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Q&A: What's the impact of the Extractive Industries Transparency Initiative?

Source: Thu, 7 Oct 2010 16:50 GMT
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LONDON, Oct 7 (TrustLaw) - Ahead of the unveiling of a new international charter for governing the exploitation of natural resources at the annual meetings of the International Monetary Fund and the World Bank Group, TrustLaw spoke to Eddie Rich, deputy head of the Extractive Industries Transparency Initiative (EITI) international secretariat.

The EITI is a coalition of governments, companies, civil society groups, investors and international organisations that promotes revenue transparency at the local level in the oil, mining and gas industries. Countries deemed to be EITI-compliant must publish the revenues they have received from hydrocarbon and mining companies. Those same companies must also publish the revenues they have paid to the government.

Why is it that a country that has, in theory, billions of dollars worth of resources does worse than a country that doesn’t have these resources?

There are political, economic and probably social reasons for this. The political reason is that (when) you pay your taxes, you expect ... schools, hospitals, street lights and roads, and if you don’t get that, you vote the government out of power. There’s a general sense of accountability because you pay your tax.

Now if your government gets all its money directly from companies - which, frankly, is a lot easier than collecting taxes from individuals - then it’s not accountable; it’s not going to bother to collect taxes, it’s not going to bother being accountable to the people because they don’t pay it any money. So that whole social contract breaks down.

Secondly, there’s the economic reason which is the Dutch disease. (This concept asserts that exporting natural resources can increase the value of the domestic currency, thus making it harder for other sectors of the economy to export their goods.)

The third reason is the temptation for corruption and collusion when you have so few people in command of the resources on one side and so few people in command of power on the other. The temptation for colluded deals is enormous and these countries do much worse on the corruption indices.  

What are the main differences between the Natural Resource Charter (NRC) and EITI?

 The NRC is a good practice charter for how to manage the whole sector. The EITI is a standard relating to one part of that management chain. I think they are very complementary initiatives. We have very close relations. Maybe one day the Charter will turn into some kind of enhanced EITI, but there are no plans to do that yet.

Those people who think the EITI is too narrow to really address the wider issues that the Charter tries to address should actually observe what happens in each country in the EITI. Because even though the core standard is very narrow, the reality is that if you put governments, companies and civil society in the same room, they’re not just going to talk about revenue; they are going to start talking about contracts, they are going to start talking about how the money is spent, they are going to start talking about the operations. So it becomes a forum, a platform for discussions about wider reform and the Charter helps create a framework for that discussion.

The EITI was established as a standard in 2007. Why have only three countries since been certified as EITI-compliant?

There’s a lot more to it than just publishing data. There’s a whole process that takes two to three years; it’s quite a tough standard. Azerbaijan was the first to meet the standard and they’ve been publishing data for years and years. It’s about establishing a multi-stakeholder group and creating a dialogue around the data. It’s about the way the data is presented and checking that the data is reconciled and credible.

Yes, in some ways you could argue it’s disappointing that so few have got to compliant status so far, but I would say there are two things against that. Firstly, I think you can expect a lot more to become compliant in the next six to eight months. Secondly, it is because the compliance standard has been very toughly interpreted - quite rightly. So this is not a simple thing to meet.

In June 2010, G8 leaders urged countries that are candidates for the EITI (but whose efforts have yet to be validated) to implement the standard. Why is that none of the so-called BRIC nations (Brazil, Russia, India and China) or any of the big industrialised countries are even candidate countries?

 Well, Norway (host of the EITI International Secretariat and a candidate country) is quite big! This is a question you’d have to ask them. The EITI was originally established as a response to the “resource curse” issue. Some of those countries would say “the issue is it wasn’t really set up for us”.

How important is the support of the extraction industry within the EITI framework, given that the publishing of their payments is mandatory in a compliant country anyway?

 It’s a very subtle importance. The fact is that the assumption in so many of these countries, by civil society particularly, is that governments and companies are colluding for corruption. Quite often, companies think that civil societies and government are colluding, and trying to renegotiate contracts and rip off these “honest investors” as they see it. So they have a very strong interest in ensuring that one, it creates a level playing field, and two, that they have access to their biggest critic in an environment where they feel safe.

If it wasn’t a multi-stakeholder forum I think (the EITI) would have a lot less power and credibility in the intangible. They (the companies) would produce the same figures but we wouldn’t have a situation where the dialogue in each country is reducing tension and allowing communities to have a frank conversation with their government and the companies, allowing the companies to feel that they’ve got a good stable environment to operate in.

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