home Affairs, Ministry of Finance, Communications Regulatory Committee, National Data Center, and many other stakeholders. The four sessions, available on the project website, covered the following topics:

E-Signature: Legal and Public Key Infrastructure key concepts: Held on 30 April, this session covered the key principles of digital signature laws based on global best practices; twenty-six participants attended
A closer look at Public Key Infrastructure: Held on 6 May, this second session provided an explanation of the Public Key Infrastructure (PKI) technology, with eleven participants in attendance
A closer look at Certificate Authority operations: The third session, held on 13 May explained the role of a Certification Authority (CA) and a Registration Authority (RA) and the challenges of establishing and operating both organizations; nineteen participants attended
National Certificate Authority strategy: The fourth and final session held on 20 May reviewed strategic options for Mongolia to enable digital signature infrastructure either by building from scratch a complete PKI solution or entering into a strategic partnership agreement with a reputable worldwide certificate service provider, such as Entrust or VeriSign; fourteen participants attended.

Representatives of the Mongolian digital signature law working group and other stakeholders had an opportunity to learn more about digital signatures and global best practices as well as exchange opinions regarding the best suitable solutions for Mongolia. The series of seminars coincided with the Cabinet Secretariat’s review of a draft law on e-signatures. After receiving comments from the Cabinet Secretariat, ICTPA and EPRC Project, the Ministry of Justice and Internal Affairs ratified the concept paper for the e-Signature law on 20 May 2010. The project expects to continue providing assistance, as needed, to the working group drafting the law.

Continuing with efforts to establish platforms for dialogue to build consensus in Mongolia’s mining sector, the EPRC/USAID project held two more seminars in the series, ‘Conflict to resolution: Costs, risks and avoidance’:

  • Civil society stakeholders: On 4-5 May in cooperation with the Open Society Forum, the project facilitated the seminar to eighteen members of the Publish What You Pay (PWYP) coalition; PWYP is a coalition of 26 non-governmental organizations that comprise the civil society arm of the Extractive Industries Transparency Initiative (EITI)—a global initiative working to bring greater fiscal transparency to the extractive industries.
  • Industry stakeholders: On 11-12 May, the project held a seminar for eighteen industry representatives of seven companies operating in the South Gobi region and the regional office of the Mongolian National Mining Association (MNMA); the training was held in the Dalanzadgad local government building.

The seminar was particularly useful to companies operating in the fast growing mining sector of South Gobi as they seek regional approaches to issues, including mechanisms to address current and potential grievances. The seminar provided participants with the same common ‘tools’ to handle grievances and a venue to share information on common experiences in the area of grievances and conflicts.

On 8 May 2009 in cooperation with the Press Institute and the Energy Regulatory Authority (ERA), the project co-sponsored a half-day workshop for journalists on the “Energy sector financial situation and tariff issues.” Nineteen journalists from eight newspapers, six TV stations, two radio stations, two magazines and the MONTSAME News Agency attended the event. Presentations covered the energy sector’s current financial situation, tariff setting, protecting low income residential consumers from price increases, energy sector regulation and the possibility of a public private partnership mechanism to attract private investment in the energy sector. The objective of the workshop was to provide the media with fact-based information about the energy sector’s financial situation and to create a better understanding of the role that an independent regulator plays in sector sustainability.

Ms. Ganchimeg M., Head of ERA’s Tariff Department, described the energy sector’s current financial situation as “on the brink of bankruptcy” and explained the rationale for step-by-step tariff increases. According to the ERA’s estimation, cumulative financial losses of the eighteen main energy production and distribution companies totaled 3.89 billion MNT in 2007 and increased to 24.41 billion MNT in 2008. Repayment of long-standing debts and fluctuations in hard currency exchange rate contributed to the significant increase in losses. The rapid exchange rate fluctuations alone resulted in a loss of 9.9 billion MNT in 2008. While companies have taken the responsibility to repay overdue or long-standing debts, ongoing urgent investment requirements to replace obsolete equipment compound the financial deficit. Ms. Ganchimeg reported that in order for the energy sector to provide customers with reliable and normally functioning electricity, there is an urgent need for 170 billion MNT in infrastructure investment.

At the workshop, Mr. R. Myagmar, one of the three ERA regulators, informed the media about the ERA’s plan to increase tariffs on 15 July 2009 to increase the sector’s ability to recover costs. According to the ERA, currently the tariff for one kilowatt of electricity is 68 MNT, but to recover associated costs, this needs to be increased to at least 80 MNT.

The workshop also included a panel discussion on “Who should set energy tariffs” and “How to protect vulnerable groups from tariff increases.” Panel participants included the President of the Confederation of Mongolian Trade Unions (CMTU), Mr. Ganbaatar S., Ms. Khajid S. from the Mongolian Society to Protect Consumer Interests and Mr. Jantsannorov A., Head of UB Electricity Distribution Network’s Planning & Economics Division, in addition to ERA leadership. Following the panel discussion, Mr. Ganbaatar made a statement emphasizing the importance of the ERA’s independence and separation from political influence.

Subsequent to the workshop, seven newspapers published articles and interviews on energy tariff issues based on the information and enhanced knowledge obtained during the workshop, and five television stations broadcasted news coverage and interviews about the workshop and tariff issues. Most coverage explained to the general public the rationale behind tariff increases and the urgent need to replace obsolete equipment.

On 9 April 2009 the Financial Regulatory Commission (FRC) and the Institute of Finance and Economics (IFE) organized the second Mongolian Corporate Governance Forum to launch the Mongolian Corporate Governance Development Center (MCGDC). The program included a public presentation of the concept for the Center and an initial business plan.
The formation of the MCGDC is the culmination of efforts that began with a corporate governance diagnostic assessment of Mongolian companies that the project conducted in September 2008. The project presented these results at the first Mongolian Corporate Governance Forum on 9 October 2008, where the leading participants signed a joint resolution to establish a MCGDC. On 6 March 2009 FRC and IFE signed a memorandum of understanding (MoU) to establish the Center as a non-governmental organization (NGO) to focus on three key activities: directors training, research and standards setting, and advocacy and public outreach. EPRC will continue to support the MCGDC throughout the organizational development phase including support for the expansion of the Center’s training curriculum and membership base.
MCGDC hopes to become a leading catalyst to diffuse good corporate governance knowledge, skills, and practices for directors and executives as well as provide a common platform to coalesce efforts of diverse institutions and individuals advocating good corporate governance in Mongolia.

Based on the constituency it represents the Center will be well positioned to advocate to government policymakers, opinion leaders and the public at large an enabling business environment, allowing Mongolian businesses to compete more effectively domestically and internationally.

The MCGDC will operate as a membership-based NGO and aim to be financially self-sustainable by charging membership fees and commercial rates for the delivery of its courses and trainings. Founding members from FRC and IFE, in addition to independent members from the Mongolian business community, constitute the nine-member Board of Directors, elected at a Founders Meeting held in March. The Board has begun the recruitment of an executive director to be selected through a competitive process, following good corporate governance practices. The project continues to assist the founders and Board of Directors in formulating the business plan and the Center’s charter.

On 2 April the Energy Regulatory Authority (ERA) and the project held a workshop for officials from the Ministry of Mineral Resources and Energy (MMRE) and the State Property Committee (SPC) on the general design of the new electricity market and bilateral contracts. The workshop was part of the series of workshops and presentations to stakeholders of the Central Electricity System (CES) that the ERA and EPRC have been conducting for the last several months.
The participants asked many questions and exchanged opinions and comments on the actual implementation of the bilateral contract market design. Opinions and comments focused on potential technical and financial constraints and the necessary political will to effect necessary reforms in the sector.

Participants agreed that without full implementation of the Tariff Reform Plan, which includes ongoing incremental increase of retail tariffs up to the cost recovery level, the new market would not succeed and the sector would not attract needed private investment.

Meanwhile, a Task Group, consisting of representatives from CES licensees and the ERA, reviewed the second draft of the Market Rules and agreed that the ERA would obtain final comments from all CES electricity licensees and finalize the draft Market Rules by the end of May.

On 6 April, following its official registration as the Credit Information Center LLC (CIB) five days earlier, the CIB, with assistance from the project, the International Finance Corporation (IFC) and the Mongolia Bankers Association (MBA), held a day-long workshop for members of Parliament. The main goal of the workshop was to provide participants with information about the operations of credit bureaus around the world and the need for such enabling legislation in Mongolia.

Fifty-four potential CIB stakeholders and members of the media attended the workshop which featured presentations from representatives of leading private sector credit information providers from Asia, Eastern Europe, South Africa and the Americas, in addition to presentations from the Bank of Mongolia and CIB stakeholders and supporters. The workshop opened with remarks from B. Enkhuyag, Deputy Governor of the Bank of Mongolia, who expressed the central bank’s support of the CIB initiative. Other dignitaries offering opening remarks included D. Dugerjav, Deputy Commissioner of the Financial Regulatory Committee, M. Bold, Chairman of the Board, Credit Information Center and MBA Vice President, and M. Fischel, Head of IFC Advisory Services for Mongolia.

Colin Raymond, the IFC’s lead advisor on CIB initiatives briefed the audience on international trends and best practices and Tony Lythgoe, IFC Principal Financial Specialist, presented a global perspective on the legal and regulatory frameworks for credit reporting. The morning session was rounded out with an update on the development of the private credit bureau in Mongolia that Mr. Z. Narantuya, Deputy CEO of Mongol Post Bank and head of the CIB legal working group, provided on the proposed Mongolian legal and regulatory framework for the operations of private credit bureaus.

The afternoon session featured presentations from William Lim, CEO of Credit Bureau (Singapore), on the experience of establishing Singapore’s private credit bureau followed by Carlo Gherardi, CEO of CRIF (an Italy-based organization specializing in emerging market credit bureau operation), who related experiences from Italy and Eastern Europe. Dennis Martin, Managing Director of AP Experian, presented an overview of credit bureau products, many of which will become available here as the Mongolian CIB operations mature and expand. M. Chinguun, Chief Risk Officer of Golomt Bank, outlined the challenges of assessing credit in the Mongolian market, underlining the need for private credit bureau services to address these challenges. Frank Lenisa, Marketing Director of Compuscan, presented the application of credit bureau services in the field of microfinance.

The workshop concluded with a lively panel discussion on the benefits and challenges of establishing a credit bureau in the Mongolian context. Ts. Bayarsaikhan, MP and Chair of the Parliamentary Economic Policy Standing Committee also addressed the workshop and expressed support for the package of laws needed to facilitate operation of the CIB. The draft credit bureau law, prepared with project assistance, is expected to be introduced during the 2009 spring session of parliament.

As a follow up to the 8 April 2009 workshop on tax issues, EPRC co-sponsored a two-day workshop with the Press Institute and GDT in Erdenet town on 17-19 April 2009. Twenty-two journalists from eight newspapers, six TV networks and two radio stations, including Mongol Radio, visited Erdenet Ore Dressing Plant (ODP), which historically has contributed over forty percent of Mongolia’s corporate income tax.

The workshops in Erdenet were designed to provide journalists with first-hand information on how the global recession and plummeting commodity prices affect Erdenet’s revenue and operations and the resulting significant impact on the national budget given that Erdenet has been Mongolia’s largest corporate income tax (CIT) contributor since the company’s establishment in the late 1970s.

On the first day of visit, Erdenet ODP’s Deputy Director, D. Boldbaatar and Head of Marketing, D. Galbaatar received journalists in the ODP Administration Office and delivered a detailed presentation on how the global recession and falling commodity prices are affecting Erdenet’s revenues, profit margins and CIT payments. In 2008 Erdenet ODP contributed MNT 890 billion to the state budget. Out of 280 mines paying taxes in 2008, ODP alone contributed 98% of the total extractive sector tax revenues, 12.3% of GDP and 43% of the country’s total exports. However, the collapse of copper prices on the world commodity market in late 2008 triggered a dramatic decrease in revenues, significantly reducing profit margins and its contribution to national tax revenues. From January to March 2009, Erdenet ODP did not pay taxes as a result of negative profit margins.

Head of ODP’s Marketing Department, D. Galbaatar, informed journalists that “Erdenet ODP historically contributed approximately 70% of overall sales revenue to the national budget. The plunge in world prices and revenues make it difficult to develop and expand the plant and build a new copper processing factory, which would result in more value added in Mongolia. After this meeting, journalists had the opportunity to ask questions and interview officials from the ODP Financial Department. Following the interviews, the participants went to a mining field to observe extraction of copper-molybdenum ore using explosions and then visited the actual plant.

On the second day in Erdenet, Director of Orkhon Aimag Taxation Department, J. Erdenebileg, Head of GDT’s newly established Department of Taxpayer Relations, D. Bayaraa, Head of GDT Tax Collection Department, O. Enkhsaikhan and GDT Public Affairs Officer, Ts. Tsendsuren conducted a one-day workshop at the Orkhon Aimag’s Taxation Department where journalists had the opportunity to ask questions and discuss issues directly with tax officials. Historically, Erdenet ODP contributed 97% of the aimag’s overall tax revenues.

Journalists who participated in the Erdenet workshops commented that the interviews with the aimag taxation office and Erdenet ODP officials were extremely informative for understanding the issues. Workshop participants reported that their “knowledge of taxes improved significantly and the trip was an eye opener” as they “learned about the crucial impact Erdenet has on the country’s economy.”

Following the 8 April workshop and the subsequent trip to Erdenet, nine TV stations, thirteen newspapers, two radio stations, three magazines and the Montsame News Agency provided continuing coverage of tax issues, assisting GDT in conveying messages about taxation to the general public and enhancing the public’s understanding of the current economic situation facing Mongolia and the connections between the global recession, tax collection and the national budget. The Press Institute will continue to work with journalists as they draft articles and will be monitoring the media to assess the quality of resulting coverage of tax issues.