The extractive sector and corruption… Will EITI be enough?

Mar 05, 2017 News

By Kiana Wilburg

From forestry to the gold and diamond industry, corruption has proven to be a plague in the

Presidential Advisor on Sustainable Development, Professor Clive Thomas

extractive sectors. With the coming of a multibillion-dollar sector in oil, the authorities of the day are ever cautious about ensuring that accountability and transparency reign supreme.
One of the ways it intends to do this is through application for membership with the Extractive Industries Transparency Initiative (EITI) – an international organization which boasts of maintaining a high standard of assessing the levels of transparency regarding countries’ oil, gas and mineral resources.
Being EITI-compliant means that the Government of Guyana will have to reveal to the nation how much revenue it is receiving from companies in the sector, and the companies (local and foreign) will also have to reveal how much they are paying to the Government.
Most persons would agree that this level of accountability is unheard of in Guyana’s history. But will this entity and its anti-corruption mechanisms be enough?
To make such an assessment, one must first understand what EITI’s attractive transparency package is, and all that it brings to the table.
Space does not permit me to examine every element of this transparency deal, but below are some interesting yet crucial facts that may be of interest to you. These and more can be verified by accessing the entity’s website at: https://eiti.org/.

THE ESSENTIALS
Any country that is seeking to be a member of EITI, must first subscribe to a number of steps. These relate to government giving an expressed commitment to be part of the club; the engagement of the companies in the extractive sector; the involvement of civil society; the establishment of a Multi-Stakeholder Group (MSG) and the agreement on an EITI work plan.
The MSG comprises representatives from the government, the extractive industries and civil society. It plays an integral role in the oversight of the sector.
According to EITI, a member state must comply with seven requirements. These rules speak to how it must report on activities in the oil, gas and mining sectors. This information is then published in a country’s EITI Report. The MSG has a role to play in the report’s preparation and approval.
The seven requirements of EITI are: Effective oversight by the MSG; timely publication of EITI Reports; EITI Reports that include contextual information about the extractive industries; the production of comprehensive EITI Reports that include full government disclosure of extractive industry revenues, and disclosure of all material payments to government by oil, gas and mining companies; a credible assurance process applying international standards; EITI Reports that are comprehensible, actively promoted, publicly accessible, and contribute to public debate; and finally, the MSG must take steps to act on lessons learned and review the outcomes and impact of EITI implementation.

CONTRACTS
The disclosure of contracts has been an issue of contention in Guyana. Many foreign companies have entered the extractive industries with citizens knowing little to nothing about the nature of the contract signed between the government and the entity. But once Guyana becomes EITI-compliant, it is expected that this state of affairs would change.
With regard to contracts, EITI specifically encourages countries to publicly disclose any contracts and licences that provide the terms attached to the exploitation of oil, gas and minerals.

BENEFICIAL OWNERSHIP
Under the rules and regulations of EITI, Guyana would be expected to maintain a publicly available register of the beneficial owners of the corporate entity (ies) that bid for, operate or invest in extractive assets, including the identity (ies) of their beneficial owner(s), the level of ownership, and details about how ownership or control is exerted.
Come January 1, 2020, it is required that countries request, and companies disclose, beneficial ownership information for inclusion in the EITI Report.
According to EITI, any gaps or weaknesses in reporting on beneficial ownership information must be disclosed in the EITI Report, including naming any entities that failed to submit all or parts of the beneficial ownership information.

EXPLORATION AND PRODUCTION
When it comes to exploration and production, EITI requires that its member countries disclose an overview of the extractive industries, including any significant exploration activities.
Countries are expected to disclose production data for the fiscal year covered by the EITI Report, including total production volumes and the value of production by commodity, and, when relevant, by state/region.
Members are required to disclose export data for the fiscal year covered by the EITI Report, including total export volumes and the value of exports by commodity, and, when relevant, by state/region of origin.

REVENUE COLLECTION
It is the view of EITI that an understanding of company payments and government revenues can inform public debate about the governance of the extractive industries. With this in mind, the EITI requires a comprehensive reconciliation of company payments and government revenues from the extractive industries.
The EITI Requirements related to revenue collection include: comprehensive disclosure of taxes and revenues; sale of the state’s share of production or other revenues collected in kind; Infrastructure provisions and barter arrangements; transportation revenues; state-owned entities transactions; sub-national payments; level of disaggregation; data timeliness; and data quality.

IS EITI ENOUGH?
While the EITI package does appear to be quite eye-catching, there are some who have questioned whether it would be effective and sufficient enough.
One such person is economist and Presidential Advisor on Sustainable Development, Dr. Clive Thomas.
Dr. Thomas said that his observations of the literature on the EITI process, particularly from participants in other jurisdictions (regional), as well as wider civil society analysts, indicate that the Region must avoid becoming a passive recipient of the EITI package.
He said that it must be engaged intellectually, philosophically and, above all, in its political-economy context, at all times.
Dr. Thomas emphasised that Guyana cannot afford the luxury of an uncritical adoption of a process which, as of now, is without the participation of the vast majority of key global players.
He named some of these players to be emerging economies such as Brazil, Russia, India and China.
The economist said that despite several years of effort so far, his judgment is that the EITI process has not yet achieved deserving awareness and impact at the societal level. He explained that it also remains poorly linked to wider governance reform processes which include public service reform, constitutional reform, Local Government Election development, etc.
Dr. Thomas also pointed out that there exist varying levels of EITI ambition among regional countries, and also within them. He said that there is, therefore, no room for a one-size-fits-all approach to the determination of the transparency and accountability space potentially available in countries, and the Region as a whole, for effective regulation of the extractive industries (EI) sector.
The Presidential Advisor stated that there is also an inevitable complementary of EITI with other local, regional, hemispheric, and global governance arrangements.
He said that seeking synergies and complementarities should therefore play significant roles; for example, other complementary voluntary schemes which include the Forest Stewardship Council, International Council on Mining and Metals, and the UN Global Compact.
“Empirically, it has been reported that there is a ‘strong’ correlation between EITI members (and weak non-EITI members) and poor performance on World Bank governance indicators. It could be reasonably argued that the elapsed time of EITI existence does not permit good sampling for purposes of measuring such comparative outcomes among EITI and non-EITI countries.
Furthermore, the correlation between poor governance and resource curse is not proof of causality,” Professor Thomas said.
He also has concerns over inadequate mainstreaming of EITI standards with regard to public management, corporate conduct, policy dialogue and debate at the societal level.
The economist asserted, “Shining a light on EI activities cannot by itself fix corruption and poor governance in Guyana. It is presumptuous to claim this, as some do, even though this remains an area of enormous darkness and secrecy. And further, bringing governments, civil society and the EI together is in itself of considerable merit.”
He continued, “Is the EITI focus too narrow if it centres mainly on revenues? Should expenditure of governments be effectively captured? And how do you do this? These questions suggest the need therefore, to monitor the EI sector’s entire value chain; including award of contracts and licences, operations, environmental requirements, social commitments, taxes and fees, distribution of revenue to government, and project/programme execution by governments.”
Dr. Thomas said that it should be noted in this regard that recent advances of the EITI 2013 Standard include revenue allocation and sustainability, licence registers and allocations and issues of beneficial ownership and contracts.
He said that major criticisms, have in the past, focused on EITI’s voluntary nature and its limited focus on a small part of the value chain, which stimulated the 2013 revised Standard.
He noted that the European Parliamentary Research Service in its EITI Briefing in 2014 noted, “Overall results to date have been uneven and partial.”
Dr. Thomas said that for Guyana, he would raise the question: Why only the mineral extractives sector? What of non-minerals?
The economist said that one should take note of the EITI Regional Conference in the Americas, which was held in Peru in June 2015. He said that the forum saw calls for EITI tackling environmental, indigenous, human rights and ethnic issues and degeneration in the Region.
The Presidential Advisor said that paradoxically, for a participant like Guyana at the regional level, the focus is on transparency and accountability of the companies in the extractive industries as between governments and civil society.
Dr. Thomas noted, too, that one of the significant findings of the EITI is that it focuses on commodity production, but does not cover commodity trading, which he deemed to be an extremely important area.
With the aforementioned in mind, he said that one might seriously want to pause for a moment and consider how impacting EITI would really be in plugging up the loopholes for corruption to take place in the said sector.