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sharing in governance of extractive industries

Authored by Sam Bartlett

What next for strengthening implementation of the EITI Standard?

The EITI’s 42nd Board meeting was held in Kyiv, Ukraine on 27-28 February 2019. As has been widely reported, the EITI Board agreed in principle to a number of important refinem.... Further work is needed before the final language is agreed. The EITI Board also needs to agree on how these changes will come into force. In this blog we explain the background to these changes, highlight some of the key decisions and explore the implications for the EITI’s 52 implementing countries ahead of the EITI’s 8th Global Conference in Paris on 18-19 June. 

What happened in Kyiv?

The EITI Board reached agreement “in principle” on all 13 proposals. Five of these warrant particular attention: 

  1. Contract transparency. In many EITI implementing countries, contracts signed by the state and by companies establish the fiscal terms that determine how much tax is paid for resource extraction. These contracts are often confidential, hindering informed public debate on whether the country is receiving a fair return. The 2013 Standard was a landmark in encouraging contract transparency and requiring a clear policy on contract disclosure, and was effective in putting the issue on the table for discussion at the national level. The majority of EITI implementing countries have taken steps to publish contracts and promote public debate. In Kyiv, the Board took the next step by agreeing to require disclosure of contracts signed after 1 January 2021. Multi-stakeholder groups (MSGs) will be expected to integrate contract disclosure into their EITI work plans. Combined with improved project-level reporting (an issue also addressed in Kyiv), this will contribute to better data analysis and informed public debate. 
     
  2. State participation and commodity trading. Of the USD 2.5 trillion dollars in oil, gas and mining payments covered in the EITI Reports published to date, around half flows through national oil companies. The EITI Board agreed to strengthen the disclosure requirements regarding state participation, transactions related to state-owned enterprises and quasi-fiscal expenditures. Working together with commodity traders, the EITI also improved its requirements regarding the disclosure of “first trades”, i.e. the sale of the state’s share of production or other revenues collected in-kind. 
     
  3. Environment. The environmental impact of the extractive industries is a focal point of public debate. In 2017, a review by the EITI International Secretariat noted that, in response to local concerns, at least 28 EITI implementing countries had done some form of reporting on environmental issues. Ahead of the Kyiv meeting, there was a sustained campaign from civil society groups, especially in Latin America, calling for more attention to environmental impacts. While there was broad consensus that these issues are of critical importance, there were concerns that the EITI should not extend its mandate into areas already covered by other international agreements and national bodies. The pragmatic compromise struck in Kyiv reiterated that the EITI should cover material environmental payments by companies to governments, and encourage disclosures of contextual information related to environmental monitoring. 
     
  4. Gender. The Board discussed the EITI’s efforts to enhance women’s participation and empowerment to ensure that extractive resources are managed fairly and in the best interest of all citizens. Building on previous work on gender, the Board agreed to require that MSGs consider gender balance in their representation and disclose employment data by company, gender and occupational level. The Board also agreed to encourage gender considerations in the dissemination of EITI data, and to encourage MSGs to document how they have taken gender considerations and inclusiveness into account.
     
  5. Mainstreaming transparency. The EITI Board continued to shift the focus of EITI implementation away from publishing EITI Reports as an end in itself, and to instead encourage systematic disclosure. Many countries are already showcasing progress in this area. In Kyiv, the Board agreed on changes to the Standard that will provide more flexibility for MSGs to develop mainstreaming proposals. It also agreed to widen the data quality discussion from a focus on reconciliation to reviewing and strengthening routine audit and assurance systems in industry and government. This allows MSGs to consider more efficient and cost-effective approaches, and opens up new opportunities for MSG discussion and oversight.

When will these changes come into force?

It’s important to emphasise that these changes are not yet final. The Board agreed that its Implementation Committee will develop a revised text with final language on each proposal. It is expected that the Implementation Committee will make a recommendation in early April, and that the final text will be formally launched at the Global Conference in Paris on 18-19 June.

The Board will also develop transitional arrangements. In the past, these have involved a rather complicated schedule of phased implementation and Validation. In Kyiv, the Board started discussing possible ways to address this, including a simpler approach whereby the 2019 Standard would come into force immediately, enabling MSGs to take advantage of the clarifications and additional flexibility that have been agreed. Countries currently working on EITI Reports and corrective actions from Validation would be able to continue their work under the 2016 Standard. During an interim period, there would be a “no disadvantage test” where countries would need to demonstrate adherence to either the 2016 or 2019 Standard. After this period, however, only the 2019 EITI Standard would apply to all implementing countries. While this proposal also requires further discussion and elaboration, this should limit the disruption to ongoing work and facilitate the adoption of the new requirements. 

Taking international commitments to the national level

The changes agreed in Kyiv are a significant achievement. It demonstrates the enduring strength of the EITI model: that a “curious coalition” of government, industry and civil society stakeholders can overcome divergent perspectives and interests to agree on wide-ranging commitments that have huge potential to improve extractive industry governance. 

Of course, commitments that have huge potential is a significant caveat. As the Board worked its way through the proposals, there was a common understanding around the table that “we’ve only just begun”. The successful multi-stakeholder discussions at the international level now have to be replicated at the national level. In the EITI’s national MSGs, and in wider public debates, implementing countries will tackle these issues with their own set of (contested) perspectives and interests. As we look ahead to Paris, it is the contours of these national debates that need more attention. The considerable technical and financial capacity of EITI supporters, so crucial in securing these commitments, now needs to be leveraged to support the next phase of EITI implementation. 

Background and development of the global EITI Standard

Since its inception, the EITI Standard has evolved to meet the needs of stakeholders and to further the realisation of the EITI Principles. In the lead up to the EITI’s previous global conferences (held every three years), the EITI Board has considered opportunities to strengthen EITI implementation and to improve the governance of the EITI Association. 

The most ambitious step was the agreement of the 2013 EITI Standard ahead of the 6th Global Conference in Sydney, Australia. In its early years, the EITI focused almost exclusively on reconciling company disclosures on tax payments and government disclosures on revenues. The 2013 EITI Standard introduced a wide array of new reporting requirements regarding laws, contracts, license allocation, state participation, trading of commodities on behalf of the state, social payments and transfers. 

The 2016 EITI Standard focused on clarifications and improvements, and was adopted by the EITI Board ahead of the 7th Global Conference in Lima, Peru. It reflected three important changes: (1) a new requirement on beneficial ownership reporting, (2) changes to allow for “mainstreamed” EITI implementation, and (3) the introduction of an improved Validation system for measuring implementing country performance. Since its implementation, the majority of EITI countries have completed Validation against the 2016 Standard. Most are addressing corrective actions needed to meet the EITI’s requirements and wider recommendations aimed at making the EITI’s work more meaningful and effective. 

The lessons from Validation led the Board to focus again on clarifications and improvements. At the 41st Board Meeting in Dakar, the EITI Board agreed to clarify requirements that had already been under discussion since Lima, to address precedents established in Board decisions, and to further reflect the EITI’s focus on encouraging systematic disclosure. A working group mandated by the EITI Board developed 13 proposals for consideration. 

This blog was published on the EITI website on 14 March 2019.

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