The 2013 Resource Governance Index A measure of transparency and accountability in the oil, gas and mining sector Marie Lintzer Accra, August 2013 http://www.revenuewatch.org/rgi

What’s at stake? Oil, gas and mining sector governance as a development challenge In resource rich countries: Over 1 billion people live on less than $5 a day 640 million live on $2 a day or less. In 2011, Nigeria’s oil revenues alone were 60 percent higher  than international aid to all of sub-Saharan Africa. Governance is the challenge, but also the solution. The RGI aims to help advance this effort. Total Official Development Assistance flows to sub-Saharan Africa amounted to $42 billion in 2011 (OECD), while total Nigerian oil revenues reached $68 billion (Nigeria EITI).

Why is a measure of resource governance needed? Raise awareness about a major development challenge Attract investors Concretize what may be seen as a vague challenge Enable evidence-based policymaking and advocacy A diagnostic tool to identify global and country reform priorities

What is the Resource Governance Index? A measure of transparency and accountability of the oil, gas and mining sector in 58 countries. 2012 data 173 questions 50 indicators >100 researchers/experts - The RGI assesses data published between 2008 and 2012. The research was conducted between Jan-Oct 2012. - Together the countries produce 85 percent of the world’s petroleum, 90 percent of diamonds and 80 percent of copper, generating trillions of dollars in annual profits.

How is the Index built: summary Resource Governance Index 2013 Institutional & Legal Setting   Reporting Practices Safeguards & Quality Controls Enabling Environment 10 Indicators; 16 Questions 20 Indicators; 122 Questions 15 Indicators; 35 Questions 5 Indicators

Index structure   Institutional & Legal Setting (20%) Reporting Practices (40%) Safeguards & Quality Controls (20%) Enabling Environment (20%) 10 Indicators 20 Indicators 15 indicators 5 Indicators Indicator 1 Freedom of information law Licensing process Checks on licensing process Accountability & democracy (EIU Democracy Index & WGI voice and accountability) 2 Comprehensive sector legislation Contracts Checks on budgetary process Open Budget (IBP Index) 3 EITI participation Environmental and social impact assessments Quality of government reports Government effectiveness (WGI) 4 Independent licensing process Exploration data Government disclosure of conflicts of interest Rule of law (WGI) 5 Environmental and social impact assessments required Production volumes Quality of SOC reports Corruption (TI Corruption Perceptions Index & WGI control of corruption) 6 Clarity in revenue collection Production value SOC reports audited 7 Comprehensive public sector balance Primary sources of revenue SOC use of international accounting standards 8 SOC financial reports required Secondary sources of revenue SOC disclosure of conflicts of interest 9 Fund rules defined in law Subsidies Quality of Fund reports 10 Subnational transfer rules defined in law Operating company names Fund reports audited 11 Comprehensive SOC reports Checks on Fund spending 12 SOC production data Government follows Fund rules 13 SOC revenue data Fund disclosure of conflicts of interest 14 SOC quasi fiscal activities Quality of subnational transfer reports 15 SOC board of directors Government follows subnational transfer rules 16 Comprehensive Fund reports 17 Fund rules 18 Comprehensive subnational transfer reports 19 Subnational transfer rules 20 Subnational reporting of transfers Each indicator provides information about an important aspect of the natural resource governance. Examples.

80% of countries do not meet satisfactory governance standards   Satisfactory (71-100) Partial (51-70) Weak (41-50) Failing (0-40) Only 11 countries earn a satisfactory score (above 70). Satisfactory scores indicate that governments publish regular, comprehensive and timely reports on the oil, gas and mining sector operations and profits; disclose data about their decision-making process; are subject to oversight and accountability mechanisms; have legal frameworks with provisions for openness and accountability; and have in place controls of corruption, rule of law, democratic institutions and open budgets. More than half the sample -- 32 countries -- does not meet even basic standards of resource governance, performing weakly or simply failing.

Regional performance Great diversity within the regions between various countries. MENA ranks the lowest of all regions, a serious concern given the region’s high degree of resource-dependency (on average, oil, gas and minerals generated 77 percent of total exports and almost 80 percent of total government revenue in 2006-2011). Sub-Saharan Africa performs slightly better, receiving a partially satisfactory average scores on the Institutional and Legal Setting component, an indication of recent legislative reforms in Ghana, Guinea, Liberia and Zambia especially. Ghana leads the way, ranking in the top 15; Equatorial Guinea ranks third to last. East Asia and Pacific receives the same average composite score as Africa (44), performing better in the enabling environment than Africa. Myanmar is the ranks last. Eurasia scoring particularly low on the Enabling Environment component, the lowest of all regions. Some of the top performers are in Latin America, but there is room for improvement in these countries, e.g. contract disclosure in Brazil (80) and Chile (75). Venezuela and Bolivia have low scores on the Enabling Environment (18 and 32 respectively).

RGI Results for the 58 countries Outliers in specific aspect of governance: South Sudan, Guinea, Botswana, Timor leste, Qatar.

Transparency is missing where it is needed most Of the 58 countries, 41 are classified as resource-dependent by the IMF (see IMF list below*); only 5 of them (Norway, Mexico, Chile, Trinidad and Tobago and Peru) have satisfactory standards of resource governance. Nine of the 15 failing  performers are resource-dependent. Oil, gas and mining contributed an average of 34 percent of GDP and 60 percent of total government revenues in these 9 countries. Resource wealth of this scale affects every aspect of economics and politics in these countries. Yet governments provide the public negligible, if any, information about the industry on which their economic future depends. *37 Countries considered resource-rich by the IMF in 2012: Algeria, Angola, Azerbaijan, Bahrain, Bolivia, Botswana, Cameroon, Chile, Congo, Dem. Rep., Ecuador, Equatorial Guinea, Gabon, Guinea, Indonesia, Iran, Iraq, Kazakhstan, Kuwait, Liberia, Libya, Malaysia, Mexico, Mongolia, Nigeria, Norway, Papua New Guinea, Peru, Qatar, Russia, Saudi Arabia, Timor-Leste, Trinidad and Tobago, Turkmenistan, Venezuela, Vietnam, Yemen, Zambia. 4 countries considered prospective resource-rich by the IMF in 2012: Afghanistan, Mozambique, Sierra Leone, Tanzania. Resource dependent or resource-rich countries are those where oil, gas and minerals contribute at least a quarter (25%) of their GDP, total fiscal income or export earnings.

Satisfactory performance is possible in diverse contexts Silver lining: Six of the ten top performers are middle-income countries (Brazil, Mexico, Chile, Colombia, Trinidad and Peru), pointing to the fact that being wealthy is not a precondition for satisfactory natural resource governance. There are also examples of good practices in countries facing significant governance and economic challenges. Timor-Leste ranks 13th and scores an impressive 82 on the Reporting Practices component, illustrating the government’s leadership on extractive sector transparency issues. While ranking 33rd, Guinea scores an 86 in the Institutional & Legal Setting thanks to recent reforms in the country’s growing mining sector.

State-owned companies in 45 countries RGI scores and ranks 45 SOCs on levels of open governance – the first measure of its kind. SOCs bring in more than two-thirds of total government revenue in countries such as Azerbaijan, Iraq and Yemen. In the mining sector, Chile’s Codelco is the world’s largest producer of copper, while Botswana’s partially state-owned Debswana is a leading producer of diamonds. Transparency among SOCs is commercially feasible but has yet to be fully embraced by many companies. 18 of 45 SOCs are under no legal obligation to report information about their operations, 28 fail to provide comprehensive reports on their activities and finances, and 19 fail to disclose information on their quasi-fiscal activities, such as spending on social services or fuel subsidies. An interesting finding: The seven highlighted companies are only partially owned by the government, i.e. they have a mix of private and state ownership. These companies boast an average score of 80. On the other hand, the 38 SOCs which are fully owned by the state receive an average score of just 46. Six of the seven mixed-ownership companies are listed on international stock exchanges, and therefore subject to regulations that require publication of financial statements. Debswana (Botswana) is the only partially state-owned company not listed on an international exchange, and it ranks poorly – 32nd out of 45. Pemex (Mexico) is the only high performing SOC that is entirely state-owned. While fully owned by the government, Pemex seeks financing through bonds in financial markets in New York and Mexico, which comes with the legal requirement to report about its operations and finances. It appears that the path to good reporting practices, in selected cases, involved international listing and financing requirements.

Natural resource funds in 23 countries $1 trillion The estimated collective assets of the 23 NRFs covered by the Index totaled more than $2 trillion in 2012. These funds serve as decisive tools in country efforts to manage revenue volatility, balance near-term expenditures with long-term savings, and utilize resource revenues to generate sustainable economic gains. However, governance risks are high because NRF financial flows can bypass the regular budget process and become vehicles for patronage and discretionary allocations. Limited information disclosure characterizes the majority of funds. In Kuwait, for example, it is against the law to disclose information about the Investment Authority. In 15 countries, including Azerbaijan and Russia, spending from the funds bypasses legislative approval. The total assets of the bottom 5 funds (Kuwait, Algeria, Qatar, Libya and EG) were $533 billion in 2012.

Recommendations to improve resource transparency and accountability Disclose contracts signed with extractive companies. Ensure that regulatory agencies publish timely, comprehensive reports on oil, gas and mining operations. Extend transparency and accountability standards to SOCs and natural resource funds. Concerted effort to control corruption, strengthen the rule of law and guarantee civil and political rights. Adopt international reporting standards for governments and companies.

RGI products on http://www.revenuewatch.org/rgi 58 printable country pages

RGI products 58 detailed country questionnaires with sources for every indicator score

RGI products An interactive tool for comparing and visualizing resource governance

RGI products 5 regional factsheets summarizing regional findings and recommendations, translated in regional languages.

Ghana’s mining sector overall performance on the RGI Ghana is the second-largest gold producer in Africa. While it also produces bauxite and manganese, the gold industry contributes more than 90 percent of total mineral revenues. The extractive sector accounted for 56 percent of exports in 2011, up from 12 percent in 2010 due to oil discoveries. However, its overall contribution to state revenues is relatively small, leading the government to reform the mining fiscal regime in 2011. Oil production began in 2011. Oil revenues are projected to surpass mining receipts in the near future, but it is too soon to assess transparency in the oil industry. Ghana's RGI scores apply only to the mining sector. Ghana received a "partial" score of 63, ranking 15th out of 58 countries, and 1st out the 17 sub Saharan African countries assessed. It scored particularly well on the Institutional & Legal Setting and Safeguards & Quality Controls components.

Institutional and legal setting Ghana earned a "satisfactory" score of 79, the product of substantial disclosure policies and an evolving legal framework. In 2012 the Ministry of Minerals, Lands and Natural Reserves announced reforms to introduce competitive auctions for mineral licenses. Environmental impact assessments are required prior to licensing, but the results are confidential. The Large Taxpayer Unit of the Ghana Revenue Authority collects all taxes from mining companies; taxes on dividends are collected by a separate unit of the Finance Ministry. The collecting agencies use some mining revenues in their own budgets rather than depositing them in the treasury. Ghana is a signatory to the Extractive Industries Transparency Initiative (EITI) and achieved compliant status in 2010. A Freedom of Information Bill has been dormant in Parliament since 2010.

Reporting practices The government does not publish comprehensive information on most key aspects of the mining industry, resulting in a "partial" score of 51. Information on applications for mining concessions is available for a fee, but there is no clear explanation of licensing criteria. Mining contracts are not published and it is difficult to evaluate the actual fiscal terms that apply to companies. However, many oil contracts are available on government websites. Some mining companies voluntarily publish their environmental impact assessments. The most comprehensive information on mining revenues is published in EITI reports, which include production volumes, mineral export values, the names of companies operating in the country, production data by company, production stream values, royalties, special taxes, dividends, license fees, and acreage fees.

Safeguards and quality controls Ghana received a "satisfactory" score of 73, the product of substantive anti-corruption policies but a lack of assertive government oversight. Inadequate resources mean that legislators rarely fulfill the requirement to ratify all mining contracts. Members of parliament from the ruling party are often appointed to the boards of mining companies, giving legislators a personal stake in the industry despite laws prohibiting conflicts of interest. The Ghana Audit Office reviews government agencies' financial statements and reports to parliament, but audit mechanisms are weak and no reports specific to extractive revenues are published.

Enabling environment Ghana received a "partial" score of 59, reflecting less-than-satisfactory rankings on measurements of government accountability, transparency, and the rule of law.

Ghana’s mining sector Institutional & Legal Setting (20%)   Institutional & Legal Setting (20%) Reporting Practices (40%) Safeguards & Quality Controls (20%) Enabling Environment (20%) Indicator 1 Freedom of information law Licensing process Checks on licensing process Accountability & democracy (EIU Democracy Index & WGI voice and accountability) 2 Comprehensive sector legislation Contracts Checks on budgetary process Open Budget (IBP Index) 3 EITI participation Environmental and social impact assessments Quality of government reports Government effectiveness (WGI) 4 Independent licensing process Exploration data Government disclosure of conflicts of interest Rule of law (WGI) 5 Environmental and social impact assessments required Production volumes Quality of subnational transfer reports Corruption (TI Corruption Perceptions Index & WGI control of corruption) 6 Clarity in revenue collection Production value Government follows subnational transfer rules 7 Comprehensive public sector balance Primary sources of revenue 8 Secondary sources of revenue 9 Subsidies 10 Operating company names 11 Subnational reporting of transfers Freedom of Information : can be addressed by national legislation ESIA are considered confidential (even though sometimes published by companies) Subnational reporting: Traditional authorities and Stools do not provide information

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