U4 Helpdesk Query

Query

Extractive Industries Transparency Initiatives and the UN Anti-Corruption Convention

How realistic is it that EITI will lead to better governance, including less corruption and a more broad-based development in the countries concerned?
Are there any planned links between the adoption of the EITI principles and the ratification and implementation UN anti-corruption convention in the countries concerned?
If not, is there any added value in linking the two? Do you have any proposals in that respect?

Purpose
Advise to colleagues in the MoF on EITI

U4 helpdesk reply

Part 1 provides an assessment of the extent to which payment and revenue transparency principles and the EITI initiative promote better governance and control corruption through reviewing EITI strengths and weaknesses.
Part 2 provides commentary on the links between the EITI and the UNCAC ratification.
Part 3 lists useful links and contacts for obtaining information on the EITI, its implementation and current status.

Part 1: EITI - better governance and less corruption?

If properly implemented, principles of transparency of payments and disclosure of revenue from extractive industries will lead to less corruption and better governance. In addition, recovery of losses of revenue from extractive industries and full accountability through fiscal transparency will contribute to the state of development of the countries concerned. So there is little doubt that the principles are right and that they can have a significant impact on corruption control, better governance and development. The next question to ask is whether the EITI is a suitable vehicle for transforming these principles into action. We have thus tried to provide an overview of the initiative's track record so far through capturing its main achievements and identifying the main obstacles challenging its full potential.

The overall feedback, particularly from the first two sources mentioned above, has been that the initiative is a good start and given the right prerequisites for success, has the potential of slowly but surely tackling corruption issues in the extractive industries. It has also been pointed that, in addition to its main objectives, it is a good model for a proactive government-private sector-civil society collaboration and dialogue and is a step forward in terms of promoting government accountability in general. The main highlighted weaknesses include the fact that the initiative is a voluntary one and thus does not reach a lot of the countries where it is needed most; that in its present form the approach does not offer a level-playing field and can deter companies as it may cause commercial disadvantages vis-à-vis competitors and the industry for those willing to take part; and that only a legally binding mandatory disclosure framework would be fully effective. Opinions as to the strengths and weaknesses of the initiative are detailed below, along with their sources:

The DFID-initiated consultancy team set up to gauge the impact of the EITI looks at it from two angles, the first of which is outcome.

Outcome: This concerns the more direct links between EITI and development, including its effect on the economic position of the countries involved, their governance and the risk of conflict within the country. EITI is 'voluntary' in that it is enforced by the countries' governments, rather than through the UK obliging its companies to comply. It is therefore essential that EITI provides value to the governments and companies involved (and thus incentives to comply). In theory, EITI should offer countries an improved business environment that will help to attract foreign investment, and fulfilment of some of the pre-conditions on transparency set by international lenders or donors. Whilst the 15 months since implementation are insufficient to judge this impact directly, there are indications that EITI has led to positive results in these areas. Thus far the EITI has been endorsed by the World Bank Group and the IMF, and the proposed adoption of EITI in certain countries has reassured major investors. In addition, the large number of countries now wanting to subscribe to EITI compared with one year ago is testament to the perceived value of EITI. EITI should also offer extractive industries a more level playing field and an increasingly secure business environment. The pressures companies have put on governments to subscribe to EITI suggests it succeeds in doing this.

Process: The other angle through which EITI may lead to better governance (if less directly) is that of process. The process by which EITI is implemented has varied enormously from country to country, but common features are noticeable in all. EITI necessitates strong tri-sectoral discussion (between government, industry and civil society), which have previously been extremely rare in some EITI countries (such as Azerbaijan), so its occurrence within the EITI framework is a positive step towards governmental accountability in general. From the very fixed advisory group and legislation underway in the Kyrgyz Republic, to the informal mechanisms in Ghana, this multi-stakeholder engagement builds up accountability mechanisms, which can then set a precedent for cooperation in other sectors. This extension of transparency throughout government (or at least domestic demand for it) should in turn be assisted by the greater knowledge and understanding civil society has gained through EITI. For example, the ability of NGOs in Azerbaijan to react to data disclosed by the government and companies is now much improved. In addition, it is hoped that EITI can be formally expanded to apply to other sectors in the future.

One major impediment to EITI having a real impact is countries signing up to it but never actually implementing the principles. However, it is hoped (and indeed has been found) that in these situations, the value offered by EITI means surrounding countries and companies involved put pressure on the government to follow through and enforce EITI.

There is overall support for the initiative with a recognition however that as a voluntary initiative it has certain limitations. The voluntary element can, at the same time, also have positive effects. As the initial countries are drawn on the basis of willingness from the side of governments and companies to accept and implement the principles and the ability and willingness of the civil society in those countries to monitor and promote implementation, there is a good chance of success. This is important for a programme in its initial phases as it can lay the ground and serve to inspire others to commit. Amongst prerequisites for longer term success are however:

Extract from a Human Rights Watch Report

The initiative has broad support from multinational and national companies, industry organizations, governments, NGOs, and multilateral institutions. Human Rights Watch has participated in this effort. At this writing, the reporting guidelines are still being revised.

Since it is a voluntary initiative, host governments and companies must agree to adopt the initiative before data can be published. Companies have generally refused to publish their payments to governments without approval of the host government. This stance is partly in response to BP's experience in Angola as well as excessive caution towards contractual agreements. It is also not clear whether sponsoring governments, such as the U.K., U.S., or Norway, will forcefully press governments and companies to implement the guidelines. As of June 17, 2003 when a large formal meeting to endorse the process took place, only Timor-Leste, Azerbaijan, Ghana, Trinidad and Tobago, Indonesia and Nigeria have said that they would implement and pilot the initiative. The Angolan government has refused to implement the initiative, even though Sonangol expressed a willingness to publish data.

Some Transparency, No Accountability: The Use of Oil Revenue in Angola and Its Impact on Human Rights
HRW: January 2004, pp85-86

Extract from a Global Witness Report

Whilst the EITI has done some valuable work, including identifying the main revenue streams in the resource extraction business and developing a series of templates for collecting data, it remains poorly resourced and relies purely on voluntary reporting by companies and governments. The 2003 declaration of the G8 summit in Evian similarly highlighted a voluntary approach to promoting transparency in the extractive sector. This voluntary approach will not work in the majority of countries where it is most needed. The massive financial improprieties uncovered in this report show that political and business elites currently have a vested interest in avoiding transparency. Indeed, when BP wanted to disclose payments in Angola, it immediately faced the threat of losing its licence to less scrupulous competitors. If disclosure was required by law, it would void clauses in licence agreements with some governments that prevent disclosure and would thus avoid the problem of companies being penalised for breach of contract. Disclosure of key financial data is required by law in every developed country, so why should it be different in Angola and other developing economies?

Time for Transparency
GW: March 2004

Extract from a CAFOD Policy Paper

The PWYP Coalition acknowledges that voluntary country-level EITI compacts incorporating company and host government templates for disclosure may play an important role in enshrining international best practice and uniform standards for revenue disclosure. However, a voluntary approach is unlikely to deliver results in those countries where revenue transparency is needed most and where corruption associated with revenues from the extractive industries is of greatest concern.

Some have also suggested that oil companies should sign-up for disclosure voluntarily. This is problematic for a number of reasons. Firstly, individual companies could be put at a commercial disadvantage by disclosing information that others fail to reveal. Secondly, companies are often prevented from disclosure by confidentiality clauses in their contracts with governments. The Coalition believes that all companies and the investment community would benefit from a level playing field if regulators required disclosure. Furthermore, it would enable companies to address the risks to reputation arising from a lack of transparency. The PWYP Coalition therefore maintains its firm stance on the need for a mandatory framework for the disclosure of revenue payments.

Transparency: A Christian Concern - Catholic Social Teaching and the Case for Transparent and Accountable Practices in Extractive Industries
CAFOD - Catholic Agency for Overseas Development: SEPT 2003

Part 2: Links between the EITI and the UN convention

To our knowledge, there are no planned links between the two. The UNCAC provides the broader framework under which initiatives like EITI and others take place. There are no direct links, although some provisions of the UNCAC, such as article 9 (promoting transparency and accountability, including reporting on revenue within the management of public finances) or article 12 (promoting transparency in private sector) set an overall background for EITI-like projects.

There might be some potential benefits in combining the overall campaigning and promotion efforts for the two instruments, in countries where both are applicable. At the same time, the EITI team alerts that the approach needs to be cautious and sensitive to context, to ensure EITI is not seen as a Trojan horse by governments.

Part 3: Background information about the EITI and contact information

The Extractive Industries Transparency Initiative was announced by UK Prime Minister Tony Blair at the World Summit on Sustainable Development in Johannesburg, September 2002. Its aim is to increase transparency over payments by companies to governments and government-linked entities, as well as transparency over revenues by those host country governments.

The latest reports, newsletters and information about its implementation status can be found at this page of DFID's website.

More information about the project and DFID's efforts to gauge initiative's impact and progress can be obtained by contacting Sefton Darby at DFID.
Email: s-darby@dfid.gov.uk

	\| Site Map \| About U4 \| Feedback \| Contact \| U4 partner agencies

	Themes Other Resources Training Expert Answers

	Home > Expert Answers > Practitioner's Queries


	Home \| Top
U4 Anti-Corruption Resource Centre	http://www.u4.no