Expanding the Extractive Industries Transparency Initiative (EITI)

News | Open Government Partnership | Article 24 December 2020

The Extractive Industries Transparency Initiative (EITI) is a global standard for the good governance of natural resources, including gas, oil, metals, and other minerals. More particularly, EITI tends to encourage transparency and responsiveness in the extractive sector by requiring member states to annually publish reports disclosing the data that covers several important aspects, such as how contracts and licenses are registered, what kind of fiscal and legislative frameworks exists, who are the beneficiaries of these operations, how natural resources contributes to the economy and generally what kind of impact it has on the local and national levels.

 

On 14-15th of October 2020, EITI hosted the 48th board meeting online due to the on-going COVID-19 pandemic. During the discussion, EITI’s top strategic priorities were identified for the next 2021-2022 time period, including paying more attention to corruption risks, revenue utilization, open data, the energy transition, and measuring impact.

 

The EITI Secretariat also talked about current challenges that are connected with funding observed in EITI implementing countries caused by the COVID-19 pandemic. It is worth mentioning that approximately a quarter of implementing states experience funding gaps and budget cuts because of local authorities shifting focus to allocating more resources to social and health sectors rather than the extraction of natural resources. Additionally, reduced demand for oil is getting a bigger challenge for economies mostly relying on fossil fuel. This is partly connected with the overall effect of the COVID-19 pandemic as well as diversification with renewable energy sources.

 

Moreover, during the board meeting, EITI welcomed its new member, one of the largest oil-producing countries in Latin America, Ecuador, who in the past years worked hard to meet the sign-up steps and criteria. More particularly, one of the commitments for the Ecuadorian government is related to disclosure of public information within 18 months regarding contracts, revenues, and payments, beneficial owners as well as data illustrating gender and environmental payments and state-owned enterprises (SOEs). SOEs, in other words, government-owned companies are entities created by the government for the purpose of engaging in commercial activities. Frequently, in the extractive industry governments are represented by SOEs and accordingly, EITI requires member states to disclose information on the financial relationships between government and SOEs.

 

Based on EITI, beneficial ownership refers to the process of identifying real owners of the company which are equipped with rights to extract oil, gas, and minerals. Management of beneficial ownership is a crucial step for the efficient functioning of extractive industries as it could determine the rights of local communities and provide more transparency in this particular field. Thus, revealing who stands behind the companies and as a result, ending company anonymity is the key indicator for preventing and fighting corruption.

 

Since 2012, civil society organizations have supported Ecuador to become a member of the EITI. Ecuador’s multi-stakeholder group (MSG) that is combined with the representatives of government, civil society organizations as well as industry have worked on developing a Work Plan for the next three years that illustrate the goals of Ecuador’s inclusive development as well as national priorities. MSG strives to achieve the above-mentioned commitments by employing the main approaches, including:

 

1)      Adjusting the current rules and policies illustrating the financial relationship between the government and state-owned enterprises (SOEs) with EITI Standards, e.g., the rules and practices governing transfers of funds between the SOE(s) and the state, retained earnings, reinvestment, and third-party financing.

 

2)      Disclosures of information regarding government and SOE(s) ownership shares in extractive industries (mining, oil, and gas) including SOE subsidiaries and joint ventures as well as disclosure of information regarding any changes in the ownership.

 

Accordingly, by acknowledging that in many resource-rich countries, like in Ecuador, states get a share of minerals that are being produced, it is critical to ensure transparency and accountability of involved parties in order to mitigate corruption risksand money laundering.

 

The last but not least, during the meeting, the EITI board also outlined that local authorities whose willingness are to improve natural resource management mechanisms are welcome to apply and with the support of EITI successfully implement the standard and become a member country.

 

In the contemporary world, having well-functioning natural resource management mechanisms have great importance in order to ensure transparency and accountability of governance as well as mitigate corruption risks in the state. According to the International Union for the Conservation of Nature, the natural resources of a country belong to its citizens and the extraction of these resources could result in greater prosperity, economic growth, and social development. Accordingly, it is vital to have consistent and collaborative government approaches and policies that will determine how wealth from the extractive sectors are managed and translated into the public good. However, according to the OECD, most of the developing states experience poor natural resource governance that generally leads to corruption, poverty, and decreased welfare of citizens. Here raises the question, how countries could improve efficiency and succeed in managing their resources and how they could ensure transparency of these processes?

 

EITI, as a global standard for the good governance of natural resources, aims at raising public awareness and commitment regarding natural resource management and supports 55 countries (OECD states including Norway, the United Kingdom, and the United States as well as countries in Europe, Central and East Asia, Africa, Latin America, and the Caribbean Central) from all over the world implementing the EITI Standard. Additionally, EITI seeks to carry out public information campaigns, capacity building activities in order to engage citizens in the decision-making processes, and ensure public participation in natural resource governance. A good illustration is the example of the Philippines, where communities with the support of extractive companies started to create social programs including school constructions, hospitals, roads, etc. Citizens can also monitor the terms of contracts, evaluate if programs are fully delivered, and assess if local development plans align with the requirements and general needs of the district or municipality.

 

The successful energy industry is one of the most significant preconditions for every nation’s welfare and prosperity, however, Georgia lacks a comprehensive and advanced policy framework for governing the extractive industry. Therefore it will be beneficial if the Georgian government takes into consideration the Ecuadorian experience and starts laying the groundwork for implementing the EITI Standard. Having well-functioning and effective transparency mechanisms in the extractive industries will boost the economy as it will provide an appealing environment for business development and therefore attract foreign investments. Moreover, it will be a great instrument for preventing and combatting corruption and guarantee the rights of local citizens. By adopting the EITI Standard, Georgia will move to a new level and understanding of extractive governance that will ensure transparency, accountability, and responsiveness of each party involved in these processes.

 

To sum up, promoting understanding and involvement of policy-makers, local authorities and the general public regarding the governance of the extractive sector requires constant research and collaborative effort from all stakeholders. EITI strives to be an important facilitator of these processes and proves to be one of the most efficient initiatives for improving the effectiveness of managing natural resource governance in the states. However, there is still a lot of work to be done with regards to raising challenges regarding the COVID-19 pandemic and disseminating the EITI standard to other countries.

 

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This material has been financed by the Swedish International Development Cooperation Agency, Sida. Responsibility for the content rests entirely with the creator. Sida does not necessarily share the expressed views and interpretations.

 

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