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Extractive Industry Transparency Initiative Special
This week we’ve experimented somewhat and put together an “EITI special”. (For those of you who are completely new to the topic see “EITI in a nutshell”.) We felt it was an opportune time to present some of the work our members have been doing on the EITI, particularly concerning the future of the initiative. Please let us know your thoughts on our foray into “specials”. Would you like to see more EITI specials? Are there any other topics you would like us to dedicate a newsletter to? You can email apowell@publishwhatyoupay.org
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EITI - where to next?
With solid foundations and achievements under its belt, the time is ripe for EITI to evolve and fulfil its mandate. The strategy working group established last year to discuss the future of the EITI is a crucial opportunity for this.
Almost a decade ago, British Prime Minister Tony Blair announced the launch of the Extractive Industries Transparency Initiative. Its aim was to promote transparency globally in the extractive sector and contribute to preventing mismanagement of revenues generated by the extractive industry. Association Article 2 of the EITI
states that its objective is to make the EITI principles and criteria the accepted global standard for the extractive industry “recognising that strengthened transparency of natural resource revenues can reduce corruption, and the revenue from extractive industries can transform economies, reduce poverty, and raise the living standards of entire populations in resource-rich countries.”
The EITI can count a number of successes since its inception. For starters, it’s pretty well established. 35 countries have signed up to the initiative, 14 of whom have obtained the “compliant” status. Three additional countries: the United States, Colombia and Ukraine have announced their intention to implement the initiative and Australia is carrying out a pilot of the scheme. The EITI lists a number of supporting companies and countries (countries who support the initiative but do no implement it themselves) and, institutionally speaking, it has substantially evolved.
The initiative has also contributed in an important way to creating a debate on natural resources and their management. Outgoing EITI board member Diarmid O’Sullivan highlighted the fact that the EITI has placed this question higher up on the agenda of many governments. According to Mr. O’Sullivan this has made it possible for civil society activists to talk about natural resources and accountability in a way which they hadn’t been able to before.
The tripartite nature of the initiative, with representatives from companies, governments and civil society at the table, has been commended. For a government to qualify as an EITI candidate it has to “commit to working with civil society and companies”. Mr. Epifanio Baca, civil society representative on the board, said that one of the greatest successes of EITI in Peru was that it gave civil society access to companies and governments and the opportunity to work with them.
The EITI has also produced a wealth of information in a field which, data-wise, lay rather sparse. EITI reports have generated debate, raised questions and in some cases resolved issues. (This data, however, remains woefully underused.)
Yet despite these successes, the EITI has not yet delivered on its mandate of “making natural resources benefit all”. While it would be naïve to expect dramatic change in a short space of time, the experiences of the past decade – supplemented by analysis from experts and practitioners – have demonstrated that the EITI is not yet designed to effect the change it desires. In 2011, an independent evaluation of the EITI was commissioned by the Board, in an attempt to assess the impact of the Initiative to date, measured against its own aspirational Principles. The Scanteam findings were that the EITI was unable to demonstrate that it is improving natural resource governance.
To narrow the gap between its principles and standard, the EITI set up a strategy review to discuss options for the future of the initiative.
Individual PWYP members are involved in these internal discussions at the Board level, and we shall continue to keep you posted with progress – and on how you can be a part of it – over the coming weeks and months.
More widely, PWYP members have been participating through sending their own contributions and suggestions for the evolution of EITI, as part of a PWYP global consultation.
To date there have been 21 submissions to the board from PWYP members in 15 countries. This newsletter has taken inspiration from these submissions and reflects the opinion of many PWYP members. However it by no means constitutes a comprehensive review our members’ positions and hopes vis-à-vis EITI. For more on our work and the Strategy Working Group of the EITI visit our site.
One of the themes running through many of our members’ suggestions for EITI’s future cover ways in which to make EITI numbers more useful. Indeed, the trapped potential of the data mentioned above is part of what blocks the transformation from transparency into accountability for EITI. In order to be used, information needs to be accessible and meaningful. To get to this stage, EITI data needs to be more detailed and complimented by information pertaining to other aspects of the value chain. In response to what challenges the EITI faced today, Mr. O’Sullivan responded that the EITI needs to grapple with other parts of the value chain which it has not covered. He stated there were too many important parts of the extractive process not covered by the initiative, notably how governments decide
who get deals and how governments spend the money.
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Lost in aggregation
PWYP members were unanimous in their call for EITI information to be more detailed. As it is, the discrepancies between company payments and government receipts have generated interesting discussions (and results),
but they only begin to scratch the surface. If EITI data is to be used to “make natural resources benefit all” then it needs to broken down into digestible and relevant parts. According to a Revenue Watch Institute brief, What do the numbers say? Analyzing Report Data, the “analysis of EITI data is severely constrained by the failure of most reports to disaggregate by revenue stream, commodity, company and project.”
18 countries already report on a company and revenue level; it would therefore not be unreasonable to make it this mandatory requirement for EITI implementation.
Yet while disaggregated reporting on company and revenue level begin to sketch a helpful outline, it is only by adding project level reporting that we can begin to see the full picture.
Say a local community has been allocated 10% of the revenues generated by local extraction (as has been the case in Niger). How can that community track that the money was correctly received and spent if it has no idea of the numbers for its locality? A figure for the country as a whole will be of little help.
It’s also about assessing whether the payments a company has committed to paying are correct. For example, project level evidence from a leaked tax audit report in Zambia suggested that a subsidiary of Glencore, running the Mopani Mine, had been dodging taxes to the tune of 76 million pounds.
The audit report revealed that the subsidiary sold copper to its mother company, Glencore, for less than market price and artificially inflated the figures for operation costs. As a result it was able to declare it was running at a loss and avoid paying taxes. These sleights of hand were revealed only thanks to project level data.
Project reporting within the EITI process already exists to various extents in Indonesia, Zambia, Mali and Burkina Faso. Introducing project level as a requirement within EITI reporting would bring the initiative up to speed with current (and impending) laws in the US and the EU obliging extractive companies to publish their payments on a country-by-country and project-by-project basis.
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Transparent deals
PWYP members have argued that EITI ought to extend further along the value chain to also cover contracts and licenses. After all, if corruption – or mismanagement – has occurred before the revenues are generated then the value of revenue transparency is mitigated. Ensuring that a country gets a good deal for its resources isn’t just about preventing clear cut instances of corruption. With information and expertise asymmetry it is all too easy for a government to sign a disadvantageous deal. As PWYP-DRC’s
submission to the working group remarks, civil society’s involvement will help avoid the reaching of unfair “leonin deals” (where the other party receives the “lion’s share” of the benefits).
From the companies point of view there are also definitive advantages to a more transparent contracting process.
The submission from our Côte d’Ivoire members points out that a lack of transparency can lead to conflict and that companies can then lose these contracts if there is regime change. Regardless of the content of the contract, if terms are shrouded in secrecy then citizens will be suspicious and expect the worst. It could be in the company’s interest to be more transparent and allay these fears, dispelling what may very well be unfounded suspicions. For more on contract transparency visit our website.
The issue of the awarding of licenses is also a crucial one, as highlighted by Global Witness’ report: Rigged, the scramble for Africa’s oil, gas and minerals.
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There is such a thing as social license - engaging with communities
In their submission
to the EITI strategy working group, PWYP members from Kyrgyzstan highlighted the “urgent need” for dialogue between local communities and mining companies, particularly in order to quell conflict. Kyrgyzstan is by no means the only country to have seen disputes between communities and extractive companies. In Indonesia, Australian Arc Exploration’s mining license was revoked following violent protest from local communities back in February 2012. In a non-violent incident in Kenya last August, mining activities in Kwale county were halted because of community demonstrations. The residents complained that the company had not consulted the provincial administration before beginning operations.
Clearly, the extractive industry – and all its stakeholders- needs to go further in engaging with communities, and not just because of potential conflict. Local communities have a right to agency, and to be involved in decisions which will effect colossal changes to their lives. Communities are also very well placed to help ensure transparency and accountability in natural resource governance of their country. EITI’s ambitions will only be realised once communities are properly integrated in the process.
To this end, one suggestion has been to replicate the MSG structure at the local level, an idea which was pursued in Kyrgyzstan. In November 2011, in the Jalal Abad region, meetings were held between the public, local authorities and companies operating in the area. Pamphlets were distributed by NGOs Foat and Tree of Life and EITI was covered by several newspapers. At the close of the meeting participants decided to create a more permanent local MSG. Kalia Moldogazieva, from the NGO Tree of Life, stated that: “We hope that increasing dialogue through this MSG has helped reduce tensions between communities and companies.”
Earlier that year, in March, a similar process had taken place in the Talas region. A consortium of NGOs discussed EITI issues with the public and organised meetings with companies and local authorities. The situation was, as a result, “somewhat stabilized”.
PWYP members in Indonesia and Timor-Leste suggest that simply starting the process of ‘EITI’ dissemination much earlier – and in ways that communities can understand and identify with, with also help with no end. In decentralised countries such as Indonesia, or Peru, attempting to undertake the EITI at sub-national as well as central level, can also help to ‘close’ this seeming social ‘gap’.
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Colombia and Ukraine sign up to EITI
17 April – Speaking at the summit of the Open Government Partnership in Brasilia, the governments of Ukraine and Colombia announced that they would be implementing EITI.
Colombia will be the second Latin American country to join EITI after Peru. Colombia has doubled its crude oil production since 2007 and has the fifth-largest oil reserves in Latin America. It is the world’s leading producer of emeralds and the fifth highest exporter of coal, with mining contributing 8% to the GDP. (Source: US State Gov).
Ukraine has large mineral deposits and – while it has limited oil and natural gas – there is interest in oil exploration in its share of the Black Sea. Moreover, Ukraine is a key energy transit country, providing transportation for Russia’s gas. 20% of the gas consumed by the EU has transited through Ukraine. This will have interesting implications for the possibilities of including transit revenue fund transparency in EITI. (Sources:
US State Gov, European Commission)
Read EITI's press release on Colombia and Ukraine's announcements.
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Laying down the EITI law
PWYP members were vocal in their desire for EITI to be enshrined into law at the national level. While the initiative is voluntary for governments, companies operating within those governments are obliged to publish their payments. However, despite this obligation they do not always do so. According to the Scanteam evaluation report in 2011, the disclosure of information by mining companies in Gabon was a challenge.
Giving EITI a legal basis at the national level would make non-publication by companies carry sanctions; this would ensure a successful implementation of EITI and mean that the work of the responsible stakeholders was not undermined by the few. Indeed, in Peru, civil society organisations are currently looking to integrate EITI into the national legal system because it would legally oblige the companies to publish their payments. Some companies were not particularly forthcoming with publishing their payments for the EITI reports. Although the amount of companies publishing their payments increased from one report to the next an EITI law would be one of the best ways to ensure that the companies do publish what they pay.
EITI has been given a legal basis in various countries, including Liberia and Nigeria. Another advantage of incorporating EITI into the law is that it makes the initiative less dependent on political whims and winds.
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With thanks to Diarmid O’Sullivan, Epifanio Baca and Kalia Moldogazieva who agreed to be interviewed and/or sent information in to help in the creation of this newsletter.
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