Assessment of World Bank and IFC Policies on Transparency for Extractive Industries George Holliday Europe and Central Asia Program Bank Information Center

World Bank EI Reform Programs in Over a Hundred Countries Significant role in reforming the contractual frameworks in the extractive industries around the world with the main aim of making them more attractive to investors. Mining sector - over 100 countries have reformed their mining laws and investment frameworks over the last two decades under the guidance of World Bank reform programs Significant number of countries also reformed their hydrocarbon laws and investment frameworks under Bank reform programs

Bank Guidance on Contract Models In many countries with Bank-supported EI reform programs, the contract model has taken the form of two EI sector contracts - the Production Sharing Agreement (PSA) in the hydrocarbons sector and the Mining Development Agreement in the mining sector. These agreements typically supersede statutory law, and are negotiated project-by-project. They encourage provisions that are attractive for foreign investors, such as competitive fiscal terms; no limits on size of projects; no minimal performance standards; full repatriation of profits; and long contract terms. They usually avoid requirements for mandatory provision of social services; restrictions on negotiating wages; limitations on expatriate personnel; and imposition of political and economic risks.

Stabilization Clauses World Bank-reform programs and IFC EI project investments have supported EI contracts that offer stabilization clauses that guarantee for ten to twenty years the application of current statutes or contract- specified terms on taxes, labor matters, environmental responsibilities, and social investments. World Bank’s regional mining development strategies recommend stabilization agreements as part of a successful mining investment regime Bank reform programs for extractive industries typically take place in countries with very weak government capacity and with inadequate or inappropriate regulations. Even if the government has programs in place to improve capacity and regulations, these stabilization clauses would dictate that measures adopted after the contract is signed would not apply.

World Bank Group Support for EITI and Revenue Transparency Requirements Endorsed EITI in June 2003 Management Response to the Extractive Industries Review (September 2004) committed the World Bank to require revenue transparency as a condition for all new World Bank Group EI investments and to strongly support EITI and the objectives of the Publish What You Pay campaign Bank has played an important role in getting countries to endorse EITI and in building capacity for expected EITI implementation IFC Policy requires that “from January 1, 2007, clients of all IFC-financed extractive industry projects publicly disclose their material payments from those projects to the host government(s).”

Assessment of Support for Revenue Transparency Specific Lending Projects and Programs- 36 Extractive Industry World Bank Group loans (July 2005 to December 2006) 13 World Bank 22 IFC, and 1 MIGA (guarantee) Performance in Resource-Rich Countries- World Bank’s lending and non-lending assistance to governments since 2004, including the World Bank’s country strategies for 41 countries with substantial oil, gas, and mining resources.

Main Finding on support for Revenue Transparency World Bank (lending to governments): Lack of consistent support for revenue transparency across resource-rich countries and across EI operations:

1. Revenue Transparency Commitment 2. No Commitment or Public Disclosure is Unclear World Bank49 IFC16 (6 unclear project-level disclosure) 6 MIGA10 WBG Total2115 Revenue Transparency Measures in World Bank and IFC Extractive Projects Approved & Proposed July 2005 – December 2006

World Bank had no revenue transparency measures for 12 recent (since 2004) EI lending operations in resource-rich/substantial resource countries Revenue transparency is not mentioned as a priority in the World Bank’s country strategies for 16 resource-rich/substantial-resource countries, including: Algeria, Ghana, Indonesia, Mongolia, Russia, Togo, and Ukraine. World Bank (lending to governments) (cont.)

Inconsistency between WBG-stated strong support for EITI and concrete changes in lending operations: Mainly grants from the EITI Multi-donor Trust Fund, for activities such as workshops and trainings Out of 41 resource-rich/substantial-resource countries, there are only 9 Bank lending operations that mention revenue transparency and of those only 6 lending operations that contain specific revenue transparency measures [only two with performance indicators]

Limitations to mainly promoting EITI: Project-level disclosure and the disclosure of investment contracts are critical to carrying out any sort of meaningful tracking of EI revenue flows In countries where the WBG has active lending operations and especially where they are directly involved in the extractive sectors – they must take the responsibility to require project-level revenue and contract transparency

IFC (project investments with private sector) Unclear Reporting Requirements – Project documents most often do not specify the following important information: the specific types of revenue that will be reported, how often revenues will be reported, the duration (e.g. for the life of the project), the reporting format, or the location of disclosure. [Note: BIC’s initial review of EI projects has been unable to find revenue disclosure figures from IFC EI projects] Unclear Project-level Reporting Commitments – Out of the 16 projects with revenue transparency commitments, 6 projects did not have clear commitments to project-level disclosure. Some projects commit to reporting in annual reports or through the EITI process.

World Bank/IFC Policy on EI Contracts Public disclosure of EI investment contracts is not advocated in any of the Bank EI development strategies No evidence of the Bank promoting contract transparency in their EI reform programs (with the exception of a few very large projects) The IFC’s Policy on Social and Environmental Sustainability (2006) states that only “significant” extractive industry projects (defined by the IFC as representing 10 percent or more of government revenue) are required to disclose relevant terms of key agreements that are of public concern, such as host government agreements (HGAs) and intergovernmental agreements (IGAs). IFC has stated that it reviews all contracts and, that if it determines there are terms that are inconsistent with industry norms, it would require the disclosure of such terms.

Recommendations Promote extractive industry reforms that ensure maximum benefits to host country. Transparency for investment contracts and agreements. Consistent implementation of commitments on revenue transparency. Revenue transparency at project level. Clear reporting requirements on payments. Establish revenue transparency as a lending priority and as performance indicator. Transparency for exploration activities and infrastructure.

End Contact Information: George Holliday,