82637 I n tern atio n al D evelo p men t Asso ciation Extractive Industries Transparency Initiative IDA at WORK Striving for Transparency September 2010 SUSTAINABLE DEVELOPMENT NETWORK Contents Extractive Industries Transparency Initiative: Striving for Transparency 1 d  |  IDA at WORK: Extractive Industries Transparency Initiative Extractive Industries Transparency Initiative Striving for Transparency The Extractive Industries Transparency Initiative (EITI) resource-rich developing countries, international and activities promote transparency, accountability, and national resource companies, civil society, and good governance in the use of oil, gas, and mining donors. revenues in resource rich countries. From originally The World Bank-administered Multi-Donor Trust seven countries in 2004, the Initiative has grown to Fund (MDTF) provides countries with resources to include 25 IDA countries that are now in various implement the EITI principles of revenue transpar- stages of implementation. EITI activities have helped ency. The Initiative has grown rapidly over the last improve disclosure and reconciliation of extractive few years. Going forward, sustaining the progress industries revenues paid and received by govern- and momentum achieved so far, is a key challenge ments, and often set the stage for wider sector that is presently being discussed especially in view of reform, such as public financial management or the expiry of the current phase of the Trust Fund in institutional reforms. 2012. CHALLENGE Approximately 3.5 billion people live in countries rich in oil, gas, and minerals. However, historically, resource-rich developing countries have shown a below-average growth performance, and many have suffered from endemic corruption and persistent poverty due to weak governance and lack in trans- parency. The global Extractive Industries Transpar- ency Initiative (EITI), launched in 2003, promotes and supports improved governance and transparency in resource-rich developing countries through the full publication and verification of company payments and government revenues from oil, gas, and mining. As a voluntary association of stakeholders with shared goals, the global EITI structure comprises IDA at WORK: Extractive Industries Transparency Initiative  |  1 IDA at WORK: Extractive Industries Transparency Initiative Approach Results The EITI was launched with two main objectives, EITI reports have helped uncover certain financial namely: (i) to disclose and reconcile extractive irregularities and have provided a sound roadmap for industries revenues paid to and received by govern- meaningful reforms of the oil, gas and mining sector, ments, and (ii) to promote and strengthen a multi- which is often the largest generator of foreign stakeholder approach that includes governments, exchange and government revenues. With support of companies, and civil society. To achieve these twin IDA, EITI implementation has also often set the stage objectives, each participating country has to issue a for wider sector reforms, such as public financial reconciliation report to which the country’s multi- management or institutional reform including stakeholder group has agreed. After this has been strengthening of government institutions that regulate accomplished, the report is submitted for validation oil, gas and mining sectors; and enhancing the to an independent auditor. capacity of civil society. Some of the noticeable The World Bank and MDTF donors are focused improvements in various IDA countries are listed on: (i) providing technical assistance and grant below. funding to individual EITI-implementing countries; (ii) reaching out to countries interested in implementing • Nigeria: Nigeria was one of the first countries to the EITI; and (iii) promoting the EITI process globally sign up to the EITI. In addition to the mandated and as a global standard for transparency by reconciliation report on revenues, Nigeria gener- disseminating knowledge and sharing best practice. ated audit reports on the physical amount of oil Under EITI rules, the EITI process in a country is produced at the wellhead, and on the process of subject to an external validation against established getting the revenues from the company to the criteria. These criteria include establishment of a national treasury. The first EITI reports, issued in multi-stakeholder group and collection of revenue 2005 covering the years 1999-2004, revealed that data by independent auditors within a specified the government had no reliable tools to ascertain deadline. When these criteria have been achieved, the level of oil production at the wellhead, which the country becomes eligible for ‘EITI compliance’ led to wider planning for reforms to address some status. Progress has been made toward EITI compli- of the issues, including metering. Nigeria conduct- ance in several countries: three IDA countries have ed six road shows with over 1,200 participants to become compliant, while 15 IDA countries are well advertise the EITI report results and held five on their way1 and most likely will reach validation in workshops with over 150 participants to enhance the next few months. In addition, seven other IDA Civil Society Organizations’ capacity. It also countries are in different stages in the implementation conducted extractive industries revenue manage- process due to different dates of entry into the ment training for government officials with 24 civil Initiative and are expected to achieve validation at a servants participating. Transparency Internation- later date. al’s Corruption Perception Index2 ratings improved from 2.8 in 2004 to 3.1 in 2006. Nigeria became the first EITI-implementing country with a statutory 1 See the EITI technical assistance work program for a complete list of countries on the EITI-MDTF Web site: http://www.worldbank.org/eititf. 2 Transparency International’s Corruption Perception Index (CPI) ratings range from 1 for the most corrupt to 10 for the least corrupt country. 2  |  IDA at WORK: Extractive Industries Transparency Initiative backing for implementing EITI with enactment of in February 2008 reduced discrepancy from MNT the Nigeria EITI Act in May 2007. Reconciliation 25 billion3 to 775 million in the second report in following the initial audit report reduced the November 2009. The government is presently in discrepancy between the actual revenues paid to the process of drafting an EITI law and strategy for and reported by the government from $250 2010-2014. million to $16 million. • Liberia: Liberia launched its EITI process in Bank Contribution 2006-2007 and issued its first EITI reconciliation Since its launch, EITI has seen great momentum report in February 2009 covering the period June and traction, with rapid uptake in most regions. This 2007-2008. The government expanded the track record is due in large part to the IDA/MDTF Initiative to include the forestry sector and has technical assistance and financing support which has reached out to help EITI implementation in Sierra helped several countries adopt and implement the Leone. Ranking for Liberia in Transparency EITI. For instance, IDA is presently supporting the International’s Corruption Perception Index moved ‘Sustainable Management of Mineral Resources’ up from #137 out of 158 countries (rating of 2.2) project ($50million) in Tanzania, that aims to in 2005 to #97 out of 180 countries in 2009 strengthen governance and transparency in Mining (rating of 3.1), which has contributed to an including activities related to the implementation of improved investment climate for the extractive the EITI. In addition to its role as Administrator of the industries sector. The EITI is incorporated into the MDTF, the World Bank Group has committed national plan to develop the mining sector. Liberia approximately $5 million through its own budget also enacted the Liberia EITI (LEITI) Act in June processes from FY05–FY10, and received a Devel- 2009, which established LEITI as a public entity opment Grant Facility allocation of $1.5 million for a with access to the national budget so the need for three-year window to support civil society capacity donor funding can be limited or phased out. building in EITI implementing countries in FY05-07 • Mongolia: The mining law of 2006 has an article with the Kyrgyz Republic, Mongolia and Nigeria as obliging companies engaged in extractive indus- IDA beneficiaries. tries to report their payments to the government. In 2007, a government resolution mandated the government institutions to report and be active in the EITI process. While the government reported on revenues from 134 companies for 2006-07, it increased to 186 companies for 2007-08. Private companies are engaged in the EITI with leading mining and exploration companies reporting. Twenty five participated in the first reconciliation, 38 in the second, and 46 will report in the third. The reconciliation following the initial audit report 3 As of September 15, 2010, MNT 25 billion = $18.8million; MNT 775 million = $0.6million. IDA at WORK: Extractive Industries Transparency Initiative  |  3 IDA at WORK: Extractive Industries Transparency Initiative Partners Moving Forward From FY05-10, 13 donors (Australia, Belgium, EITI’s success in any given country rests on Canada, the EC, Finland, France, Germany, the political commitment by leaders and engagement Netherlands, Norway, Spain, Switzerland, the United with all relevant stakeholders to maintain the pres- Kingdom, and the United States) have contributed sure for accountability and transparency. As noted, almost $31 million to the MDTF. The MDTF donors the core EITI standard is one of disclosure of oil, gas, participate in the Management Committee (chaired and mining revenues and payments, structured in a by the World Bank), which reviews and approves the participatory manner. In terms of supporting develop- overall work program for use of the MDTF funds. ment, EITI implementation can be seen as not just In addition to the bilateral MDTF donors listed meeting a credible international standard but also in above, the World Bank works closely with the private setting a coherent platform to continue and strength- sector (such as International Council on Mining and en the reform path of extractive sector governance. Metals, Standard Life Investments), Civil Society EITI is a core part of the WBG sector strategy for Organizations (such as Open Society Forum Mongo- oil, gas, and mining and the Bank’s Governance and lia, Green Advocates Liberia, Global Witness, Anti-corruption Strategy 2007. IDA, with the support Revenue Watch Institute); other multilaterals (such as of the MDTF donors, is well-positioned to meet coun- International Monetary Fund, Inter-American Devel- try demand and to support countries in their goals of opment Bank, African Development Bank, Asian better governance in oil, gas, and mining sectors, Development Bank, European Bank for Reconstruc- beyond the EITI. Further, country programs and tion and Development and European Investment individual Country Partnership Strategies in IDA Bank), European Union, African Union, and Organi- countries are increasingly emphasizing implementa- sation for Economic Co-operation and Development tion of the EITI as both a freestanding objective and in promoting and implementing the Initiative. as a platform for furthering the reforms agenda and moving toward greater accountability and good governance and management. In this respect, IDA/ MDTF is piloting programs of on-going support that aim to: (i) help countries to consolidate and deepen the EITI; and (ii) continue the governance reforms building on the platform of EITI structures and transparency. Moreover, progress with the EITI has served to emphasize the need to adopt a value chain approach for the extractives sector. IDA has committed to expanding transparency and accountability in oil, gas and mining revenue management to include all links in the extractive industries value chain approach, from the award of contracts and licenses to imple- mentation of sustainable development policies and projects in regions affected by extractive industry activities. 4  |  IDA at WORK: Extractive Industries Transparency Initiative IDA at WORK: Extractive Industries Transparency Printed onInitiative 5   |  paper recycled 1818 H Street, NW Washington, DC 20433 USA www.worldbank.org/ida www.worldbank.org/sustainabledevelopment