Extractive Industries Transparency Initiative: Results Profile
April 15, 2013
Close to 3.5 billion people live in countries rich in oil, gas, and minerals. However, historically, several resource-rich developing countries have shown below-average growth performance and their citizens live in persistent poverty due to a lack of transparency and corruption caused by weak governance, the so called “Paradox of Plenty.”
The Extractive Industries Transparency Initiative (EITI), launched in 2003, promotes and supports improved governance and transparency in resource-rich countries through the full publication and audit of company payments and government revenues from oil, gas, and mining. As a voluntary commitment of stakeholders with shared goals, the global EITI structure comprises resource-rich countries, international and national extractive companies, civil society, investors, and supporting countries. The World Bank-administered Multi-Donor Trust Fund (MDTF) provides countries with resources to implement the EITI principles of revenue transparency. The initiative has grown rapidly over the last few years and, going forward, sustaining the progress and momentum achieved will be crucial.
The EITI was launched with two main objectives: to disclose and reconcile extractive industries revenues paid to and received by governments (taxes, royalties, and signature bonuses), and to promote and strengthen the multi-stakeholder dialogue approach. Each participating country must issue a reconciliation report covering revenues for the most recent fiscal years prepared by an independent auditor. EITI implementing countries must go through a validation process to evaluate implementation in consultation with all stakeholders by reviewing achievements, and identifying opportunities to strengthen the process. The successful validation will lead to a country achieving "EITI compliant" status. In World Bank client countries, EITI implementation is in line with the governance and anti-corruption agenda advanced through the support to institutions managing the extractives sector and to civil society groups that monitor the sector.
Progress has been made toward EITI compliance in several countries: 14International Development Association (IDA) countries, 4 International Bank for Reconstruction and Development (IBRD) countries, and 1 Organization for Economic Cooperation and Development (OECD) country have become compliant, while 12 IDA and 6 IBRD countries are on their way. In addition, 12 IDA, 16 IBRD countries and the United States are at different stages of consultation to sign on to the initiative.
EITI reports have helped uncover financial irregularities and have provided a roadmap for reforms of the oil, gas and mining sectors, which are often the largest generator of foreign exchange and government revenues. EITI implementation has set the stage for wider sector reforms, such as public financial management or institutional reforms such as the strengthening of government institutions that regulate the sector. The active participation of civil society organizations (CSOs) is also one of the main EITI criteria and a condition for the success of the standard to ensure a real tripartite dialogue despite the capacity constraints that many CSOs face. The World Bank, together with other donors, has stepped in to support capacity building of civil society groups to increase their effectiveness in advancing transparency and accountability. Civil society groups must be enabled to review and assess EITI reports, fiscal regimes, and compliance with national laws by government agencies and extractive companies.
Partnerships with international nongovernmental organizations (NGOs) have contributed to gains in transparency. Early work with the Revenue Watch Institute, for example, helped to develop training tools and to spearhead pilot CSO activities in six countries, which provided knowledge about the challenges, bottlenecks, and opportunities for improving CSO engagement in EITI. Support to the Publish What You Pay Coalition has helped to increase and disseminate knowledge and get more citizens involved.
Since October 2011, the EITI-MDTF Civil Society Direct Support Program facilitates activities in five EITI-implementing countries (Kazakhstan, Guatemala, Trinidad and Tobago, and Indonesia), six compliant countries (Niger, the Kyrgyz Republic, Tanzania, Mozambique, Zambia, and Mongolia) and one country in the process of application for candidate status (Solomon Islands). Some projects are planned for Sierra Leone, Liberia, and Albania for FY 2013-2014.
Examples of progress achieved in various IDA and IBRD countries include:
Nigeria: Nigeria is one of few countries to have legislated EITI with the 2007 EITI Act, which gave Nigeria’s EITI a broad mandate to strengthen transparency with far-reaching industry audits of the oil and gas sector (financial, production and process). An audit of the sector from 1999 to 2008 uncovered US$9.8 billion outstanding recoverable revenues, some of which the government was able to recover. Based on this achievement, Nigeria’s EITI multi-stakeholder group started further audits: solid mineral sector from 2007 to 2011, resource allocation audit and usage of resources.
Liberia: Liberia’s EITI implementation has been one of the most comprehensive amongst EITI-implementing countries. Liberia launched its EITI process in 2006-2007 and issued its first EITI reconciliation report in February 2009 covering the period June 2007-2008. Not only do the country’s EITI reports cover three sectors (mining, forestry and agriculture), but they also include an audit on"‘What ought to be paid," as per the Liberia’s EITI legislation, by extractive industries companies to the government. The increased climate of transparency has been acknowledged with the country’s improved ranking year after year on Transparency International’s Corruption Perception Index, from the 137th position out of 158 countries in 2005, to the 97th position out of 180 countries in 2009, and then improved again to 75th in 2012 (similar to Bulgaria) out of 176 countries.
Mongolia: Mongolia adopted EITI in 2005 and has published five reports and is now working on its sixth. The current report is covering payments from 200 companies compared to 25 in 2006. Since then, discrepancies have been decreasing and both government and companies are improving their data collection performance. The last two reports are connected to the concept of “beyond compliance” and include some information on licenses, mining plant performance, natural rehabilitation expenses, and donations (detailing what they were, their monetary value and to which provinces and districts they were made to). Mongolia also has improved its ranking on the Transparency International Corruption Perception Index from 120th in 2011 to 94th in 2012.
Kazakhstan: From 2005 to 2011, seven EITI reports covering all material revenues and payments from 167 companies were issued. Total revenues collected in 2011 amounted to US$27.8 billion, up from US$20 billion in 2010 and US$12 billion in 2009. With a population of 16.5 million, the revenues represent US$1,700 per citizen in 2011. Kazakhstan is currently undertaking preparation for the next validation exercise with the intention of meeting full compliance with EITI standards. Despite the overall good progress, CSOs in Kazakhstan seek to improve their representation within the EITI National Stakeholders Council. With support of the World Bank’s MDTF, eight EITI advocacy conferences (four national and four regional conferences) were held in different cities of Kazakhstan from 2008 to 2012. In 2013, further activities are planned: training of CSOs in extractive regions and communication activities to raise awareness on EI transparency issues among the general public.
Advancements in transparency have been noted in EITI implementing countries; additional efforts will be needed to strengthen the accountability side of the equation. Although EITI originated in the extractives industries, the same tools could be used as successfully in other sectors by underscoring citizen participation, institutional strengthening of government agencies and strengthening the rule of law to attract investments.
Bank Group Contribution
Since its launch, EITI has seen great momentum and traction, with rapid uptake in most regions. This record of accomplishment is due in large part to the World Bank/MDTF technical assistance and financing support leveraging ongoing sectoral work in resource-rich countries. The overall volume of FY2012, World Bank Group financing in the extractive industries sector was US$695.5 million through policy support, capacity building, private sector investment, and investment risk coverage. In addition to its role as administrator of the MDTF, the World Bank Group committed approximately US$7 million through its own budget processes during fiscal years FY05–FY12, and received a Development Grant Facility allocation of US$1.5 million for a three-year window to support civil society capacity building in EITI implementing countries during FY05-07.
From FY05 to FY12, 15 donors (Australia, Belgium, Canada, Denmark, the European Community, Finland, France, Germany, Japan, the Netherlands, Norway, Spain, Switzerland, the United Kingdom, and the United States) have contributed over US$60 million to the MDTF. The MDTF donors participate in the Management Committee (chaired by the World Bank), which reviews and approves the overall work program for use of the MDTF funds.
In addition to the bilateral MDTF donors listed above, the World Bank works closely with the private sector (such as the International Council on Mining and Metals and Standard Life Investments); civil society organizations (such as Open Society Forum Mongolia, Green Advocates Liberia, Global Witness, Revenue Watch Institute, and Publish What You Pay); other multilaterals (such as the International Monetary Fund, Inter-American Development Bank, African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, and European Investment Bank); the European Union; the African Union; and OECD in promoting and implementing the initiative.
EITI’s success in any given country rests on the political commitment by leaders and engagement with all relevant stakeholders to maintain the pressure for transparency and accountability.
EITI is a core part of the World Bank Group's sector strategy for oil, gas, and mining and the Bank’s governance and anti-corruption agenda. The World Bank, with the support of the MDTF donors, is well positioned to support countries in their goals of better governance in the oil, gas, and mining sectors, beyond the EITI implementation. Further, country programs and individual Country Partnership Strategies in IDA and IBRD countries are increasingly emphasizing implementation of the EITI as both a freestanding objective and as a platform for furthering the reforms agenda, and moving toward greater accountability and good governance and management. In this respect, World Bank/MDTF is piloting programs of ongoing support that aim to: (i) help countries to consolidate and deepen the EITI implementation; (ii) continue better governance reforms by building on the platform of EITI principles; and (iii) build capacity of civil society actors to hold government accountable for the use of extractive industries revenues.
The initiative has been so successful that the core strategic goals of MDTF-funded technical assistance in EITI-compliant countries have been expanded to help countries raise the quality of their EITI processes and reporting, and continue improvements in governance of extractive industries resources to benefit the people. More particularly this expansion means: (i) ensuring EITI is sustained and made irreversible, while raising the bar of quality of EITI reporting; and (ii) making systematic improvements in governance along the extractive industries value chain from the award of contracts and licenses to implementation of sustainable development policies and projects in regions affected by extractive industry activities.
“EITI implementation is an ongoing process and ‘being compliant’ is not the end of the game. You have to be ready for the next game because the challenges of transparency and accountability are unending” said Samson Tokpah, head of Liberia EITI (LEITI). “There are new challenges every day so there is an ongoing need for transparency. The LEITI work is also trying to find where the shortcomings are in the system to recommend corrections to address them.”
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