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Building Transparency to maximize the utilization of mineral and energy resources

Updated on June 23, 2017

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 Industry Transparency Initiative 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.

The Rationale

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.

Membership

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EITI Operations

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

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The Challenges

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.

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A Case Study- The Philippines

The Philippines is ranked as the world’s fifth most mineralised country by estimated reserves, but only about 2% of the 9 million hectares holding mineral reserves are covered by mining permits according relevant reports. It was mentioned that the energy industry in the Philippines, though, in a state of decline in productivity, has contributed more to the national revenue as an extractive industry. The fact that majority of the country’s potentials are yet to be explored and quantified, it would be relevant if more exploration in oil and gas should be conducted in order to create more opportunities for the industry and the country as large- whose budget has remain deficit for many years.

In its efforts to continue to serve as a platform for dialogue among the mineral resources stakeholders in the Philippines, the Philippines Extractive Industries Transparency Initiative has published its comprehensive 3rd Ph-EITI report in addition to the two previous reports, expressing its commitment in mineral industries for sustainable development using a global standard for revenue sharing and reporting and helping to build transparency by requiring information along the extractive industries value chain from the point of extraction, to how the revenue makes its way through the government, to how it benefits the public. For reconciliation purposes, the report on the site made a clear data presentation of the Philippines mineral enrichment and gave details of the values exported and also made some account from the information submitted by the MSG. The report to my understanding is a summary or an overview from the 2016 report of the Ph-EITI. To be consistent with the principles of the global EITI, it summarizes the relevant findings from the three Ph-EITI reports so far since the Philippines joined the global initiative. From the 3rd Ph-EITI report; which is more detailed and covers both fiscal payments (taxes, fees, and charges), and the non-fiscal payments, such as Social Development and Management Program (SDMP) funds, environmental protection and rehabilitation funds, and royalty payments to indigenous peoples, identifying and also explaining the discrepancies in the reported figures, offering recommendations on how to address such issues. Although the report in the site is brief but it features the relevant information needed by the public. However, it would serve more of its pivotal purpose, if it detailed the roadmaps, the pending reforms proposals by the congress and the conflicting issues from the DENR secretary on the state of mining in the country. One key point it elaborated is the subnational transfer of revenue. This has been challenging for the LGUs in the country and if implemented as planned by the Department of Budget and Management (DBM) via a system of direct transfer by the Bureau of Treasury, would help address the delay in disbursement. A notable point in the report was the reference from the 2nd Ph-EITI, stating how the LGUs failed to give account of the revenues they received and the discrepancy and inconsistency reports on revenue paid with those received from the industries to the NCIP respectively and proper monitoring procedure was recommended. It also elaborated on the subsequent reports that there was a decrease in the percentage of discrepancy reported. To continue with this positive trend, an open and online information management system should be built to facilitate this process of reporting.

The report related on the implementation processes by using the MSG five objectives for EITI implementation in 2016, reflecting on national priorities in the extractive sector. They include to show direct and indirect contribution of extractives to the economy through the EITI process given that the current data does not provide a complete and accurate picture of the extractive industries’ contribution to the Philippines economy, to improve public understanding of the management of natural resources and availability of data through a regular flow of information through effective communication, to strengthen national resource management / strengthen government systems through implementation and institutionalisation of policies to ensure sustainability, to create opportunities for dialogue and constructive engagement in natural resource management in order to build trust and reduce conflict among stakeholders and to pursue and strengthen the extractive sector’s contribution to sustainable development through creating mechanisms for transparency and accountability on national and subnational levels.

The fifth objective of the MSG was revised. Previously, it was to create an investment atmosphere. However, upon assessment, it was determined that while PH-EITI contributes to the transparency of the companies’ revenues and taxes, it does not directly affect the way companies do business. Hence, the objective would have to be reframed to recognize the industry’s contribution to sustainable development, as this would also encourage companies to disclose their current social, environmental and economic contributions and facilitate a review of these disclosures to ensure that such contributions have sustainable impact to Filipino people.

To this end, the report is a summary of the Ph-EITI, and further examination on the main copy would help inform the public of the activities in the mineral sector on the Philippines.

The detailed report contains some of the roadmaps for implementing the sections contain in the EO-79 and also gave details on the achievement so far from the various complying industries and the institutions from the government. Some guidelines on direct release of fund was recommended, Proposed reforms on the existing mining act were reported and a pivotal proposed bill which is to ban the export of unprocessed mineral ores and encourages growth and develops the capability of mineral processing industry in the country is a sound policy discourse area to be looked at. This ban would lead to the establishment of mineral processing plants and is expected to be one of the major drivers of economic growth.

On the issue of the impact of mining on Philippines economy, the report confirmed “mining has a lot of potential to contribute to economic growth in the Philippines because of the country’s mineral resource deposits, this very potential has not been realized due mainly to: 1) the low value-added to the raw ore extracted and sold; and, 2) because of the existing environmental issues attributed to extraction activities that have not been completely addressed”.

I would conclude by pointing out that mining in the Philippines has been so far misconstrued by the public and mishandled by the government. While effort made so far by the relevant regulatory bodies have been good but a lot remain to be done to translate the minerals values to sustainable development for Filipinos.

Conclusion

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.

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    • GreenPrince profile image
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      Prince Edike 3 months ago from Philippines

      Being a geologist and environmentalist place me in a position to objectively assessed the responsibilities of EITI to critically work-out the best revenue sharing scheme using the information from the mineral and energy resources for national development plan in colab with governments across the globe.

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