Extractive Industries Transparency Initiative - The Next Two Years: Opportunities for Ensuring the EITI is Robust and Meaningful

Publish What You Pay (PWYP) congratulates the Rt. Hon. Clare Short on her appointment as Chair of the EITI Board, as well as all of the representatives of governments, civil society and the private sector who will serve on the EITI Board 2011-2013.

PWYP’s engagement with the EITI dates back to the initiative’s launch in 2002. Back then, our public campaign for revenue transparency raised awareness and generated the political will to tackle this thorny subject. The EITI has been a ground-breaking initiative, and today, revenue transparency is generally accepted as a critical part of the governance package for nations to reap benefits from their natural resources.

Over the years, PWYP has continued to be an active participant in the design, implementation and monitoring of the EITI. Based on our experience, PWYP calls on the Board and all EITI stakeholders to consider the following opportunities for ensuring the EITI is robust and meaningful.

Opportunity #1: Improving the rigour of the EITI standard

The revision of the EITI Rules undertaken by the last Board is a step in the right direction, and has strengthened the requirements for implementing the EITI. The new policy on the participation of civil society in the EITI is very welcome, and the new Board should ensure that countries implementing the EITI fully meet the requirements on the free, full, independent, active and effective participation of civil society.

The establishment of a maximum candidacy period of 3 years and 6 months is also significant. Previously, the EITI Rules placed no restrictions on the length of candidature. With the establishment of the maximum candidacy period, the Board recognises that candidacy is a temporary state which is intended to lead to EITI Compliant status in a timely fashion, or result in de-listing. At the same time, the Board has strengthened the requirements for becoming a Candidate country by making requirements 1 through 5 inclusive as sign-up requirements. A newly established Board Committee, the Outreach and Candidacy Committee, will review all candidacy applications to ensure that countries are adequately prepared for successful and timely implementation of the EITI before the Board admits them as Candidates. In implementing these policies objectively and with rigour, the new Board now has a major opportunity to uphold the EITI global standard.

The reporting requirement has also been strengthened to ensure that EITI reports are of higher quality and contain meaningful information, but one major weakness of the EITI remains that disaggregated reporting is not a requirement. More and more countries implementing the EITI are producing reports in a disaggregated fashion. By incorporating this best practice into EITI core requirements, the new Board can ensure a real improvement on the usefulness of EITI reports.

Opportunity #2: Translating transparency into accountability

The EITI has shown a remarkable trend from 1 Compliant country in 2009 (Azerbaijan) to 11 Compliant countries in 2011 (Liberia, Timor-Leste, Ghana, Mongolia, Nigeria, Kyrgyz Republic, Central African Republic, Niger, Norway and Yemen). It is clear that the EITI’s global standard is achievable.

Nearly a decade after its launch, the EITI is delivering transparency.

However, we encourage the new Board to consider: “What benefits is the EITI bringing to the citizens whose lives it is designed to improve?” There is much the EITI can do to tackle this question, such as collecting more detailed information to how EITI reports are used and facilitating the use of EITI data for increased public debate and oversight over the allocation and use of revenues.

Opportunity #3: Nurturing the evolution of the EITI to ensure relevance

The EITI as an initiative has developed and matured greatly since its early days and so has the movement’s understanding of the levers that are needed to ensure transparency and accountability in the management of natural resource wealth. It is critically important that this evolution is reflected in the EITI’s mandate and scope so that the EITI can continue to grow and flourish and remain relevant as a governance tool for resource-rich countries. It is critical that the board seek concrete ways to incorporate best practices into reporting standards. Extending the disclosure requirements of the EITI into licenses and contracts is one such area. EITI implementing countries Mongolia and Liberia have demonstrated that this is possible and beneficial. After all, citizens have the right to know not only how much their country earns from resource extraction but also whether this amounts to a fair deal.

The new Board must explore these issues in a serious way or risk seeing the EITI lose its relevance and stakeholder interest.

Opportunity #4: Reinforcing the EITI with complementary financial reporting regulations

The EITI will be reinforced by other financial reporting requirements including national legislation and international corporate reporting regulations in the form of stock exchange listing rules or international accounting standards.

Stock exchange listing rules such as the Dodd-Frank extractive industries payment disclosure provision passed by the United States in July 2010 will enhance EITI implementation. The Dodd-Frank Act requires country-by-country and project-by-project reporting by all oil, gas and mining companies listed with the US Securities and Exchange Commission. The disclosure of data on an annual basis, in financial reports by companies listed on US capital markets will promote timely and disaggregated reporting through country-led EITI processes.

Stock exchange listing rules would result in disclosure of government payments in countries which do not implement the EITI. This will empower our civil society partners in these countries to push their governments to adopt EITI

An International Financial Reporting Standard (IFRS) for all companies engaged in extractive activities would also reinforce EITI country-led processes, by providing near-universal reporting requirements for all oil, gas and mining companies around the world. The International Accounting Standards Board (IASB) is currently considering an IFRS of this nature which may also include other critical financial information related to production, profits and reserves which should encourage the EITI to widen its scope beyond revenue transparency.

EITI country-led processes together with international financial reporting regulations and other national legislation have the potential to create a universal standard of transparency for the extractive industries where credible data is discussed in the innovative policy space that the EITI provides.

The new EITI Board should ensure support by all EITI stakeholders for complementary financial reporting regulations such as national legislation, stock exchange listing rules or International Financial Reporting Standards.

Opportunity #5: Ensuring the EITI becomes self-sustaining and durable

To ensure sustainability and durability, the EITI must widen the circle of people involved in the initiative both at national and at global level. In many countries, there is a risk of the EITI remaining accessible only to a small group of individuals involved in the multi-stakeholder steering committees.
If the EITI can go beyond these limited circles and be made more accessible to the general public, by increasing participation at the local level (including communities) and building ownership of the initiative among the citizenry, then the scope for widening the impact of EITI is immense.

At the global level, too, there is a need to build more ownership and a stronger foundation for the EITI’s own governance and oversight through the Board. The principal ingredient that must be strengthened is the participation of civil society from implementing countries so that they can fulfil their role as Board members in an effective manner. The new Board must lift the linguistic, financial and technical barriers to effective civil society participation in its deliberations and decision-making, for example by ensuring that Board documents are made available in multiple languages in a timely fashion and facilitating the full participation of all Board members in the Board’s work.