www.eitransparency.org

Governance and Transparency: Extractive Industries Transparency

Initiative (EITI)

PREM/COCPO workshop on Extractive Industry Issues

May 16 – 17, 2007

Anwar RavatProgram Manager, EITI

Oil, Gas and Mining Policy and Operations Unit (COCPO)

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What this presentation covers

A. The context - oil gas and mining (EI) sectors and transparency

B. How EITI is structured and how operates

C. Early results from EITI implementation : progress to date on transparency what has been working well so far – and what has not

D. Emerging lessons from EITI implementation

E. xx

F. Mainstreaming: key challenges and risks ahead for EITI

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The context: Paradox of Plenty

All too common story …

Widespread resource wealth in developing countries

But …. potential for good has not been realized

Resource rich developing countries have experienced:• low per-capita growth• slow progress on human development• social and political instability and violence

a.k.a. “Resource Curse”

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Role of Governance

Good governance is critical….

Often resource-rich developing countries do not score well

Good governance has multiple features:

• Clear and stable laws and regulations

• Rule of law

• High level of capacity and skills in government

• Fiscal monetary and budget discipline• Open dialogue between government and civil society• Public sector/private sector balance• Transparency

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Dimensions of Transparency

Transparency has many dimensions - and applies to all sectors revenues and expenditures policies, laws and regulations administration

EITI’s focus is on resource revenue transparency increases accountability reduces risk of corruption fosters democratic debate improves macro-economic management improves access to finance

EITI is best seen as a manageable yet meaningful starting point to better governance and anti-corruption effort in sector

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EITI as a response – a global initiative

Launched by UK government in 2002

EITI Board (Norway) headed by Peter Eigen

WBG officially has endorsed EITI :• important part Bank’s Response to Extractive Industries

Review• included in recent GAC strategy document

WBG actively supports EITI via:• EITI team in Oil, Gas and Mining Policy and Ops. Unit

(COCPO)• Multi-donor trust fund for EITI provides for technical and

financial assistance to EITI implementing countries• Increasing number of WPAs from country teams for EITI TA

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EITI’s global architecture

Civil Society (5)

Supporting countries (3)

Implementing countries (5)

Companies (5)Investors (1)

EITI Board

(Peter Eigen, Chair)

19 members

3 IFI observers

(AfDB, WBG, IMF)

EITI Secretariat

(Oslo-based)

WBG support for

Implementation In EITI countries

(EITI Trust Fund managed by

COCPO)

EITI Conference

[Every 2 years]

Validation Process

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EITI and governance: a recap Broad coalition of stakeholders to help improve governance

Focus on revenue transparency to benefit all stakeholders governments of resource-rich countries and their governance

and investment climates for investment flows citizens and civil society resource companies and investors

Involves full publication and verification of company payments and government revenues from oil, gas and mining

EITI is self-contained but not in a vacuum:

part of governance and anti-corruption agenda

Strong element of participation (government, companies, NGOs)

ultimately is about helping sustainable development and poverty reduction

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A summary of EITI criteria – “EITI Source Book”

Credible publication of payments and revenues Covering all significant payments by companies and revenues with independent audits and reconciliations to widespread audience -- in a user-friendly format

Covers all entities involved includes state-owned enterprises and companies international and domestic private sector companies

Full engagement of civil society in the EITI process

Country ownership time-bound plan of implementation financially sustainable over time support by international development agencies

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What does EITI not cover yet?

EITI CRITERIA

Independent reconciliation / audit of payments made and revenues received.

Publication and widespread dissemination of results.

Comprehensive coverage, i.e. all companies including state-owned and local companies.

Full engagement of civil society in the process.

Public, financially sustainable, time-bound plan of implementation.

Does not cover: Public expenditure side

Upstream issues – concession awards and licensing

Social spending by companies

Detailed review of concession compliance and PSA costs

(Note: Nigeria EITI did expand scope of EITI audits to cover this)

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The EITI Process

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Strong EITI take-up: 27 countries adopted EITI so far....

of which 8 countries have issued one or more EITI Reports

27 countries have endorsed EITI …… of which: Non-EITI

Have I ssued at least one EITI Report

(8 countries)

Under active implementation

(7 countries) 2/

Only recently endorsed

(7 countries) 3/

Not actively implementing

(5 countries) 4/

I n dialogue countries

5/

Likely to report in 2007

Implementation at varying stages of progress

Angola Azerbaijan Kazakhstan * Rep. of Congo Cote d’Ivoire Bolivia Cambodia Cameroon * Peru * D.R. Congo + Liberia Chad Indonesia Gabon Mongolia + Niger Madagascar Equatorial Guinea Kenya Guinea * Timor Leste Sierra Leone Trinidad and Tob. Mozambique Kyrgyz Republic +, ** Mali Sao Tome & Prin. Papua New Guinea Nigeria * Yemen Tanzania Colombia Zambia New Reports in 2007: Botswana Mauritania * Uganda Ghana * Sudan Etc.

* = EITI MDTF trust fund grant issued and being executed by country + = EITI MDTF trust fund grant agreement in progress / related program of activities under negotiation with country ** = Issued the initial EITI Report in 2004 but has not issued a subsequent EITI Report as yet

Note: Average time to first EITI report – 18-24 months

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Example of results achieved to date: Nigeria

An in-depth EITI process chosen by Nigeria beyond normal EITI Also covered review of oil flow and sector processes and financial payments

Comprehensive audit reports and findings were publicized April 2006

initial US $250m unexplained difference in payment and receipts

many areas for improving payments processes identified

other far-reaching recommendations on oil production/flows

Wide publicity in media; senior-level follow-up effort

EITI differences were investigated further - and largely resolved

detailed “remediation action plan” to tackle other recommendations

better revenue collections reported

On-going follow-up by civil society and media coverage

Better understanding by public of EI and financial flows (compared to pre-EITI)

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Example of Results achieved to date: Guinea EITI

EITI is a key national priority for Guinea, with mechanisms in place for: high-level government oversight of the overall EITI process tripartite entity including companies and civil society to build consensus

and manage day-to-day EITI execution

EITI report prepared by a team of international consultant + national firm

Report findings were positive - with small differences in payments/ revenues

Above all the EITI process is generating a culture of discussions and exchange systematic forum for Government, civil society and private companies to

discuss a range of extractive sector issues - mining legislation framework

Other spin-off benefits too: some payments tax reported as increased as a result of EITI process improvements in public accounting systems for mineral revenues better accounting of national assets (not previously recorded in

accounts)

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Positive lessons emerging from EITI (1)

EITI driven by two big ideas: that corruption is a major problem in developing countries that the commodities boom is being / could be squandered

EITI response was on two fronts disclosure (providing more data on EI revenues) demand side (for more accountability) including by NGOs

Both responses seem to be working – disclosure and demand-side a multi-stakeholder approach works - to build trust EITI methodology has become accepted as a standard

Clear signal by governments on transparency reforms

Companies are engaging willingly – to manage political risk and develop a “social licence to operate”

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Bank operations are beginning to refer to EITI linkages

Early indications of positive results in countries revenue transparency matters - especially in mining

with larger local “footprint” but stakeholders want to see more – better sector

governance

Sound legal basis for EITI is vital for sustainability of EITI

But no progress without political support and ownership

Full engagement of civil society is key – to press for accountability

But …. what is the end-game for EITI as a process or initiative?

Positive lessons emerging from EITI (2)

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EITI narrative is not all one-way -- key issues ahead

Mandating company participation – particularly “international national” companies

Risk of “façade’ of EITI cloaking other poor practices in the sector

Sustaining the EITI momentum high oil gas/commodity prices may affect country commitment constrained donor TFs – surge in country demand but not being

met

Some perception of “changing the rules” with Validation process

Program evolution and medium term sustainability EITI wants to “acquire teeth” e.g. disengage “non-moving”

countries going from narrow (EITI) to broader (governance)

“Mainstreaming” of EITI how to embed transparency into national processes how set-up platform for sector governance reforms

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Will EITI Defeat the Resource Curse?

The “resource curse” is not inevitable (Botswana, South Africa, Chile)

Clearly governance is key effective EI sector governance and EI sector resource management converting EI revenues to sustainable development

But better revenue transparency via EITI should help especially in: clear and stable laws and regulations

fiscal monetary and budget discipline

open dialogue between government and civil society

transparency more generally in the EI sector

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To wrap-up -- and key questions

In sum excellent traction so far in EITI delivery – and in CD take-up

this record of performance will likely continue into FY08

Key discussion questions include: major issue of mainstreaming will come up soon in countries

concrete ways to better integrate in broader governance agenda?

Thank you Anwar Ravat, Program Manager, EITI

aravat@worldbank.org