Regulation: Voluntary transparency scheme faces scrutiny

Can a voluntary effort between corporations, governments, and non-governmental organisations relieve the pressure from activists for tighter regulation of the oil and gas industry’s operations in Africa and other developing countries? Or will it increasingly be seen as a rubber stamp?

That is the burning issue, as the Extractive Industries Transparency Initiative approaches the decisive moment of its eight years of existence. All but one of 20 participating countries – most of them in Africa – with an important reporting deadline last March failed to meet it.

“These countries must really deliver if they want to prove they are not free-riding on the EITI brand,” says Radhika Sarin of Publish What You Pay, an umbrella for transparency advocacy groups.

The EITI was set up in 2002, after NGOs’ criticism of the oil and gas industry took a fresh turn. Mounting evidence that resource revenue to producing states was not spent for the benefit of their populations fuelled campaigns against the secrecy of resource companies’ payments to governments.

For example, the NGO Global Witness, alleged in a report that billions in payments from oil companies to the Angolan government were unaccounted for.

Public investigations, such as those of Riggs Bank in the US and Elf in France, further exposed the scale at which oil and gas-related revenues were siphoned off for political leaders’ benefit.

EITI is the most high-profile initiative to encourage the publication of extractive revenues. To “implement” EITI, governments, civil society organisations, and the companies extracting the oil and gas, must voluntarily come together to commission a report on company payments to governments. The report is then submitted for external “validation”.

So far, 32 countries, 20 of them in Africa, have joined the initative but only two – Liberia and Azerbaijan – have fulfilled all the requirements. In April, for the first time, two countries – Equatorial Guinea and São Tomé and Príncipe – were kicked out of EITI. A third, Guinea, was granted a voluntary suspension because of recent political troubles.

The EITI board postponed the hard decision for the bulk of the countries by granting 11 African states an extension of their reporting deadline until September.

Some reasons for missing the March deadline were deemed beyond the countries’ control, as when they ran up against their own procurement rules or a lack of funding made it harder to reach what was an ambitious deadline from the start.

But the EITI’s credibility will hinge on how lenient it chooses to be at the next crossroads.

“EITI implementation has made progress in Ghana, Nigeria and Liberia,” says Keith Slack of Oxfam America “[but] many of the most difficult African countries have shown little or no progress [or remain outside EITI altogether].”

The voluntary nature of EITI has also split the NGO community since its inception. Many NGOs, such as PWYP and Oxfam America, think EITI must be matched with legal requirements.

Ms Sarin says: “It is only a starting point, not the finish line, and needs to be part of a comprehensive package of both voluntary and regulatory approaches.” Oxfam supports the Energy Security Through Transparency Act introduced in the US Senate, which would make payments disclosure mandatory for companies listed on US stock exchanges.

Oil and gas companies resist tighter compulsory rules.

Jack Gerard, president of the American Petroleum Institute, the industry’s US trade association, argues that stricter legal requirements put US-listed companies at a competitive disadvantage against national oil companies such as Russia’s Gazprom and China’s CNPC.

As well as hurting the industry, this would “undermine existing transparency efforts” such as EITI by lowering producing countries’ incentive to participate, argues the API.

In spite of differences between industry and NGOs on whether EITI is enough, there is common ground in the view that EITI has made a positive contribution. Mr Gerard has boasted that “the oil and gas industry has been a leader in the creation of EITI”. Campaigners emphasise that the initiative opens a space for discussing topics that could not previously be mentioned.

The broader effect of EITI may be felt beyond the narrow confines of the initiative. Jonas Moberg, head of EITI’s secretariat, points out that what started as a voluntary standard is rapidly becoming hard law.

“In Nigeria and [elsewhere], EITI reporting has become mandated by law. Regardless of whether a company supports the EITI or not, they still have to report and follow the rules of the EITI.”

In Ghana, says Daniel Owusu-Koranteng, an activist, EITI has strengthened campaigners’ efforts to object to mining rules they perceive as bringing “minimal benefits” to the country. As Ghana boosts oil production, it will soon be clear whether having an EITI process will help it benefit more from oil wealth than many of its neighbours.

By Martin Sandbu

Copyright: The Financial Times Limited 2010
http://www.ft.com/cms/s/0/dd252206-78da-11df-a312-00144feabdc0.html