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Voluntarily Tying Government’s Hands: Civil Society Oversight of Procurement in Mongolia

Zahid Hasnain's picture

In June 2011, the Government of Mongolia amended the Public Procurement Law of Mongolia  (PPLM) to include a new formal role for civil society and professional organizations in bid evaluation and contract monitoring. In many ways, this amendment places Mongolia at the forefront of a global movement consisting of national governments, CSOs, donors, and multi-stakeholder groups to demand greater transparency and citizen oversight of public expenditures. Is the new formal role accorded to CSOs for monitoring procurement an attempt by the Government to “tie its own hands” and try ensure that current and future governments translate Mongolia’s resource boom into development for current and future generations of Mongolians?

Mongolia is at the threshold of a major socio-economic transformation driven by the exploitation of its vast mineral resources. Since 2004 when the mining boom began, the economy has grown at an average rate of over 8 percent each year. In 2011, growth accelerated to 17 percent, largely on account of the construction of the massive OyuTolgoi copper mine.  Once OyuTolgoi and the new TavanTolgoi coal mine go into production, over the medium and long term, this growth is likely to be in the double-digits . The scale and pace of this change will be staggering, making Mongolia one of the, if not the, fastest growing economies of the world.

Sound infrastructure is particularly critical for a vast, land-locked, scarcely populated, and sub-arctic climate country like Mongolia. Mongolia’s population of 2.7 million people is spread out over an area of 1.5 million square kilometers (the 19th largest country in the world by area) making it the least densely populated country in the world, at 1.8 persons per square kilometer. Given that the capital city of Ulaanbaatar has over a million inhabitants, most of the country has less than 1 person per square kilometer. The scarce population scattered over a large land area, combined with the extreme climate, implies that the unit cost of providing infrastructure such as roads, water, and electricity, as well as services, for much of the country is very high.  In order for it to both develop and benefit from the huge new Southern Gobi mines that provide the country with the rare opportunity of achieving sustained economic growth and poverty reduction, Mongolia’s infrastructure investments will need to increase at an unprecedented pace. A significant proportion of this spending will be publically funded and implemented, and publically guaranteed, placing great demands on the government to significantly enhance its public procurement systems.

Effective public procurement is a key link in the value chain that will transform the non-renewable mineral assets underground to sustainable capital assets above ground. It is also one of the weakest links in the chain as procurement requires government officials to exercise discretion and make decisions over large sums of money at specific points in time. In particular, it will be critically important for Mongolia’s public procurement system to become more efficient, transparent, and accountable to ensure that the country does not suffer the all too familiar problem of the “resource curse”.

The scale of public procurement in Mongolia has been increasing rapidly—from 130 million USD in 2006 to over 1 billion USD in 2010—and this pace of change will accelerate considerably after the OyuTolgoi and TavanTolgoi mines go into production. Procurement in Mongolia has been characterized by the familiar problems of political interference and lack of transparency, which are particularly pronounced given the small size of the formal sector and the close ties between politicians and the construction industry.  As a result, time and cost over-runs in infrastructure projects are ubiquitous.

Increasing the technical capacity, transparency, and accountability of public procurement is an urgent need for government systems to keep pace with the staggering transformation that is underway. The June 2011 amendment to the PPLM signals the Government’s recognition of the need for a major overhaul of Mongolia’s public procurement system, including a formal role for CSOs to monitor bid evaluation committees and to monitor contract performance. The rationale for involving CSOs in monitoring procurement emphasizes the ability of CSOs to provide feedback to government on bid evaluations and contracts and to disseminate their findings to the public. Through disseminating its observer reports, CSOs can help to inform citizens and thereby strengthen citizen ability to reward or sanction politicians and officials for their management of public resources. Greater citizen awareness of procurement-related problems should increase public officials’ incentives to respond to CSOs’ feedback, including holding contractors accountable for their performance.

Within the next two to three months, Mongolia’s burgeoning CSO procurement network will be registering their organization as an official NGO. The networks’ sustainability depends on their members’ ability to carry out the procurement monitoring effectively and transparently. The network plans to develop a self-regulatory regime that will constrain its members’ behavior. This consists of the following: a) entry requirements, b) monitoring mechanisms and, c) the ability to sanction members. Sustainable funding arrangements that are shielded from political interference will be essential for the success of civil society monitoring. In collaboration with development partners including the World Bank and CSOs, the Government is currently exploring options for supporting Mongolia’s CSOs without compromising CSOs independence.

Implementing the PPLM, especially the requirement for CSO oversight of bid evaluations and contract performance, will be challenging for both the Government and CSOs. To our knowledge, there is no other comparable law anywhere else in the world that accords CSOs a formal role in monitoring procurement to this extent.  At the same time, the PPLM offers Mongolia a tremendous opportunity to use institutions and policies to help harness its resources to improve the livelihoods of current and future generations of Mongolians.