Governance and Transparency: Extractive Industries Transparency Initiative (EITI) PREM/COCPO workshop on Extractive Industry Issues May 16 – 17, 2007 Anwar Ravat Program Manager, EITI Oil, Gas and Mining Policy and Operations Unit (COCPO)

What this presentation covers A.The context - oil gas and mining (EI) sectors and transparency B.How EITI is structured and how operates C. Early results from EITI implementation : progress to date on transparency what has been working well so far – and what has not D. Emerging lessons from EITI implementation E. xx F. Mainstreaming: key challenges and risks ahead for EITI

The context: Paradox of Plenty  All too common story …  Widespread resource wealth in developing countries  But …. potential for good has not been realized  Resource rich developing countries have experienced: low per-capita growth slow progress on human development social and political instability and violence a.k.a. “Resource Curse”

Role of Governance  Good governance is critical….  Often resource-rich developing countries do not score well  Good governance has multiple features: Clear and stable laws and regulations Rule of law High level of capacity and skills in government Fiscal monetary and budget discipline Open dialogue between government and civil society Public sector/private sector balance Transparency

Dimensions of Transparency  Transparency has many dimensions - and applies to all sectors revenues and expenditures policies, laws and regulations administration  EITI’s focus is on resource revenue transparency increases accountability reduces risk of corruption fosters democratic debate improves macro-economic management improves access to finance  EITI is best seen as a manageable yet meaningful starting point to better governance and anti-corruption effort in sector

EITI as a response – a global initiative  Launched by UK government in 2002  EITI Board (Norway) headed by Peter Eigen  WBG officially has endorsed EITI : important part Bank’s Response to Extractive Industries Review included in recent GAC strategy document  WBG actively supports EITI via: EITI team in Oil, Gas and Mining Policy and Ops. Unit (COCPO) Multi-donor trust fund for EITI provides for technical and financial assistance to EITI implementing countries Increasing number of WPAs from country teams for EITI TA

EITI’s global architecture Civil Society (5) Supporting countries (3) Implementing countries (5) Companies (5) Investors (1) EITI Board (Peter Eigen, Chair) 19 members 3 IFI observers (AfDB, WBG, IMF) EITI Secretariat (Oslo-based) WBG support for Implementation In EITI countries (EITI Trust Fund managed by COCPO) EITI Conference [Every 2 years] Validation Process

EITI and governance: a recap  Broad coalition of stakeholders to help improve governance  Focus on revenue transparency to benefit all stakeholders governments of resource-rich countries and their governance and investment climates for investment flows citizens and civil society resource companies and investors  Involves full publication and verification of company payments and government revenues from oil, gas and mining  EITI is self-contained but not in a vacuum: part of governance and anti-corruption agenda Strong element of participation (government, companies, NGOs) ultimately is about helping sustainable development and poverty reduction

A summary of EITI criteria – “EITI Source Book”  Credible publication of payments and revenues Covering all significant payments by companies and revenues with independent audits and reconciliations to widespread audience -- in a user-friendly format  Covers all entities involved includes state-owned enterprises and companies international and domestic private sector companies  Full engagement of civil society in the EITI process  Country ownership time-bound plan of implementation financially sustainable over time support by international development agencies

What does EITI not cover yet? EITI CRITERIA  Independent reconciliation / audit of payments made and revenues received.  Publication and widespread dissemination of results.  Comprehensive coverage, i.e. all companies including state-owned and local companies.  Full engagement of civil society in the process.  Public, financially sustainable, time-bound plan of implementation. Does not cover:  Public expenditure side  Upstream issues – concession awards and licensing  Social spending by companies  Detailed review of concession compliance and PSA costs (Note: Nigeria EITI did expand scope of EITI audits to cover this)

The EITI Process

Strong EITI take-up: 27 countries adopted EITI so far.... of which 8 countries have issued one or more EITI Reports Note: Average time to first EITI report – months

Example of results achieved to date: Nigeria  An in-depth EITI process chosen by Nigeria beyond normal EITI  Also covered review of oil flow and sector processes and financial payments  Comprehensive audit reports and findings were publicized April 2006 initial US $250m unexplained difference in payment and receipts many areas for improving payments processes identified other far-reaching recommendations on oil production/flows  Wide publicity in media; senior-level follow-up effort EITI differences were investigated further - and largely resolved detailed “remediation action plan” to tackle other recommendations better revenue collections reported  On-going follow-up by civil society and media coverage  Better understanding by public of EI and financial flows (compared to pre-EITI)

Example of Results achieved to date: Guinea EITI  EITI is a key national priority for Guinea, with mechanisms in place for: high-level government oversight of the overall EITI process tripartite entity including companies and civil society to build consensus and manage day-to-day EITI execution  EITI report prepared by a team of international consultant + national firm  Report findings were positive - with small differences in payments/ revenues  Above all the EITI process is generating a culture of discussions and exchange systematic forum for Government, civil society and private companies to discuss a range of extractive sector issues - mining legislation framework  Other spin-off benefits too: some payments tax reported as increased as a result of EITI process improvements in public accounting systems for mineral revenues better accounting of national assets (not previously recorded in accounts)

Positive lessons emerging from EITI (1)  EITI driven by two big ideas : that corruption is a major problem in developing countries that the commodities boom is being / could be squandered  EITI response was on two fronts disclosure (providing more data on EI revenues) demand side (for more accountability) including by NGOs  Both responses seem to be working – disclosure and demand-side a multi-stakeholder approach works - to build trust EITI methodology has become accepted as a standard  Clear signal by governments on transparency reforms  Companies are engaging willingly – to manage political risk and develop a “social licence to operate”

 Bank operations are beginning to refer to EITI linkages  Early indications of positive results in countries revenue transparency matters - especially in mining with larger local “footprint” but stakeholders want to see more – better sector governance  Sound legal basis for EITI is vital for sustainability of EITI  But no progress without political support and ownership  Full engagement of civil society is key – to press for accountability  But …. what is the end-game for EITI as a process or initiative? Positive lessons emerging from EITI (2)

EITI narrative is not all one-way -- key issues ahead  Mandating company participation – particularly “international national” companies  Risk of “façade’ of EITI cloaking other poor practices in the sector  Sustaining the EITI momentum high oil gas/commodity prices may affect country commitment constrained donor TFs – surge in country demand but not being met  Some perception of “changing the rules” with Validation process  Program evolution and medium term sustainability EITI wants to “acquire teeth” e.g. disengage “non-moving” countries going from narrow (EITI) to broader (governance)  “Mainstreaming” of EITI how to embed transparency into national processes how set-up platform for sector governance reforms

Will EITI Defeat the Resource Curse?  The “resource curse” is not inevitable (Botswana, South Africa, Chile)  Clearly governance is key effective EI sector governance and EI sector resource management converting EI revenues to sustainable development  But better revenue transparency via EITI should help especially in: clear and stable laws and regulations fiscal monetary and budget discipline open dialogue between government and civil society transparency more generally in the EI sector

To wrap-up -- and key questions  In sum excellent traction so far in EITI delivery – and in CD take-up this record of performance will likely continue into FY08  Key discussion questions include: major issue of mainstreaming will come up soon in countries concrete ways to better integrate in broader governance agenda? Thank you Anwar Ravat, Program Manager, EITI