Building Transparency to maximize the utilization of mineral and energy resources
Background of Extractive Industries Transparency Initiative (EITI)
According to a joint World Bank, UNCTAD and ICMM paper, “the idea that mineral resources constitute a curse has gained prominence in policy debates”. This misconstrued notion is driven by the lack of detail understanding on how the proceeds from mineral and energy resources are spent by the government and/or the lack of trust between the public, government and the industries concerned. It is recognized, as well, that initiatives such as the EITI according to the paper “have induced greater transparency in revenue ﬂows and highlighted the need to improve the public ﬁnancial management of resource rents”.
The Extractive Industries Transparency Initiative (EITI) is a global standard to promote the open and accountable management of extractive resources. It seeks to address the key governance issues in the oil, gas and mining sectors.
The EITI Standard requires information along the extractive industry value chain from the point of extraction, to how the revenue makes its way through the government, to how it benefits the public. This includes how licenses and contracts are allocated and registered, who are the beneficial owners of those operations, what are the fiscal and legal arrangements, how much is produced, how much is paid, where are those revenues allocated, and what is the contribution to the economy, including employment.
revenues allocated, and what is the contribution to the economy, including employment.
The EITI standards rest on three pillars:
• All revenues from extractive industries should be regularly published and independently verified.
• Publication of data should be managed by a multistakeholder group composed of members from the government, the extractive industries, and civil society organizations, and
• Data should be effectively shared with the country’s citizens and stimulate an informed debate about how natural resources are governed.
EITI was born out necessity; necessity, they say, is the mother of invention, at some point, some stakeholders in mineral and energy industries deemed it necessary to convened and discuss mining-speciﬁc issues; share lessons learned and identify possible reﬁnements to the implementation of specific global standards in mineral extraction. This effort and its goal was to create a consensus among the mining and drilling industries across the globe and to monitor the revenue sharing scheme designed by the various mineral sharing contracts and what the industries are generating for the benefit of the nationals involved. The use to which those revenues are put, frameworks to address the trust issues involved in the sharing of mineral revenues, consensus at to the best way forward for mining and drilling industries and, ultimately, social and economic development were all among the principles of this initiative.
The pioneers of this initiative are quite aware of the complex nature of mineral extraction from the geological and accessibility to the geopolitical factors, the capital intensive requirement during exploration to the development and the fair utilization of mineral for the benefit of the people. A key driver or rationale of this initiative, in my opinion is the global concentration of mineral and energy resources liberalization due to the increasing private participation in mineral investment and the lack of development in mineral and energy resources-rich nations of the third world ; this means that today companies are increasingly sharing and comparing investment opportunities across the globe, and governments have become more aware that they are operating in a competitive global market place with high uncertainties and have also failed in their capacity to achieve their goals using the limited resources they generate from their respective environment. To minimize the shortcomings associated to the production of mineral resources, efforts from the various stakeholders would have to be directed toward making sure mineral cycle, industrial structures revenue sharing are understood and trust among the parties; and governments’ eﬀectiveness in providing public goods ﬁnanced by mineral extraction revenues. The fundamental objectives of EITI are publication of What You Pay Approach, comparison among countries and investigate the reasons for any discrepancies. The EITI board uses Validation reports to determine a country’s Candidate or Compliant status.
The New Way Forward
A key challenge over this initiative is the fact that most of the mineral rich nations are outside the OECD and the capacity for mobilization, deployment and implementation of the best management principle remain challenging to these regions due to failed policies and poor governance or in some cases, lack of transparency in operation by these extractive companies. The core features that deﬁne the EITI are that the Initiative is voluntary, based on the collaboration of three main stakeholders (governments, companies and civil society) and focused on the disclosure of revenues accrued to governments as a result of the exploitation of mineral resources.
With the current awareness of the non-renewable nature of mineral resources and the large ecological footprint associated to their extraction, new issues are constantly on global agenda as to minimize the negative impact of mineral development while maximizing the gains. Issue about corporate social and environmental responsibility in addressing development is one of the drivers of this trend- placing a higher expectation on the companies to assist in sustainable development. In order to address these challenges, trust will have to be built and maintained among the locals, the government, and industries and this very point underscores the reason for a better transparent operational records and revenue disclosure. The accountability of mineral industries cannot be ignored due to the high level of investment which they have pursued and their involvement in creating changes is highly recognized. This initiated effort by this organisation in my opinion would help foster the union and a better outlook on minerals as tools for national development; a point heavily contested by green politicians and activists. Undoubtedly, EITI progress has been very slow. Building trust structures in countries where trust is constantly challenged by harsh-economic realities and corruption can be compared to working on a hardest mission.
To this end, I would like to point out some of the issues that could further strengthen the functions of EITI. They include; reporting the value of non-cash payments by companies as part of its EITI program; reporting a company’s tax and royalty payments in isolation from their provision of social goods and services keeps undermining the true development impact and contribution of mining company operations. Reporting the high volume production from the small scale mineral resources producers, especially in the mining sector that remain uncounted for, to include sanction possibilities, to work with top investors to manage the uncertainties in global business cycle which also affects the cyclical nature of mineral resource values/commodities trade and investment, to work-out the best tax mechanism in response to regime changes in third world countries and the last but not the least, to bridge the high fulfillment-gap from the high social expectation in mineral sector; this mainstream misunderstanding are areas to be re-addressed and use for policy discourse in planning by government. All these cannot be addressed without stability in fiscal condition of host countries and their capacity to govern in a transparent way.