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The EITI

This text presents the brief history of the Extractive Industries Transparency Initiative (EITI), what it is, the EITI process, discusses its efficiency and preconditions for success, ending with a few considerations on three EITI compliant countries – Azerbaijan, Nigeria and Norway. The EITI is an initiative launched in 2002 that aims to alleviate corruption, strengthen the rule of law and civil society, and contribute to the overall development of the country where it is implemented and eradicate the resource curse. Although not always obvious, the EITI is a success through the mere fact that it creates debate where there hasn’t been one before, not to mention when it goes further in achieving its purpose. The article is an introduction to a future discussion about whether Romania should join the EITI.

The Extractive Industries Transparency Initiative (EITI) was born after years of development and research towards the idea of good governance, natural resources, and country development. Similar ideas appeared before, such as Publish What You Pay, which concerned the extractive sector related money circulation. In the last 20 years there has been a push towards researching the revenues from natural resources and subsequent development, resulting in the creation of several transparency, efficiency, and accountability-orientated initiatives (Hannes Meissner, 2012).¹ The difference between other initiatives (Revenue Watch, Publish What You Pay) and EITI, is that the EITI involves, albeit on a voluntary basis, the government of the country where the initiative is implemented, thus increasing the chances of success.

History of EITI: how the initiative came to be

There is a well documented history of bribery and embezzlement that encompasses all parties involved in the extractive industry, which are more affected by this type of practices due to the big payments stemming from high revenues resulting from the extraction of natural resources, such as oil, gas, gemstones etc. Emerging and developing countries with a flourishing extractive industry are even more affected because of the weak governmental structures and institutions, and because of the systematic corruption that, practically, makes this a vicious circle where sustainable development is difficult to achieve as funds are wasted or badly managed (Meissner).

According to the EITI website, around 3.5 billion people live today in countries rich in resources such as oil, gas and minerals. Statistically they should have large revenues for development, but because of weak governance this rich resource base is not conducive to economic development and improved life conditions. What we see instead in these countries is poverty, corruption and conflict. New York Times columnist Thomas Friedman observed that “…(T)he higher the average global crude oil price rises, the more free speech, free press, free and fair elections, an independent judiciary, the rule of law, and independent political parties are eroded. And these negative trends are reinforced by the fact that the higher the price goes, the less petrolist leaders are sensitive to what the world thinks or says about them”.²

The „Good Governance” concept introduced by the World Bank³ was the first and most important push towards transparency initiatives, which also led to the establishment of the EITI. In his paper, H. Meissner breaks down this concept by defining eight guidelines for governance, which in total lead to a form of management resulting in sustainable development. According to Meissner, several actions have been launched increasingly since 1970s concerning the Good Governance concept, helped by „government actions and voluntary self-commitment by companies”, mostly stimulated by the Western public that grew „increasingly critical about the social impact of Western business in developing countries”. Transparency and efficiency initiatives have taken that even further, as programs stemming from these second generation initiatives include not only state agencies and companies, but also civil society. These include very different parties because they take the form of a public-private partnership (PPP) which are defined by the UK Commission for Public Private Partnerships as “sustainable cooperation between public and private actors in which joints and/or services are developed and wherein risks, costs and profits are shared”.⁴

In October 2002, at the World Summit for Sustainable Development in Johannesburg, Tony Blair announced the Extractive Industries Transparency Initiative (EITI) and in June 2003 the First EITI Plenary Conference took place at Lancaster House in London. To some observers, the EITI may appear more as a unilateral effort of the British government.⁵ UK and Tony Blair’s involvement with the EITI comes first of all from the line taken by the Labour Party in late 2001 concerning the policy on Africa and the use of economic development as a tool for reducing poverty. Tony Blair was the most involved British politician in African politics, which naturally included involvement in their struggle for development, economic growth and end of poverty. As a matter of fact, the EITI was somewhat based on the Commonwealth idea that “the state, the market, civil society and the international community each has a vital role to play in delivering development and democracy” (T.M. Shaw). With all the action taken by Tony Blair and implicitly by UK’s foreign policy to push for EITI, the input brought by international NGOs for transparency initiatives should not be put aside or forgotten.⁶

EITI: what it is and how it works

The EITI is first and foremost a method which creates a process intended to lead to a global accountability and transparency standard in the extractive industries. EITI is based on the idea that the governments of resource-rich countries publish data on the revenues from the extracting industry and these revenues are compared with the payments made by the companies to the government. Meissner also offers a good definition: “The EITI is an independent, international agreement on the implementation of global transparency standards in the resource extracting industries (…) Therefore, the EITI creates a coalition of governments, companies, investors, international organizations and civil society”. The Multi-Stakeholder Group (MSG) that comprises government officials and representatives from the extractive industry and civil society oversee an independent administrator that reconciles and reports the data. The end-point of this process is the debates and discussions inside the country between different concerned actors and the government being held accountable for any trespasses.

EITI is an initiative that benefits all parties involved:

• Governments have an internationally recognized transparency standard that they stand by and with which they demonstrate their commitment to reform and anti-corruption;
• Companies benefit from a leveled playing field whereby they are required to disclose the same information, an improved and more stable investment climate where they can have a better relationship with the civil society;
• Citizens and civil society have more reliable information about the sector and a multi-stakeholder platform with which they can better hold the government and companies accountable.
• Energy security is enhanced by a more transparent and level playing field. This increased stability encourages long-term investment in production – and thus improves the reliability of supply.

The EITI process has quite a long list of requirements (21 steps in total) needed to be fulfilled in order for a certain country to receive the status of EITI Compliant Country. According to the EITI Factsheet, first there are requirements for applying to the EITI Candidacy (the sign-up requirements – steps 1 to 5). Practically, the sign-up requirements are preparatory steps for implementing EITI in a respective country, such as statements, establishing a multi-stakeholder group that, together with the EITI stakeholders, will agree on and publish a work plan. Other requirements have to be fulfilled during the Candidacy period (steps 6 to 20), and these ones are split between preparation requirements (steps 6 to 13), disclosure requirements (steps 14 to 17), dissemination requirements (step 18), and review and validation requirements (steps 19-20). After a country receives the Compliant Country status, the only requirement left is to maintain the previous ones throughout the EITI process – the retaining compliance requirements (step 21). Presently there are 18 compliant countries (Iraq, Ghana, Mongolia, Timor-Leste, Peru, etc) and 19 candidate countries (Kazakhstan, Indonesia, Albania, etc). Civil society organizations participate in the EITI directly and through the Publish What You Pay campaign. EITI is supported by the World Bank, IMF and the Regional Development Banks and has been endorsed by the UN, G8, G20, African Union, the International Organization of La Francophonie and the EU. According to the EITI website, 68 of the world’s largest oil, gas and mining companies support and actively participate in the EITI process, including such companies as Statoil, Shell, QP, ExxonMobil, Hess Corporation, Chevron, Alcoa, De Beers, Pemex, Petrobras, Areva, BP, Galp Energia and others. In addition, the EITI has the support of more than 80 global investment institutions that collectively manage over 16 trillion USD.

The EITI implementation: what works, what doesn’t and why

As Meissner emphasizes, EITI promotes greater economic and political stability and contributes to the prevention of conflict around the oil, gas and mining sectors. For investors and extracting companies, “EITI highlights that the initiative mitigates political and reputational risks and that it can help demonstrate the contribution that a company’s investment makes towards a country.” On the other hand, EITI has several downsides to its approach as identified by Dilan Őlcer in his 2009 OECD Working Paper⁷: (a) Minimum disclosure standards; and (b) the fact that it takes for granted the presence of a strong and independent civil society and mass-media that could support efficiently the initiative in the respective country. Őlcer argues that development is still a difficult and distant goal to achieve for many of the countries that are rich in resources. Although the EITI is “soft law” and thus cannot be enforced, it does further the efforts of these countries towards a more stable and corrupt-free society by drawing in attention to this sector and the revenues and payments that are circulated.

According to the World Bank‘s Worldwide Governance Indicators, corruption is harder to control in countries that have implemented EITI than in countries that have not. Why? Although corruption is not limited to the extractive industry, if we take into consideration the size of this industry in the respective countries, there should have been some sort of change (Őlcer). The view of the companies in the countries with resources is that even when they are not prone to corruption themselves they end up participating in it due to the way things are arranged in the respective country and because of government involvement in the extractive industry (S. A. Aaronson, J. Brinkerhoff).

According to Őlcer, in order for the EITI to have an actual impact over the corruption levels, it needs to address not only revenues, but also concessions, contracts and where the money is going to. This was the basis of the World Bank Initiative, EITI++, built on the EITI process.

EITI++ is a World Bank initiative meant to further EITI’s efforts through pushing the process forward towards encompassing the entire chain in the extractive industry, from the first moments – access to the resources – to the expenditures.⁸ This is the part that EITI truly lacks, alongside some sort of reinforcement, in order to fully achieve its purpose – accountability, lessening corruption, and overall good governance.

In his 2009 piece on EITI, Őlcer draws attention to a couple of other things:

First, since it is a voluntary process, the EITI implementation does show that the government of the respective country is open to reforms and a secure business environment, thus attracting investors. On the other hand, the effectiveness of the EITI is reduced as it is a voluntary process and it cannot be enforced. But there are countries that have chosen to take the EITI process further and integrate it in their legislation in order for it to be reinforced and upheld by all parties involved.

Second, there is also the limitation of transparency to cash transactions between the companies and the government – it should contain the entire chain involved in the “exploitation and transformation of natural resources”. Indeed, a good part of the corruption and money embezzlement happens at the beginning, when the contracts are awarded. But, if the EITI wants to be a tool for building stronger societies and good governance, it should take under its purpose the transparency of the use of these revenues too.

Third, the successful implementation of the EITI process requires a certain political environment of a fairly democratic country where the civil society is strong, independent and has access to information, and there are no contrasting issues between all the parties involved in the process. The mass-media has to be independent and free in the country that implements the EITI process as one of the goals is creating and opening debates over this industry. While in developed countries there may be other institutions and mechanisms both from civil society and the government to regulate and control the payments and revenues in the extractive industry, there are many situations and countries where only the fact that the civil society can discuss with the government is a success and justifies the implementation of the initiative.

Mini Case studies: Azerbaijan, Nigeria and Norway

Azerbaijan

Azerbaijan was the first country in the world to achieve the compliant status on February 16, 2009.

It was the first country where, in 2004, the government, the extracting companies and the civil society organizations signed a MoU for implementing the initiative. According to Meissner, as early as June 2004, 30 Azerbaijani NGOs formed the so-called EITI-Coalition which until 2010 grew to 115 NGOs and further 15 individual members. 15 NGOs are actively involved into the EITI-process, but it is the “National Committee on EITI”, headed by SOCAR that carries out the implementation of the EITI in Azerbaijan.

Despite the fact that Azerbaijan was a pioneer of EITI, it has its fair share of drawbacks. Apart from technical inadequacies and a delay in applying new provisions to the EITI process, EITI is still not seen as a first step towards transparency because the civil society is simply too weak. Some analysts argue that the single way to improve the implementation of the EITI process in Azerbaijan in order for it to make an actual difference is to extend it to the expenditures – the way the revenues are spent. Otherwise it will continue to be what some critics say it is: a way for the Azerbaijani president to gain significant political and economical advantages while the process does not pose any real threat (Meissner).

The civil society organizations involved in the process do consider the EITI implementation to be a success as they have made important steps in their bid to create a more democratic society. The main advantage has been the fact that now civil society is much stronger in Azerbaijan than before implementing the EITI and the dialogue between them and the government has improved (V. Bayramov).

Nigeria

Nigeria is the biggest oil producer in Africa and it was one of the first countries to implement EITI. The Nigerian EITI was launched on February 19, 2004 by the then Nigerian president, Olesegun Obansajo and it moved quickly in applying the EITI requirements and adopting those that appeared along the way.

According to M.E. Keblusek⁹, the national Stakeholders Working Group had as objectives: “a complete and independent audit of the oil and gas industries; to codify the EITI principles into law so that the audits would continue into future administrations; to provide support to build capacity among civil society and government agencies so they could hand their responsibilities under EITI; and develop a communications strategy about the initiative that would among other goals, foster a sense of ownership and stewardship of resources among Nigerians”.

Keblusek states that the three independent audits that were later done showed irregularities, lack of communication between different parties, payments that were impossible to reconcile with the revenues and so on. The upside of these audits was that they were independent and made recommendations to improve the situation. The EITI process in Nigeria was codified through the NEITI Act right before the Nigerian president left his position. Thus, the EITI process and its implementation was just a vehicle for reforms but not the main contributor, it did not bring change by itself. The process was desired and sought-after by the then-president of Nigeria – Olusegun Obasanjo for him to improve his image. Just like in the Azerbaijani case, EITI was used in order to show the government’s intent towards change and reform. But, unlike that case, for Nigeria it meant also a lot of input from the international community – due to the leverage they got on the president’s desire to have a better image – which eventually helped reform within the country. In Nigeria’s case, the train that pulled the reforms, including the implementation of the EITI process was the president’s political will. The upside is that it did bring about changes towards developing the country. The downside was that after this political will power ceased to exist, so did the reforms – or, better said, they were slowed down immensely.

Norway

Norway has actively supported the EITI process since 2003 and, in 2007 it announced its decision to implement the initiative. The presence of the companies from the extractive industry in the stakeholder group was noted as a particular strength of the EITI process in Norway. Mining was left out of the EITI process in Norway as it was not considered to be important enough to be included. The implementation itself was seen as an easy process due to the fact that Norway already has good governance and is transparent regarding its revenues and payments.¹⁰ In this sense, Norway is an outlier as it is a developed country, with a strong civil society, and with high regards towards the rule of law. Norway is the only developed country, with a strong civil society and freedom of press that has entered the EITI process and is the first OECD country to do so.

Conclusion

There is no country profile that can guarantee the successful implementation of the EITI process – some of the countries that are successful are democratic and others have authoritarian regimes. Azerbaijan for instance where the government is not very open, does allow NGOs to be involved in the EITI process (Aaronson, Brinkerhoff). The Nigerian and Azerbaijani cases do show that more than external pressure and help – from the international community – and willingness and desire from citizens and CSO, internal politics is the one that really pushes forward the implementation of the EITI process and any reform that might stem from it.

While a major asset of managing to implement this Initiative in countries known for their corruption levels and undemocratic governments is the fact that it is voluntary and cannot be reinforced, it is also the major downside as there are many things that escape the Initiative itself and the public, thus making it less successful. Practically what makes the EITI so popular also creates the problems that are harder to notice at first-sight. However, even when the implementation of the EITI process did not have a significant desired impact, it does have a certain impact due to the fact that it does manage to attract attention to a industry where all dealings used to be a secret, to create some sort of debate, and to put face-to-face government officials with civil society representatives. Even these marginal successes are great for many of the countries affected by the resource curse and show that the EITI is useful to a certain extent. Finally, even the existence of countries open to implement the EITI process is a success, as it opens the gate to other discussions, other transparency and accountability initiatives that could, along the way, lead to improving the rule of law, having an overall good governance and leading towards more stable, democratic and open societies.

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FOOTNOTES:

¹ Hannes Meissner, “The Role of Business in Fostering Transparency and Sustainability in Emerging Markets – Lessons from the EITI in Azerbaijan”, Analyst-Competence Team Black Sea Region, University of Applied Sciences BFI Vienna – Vienna, Austria, 2, 2012

² T. Friedman, First Law of Petro Politics, Journal of Foreign Policy; http://www.foreignpolicy.com/articles/2006/04/25/the_first_law_of_petropolitics

³N. Chowdhury, C.E. Skarstedt, The Principle of Good Governance, A Legal Working Paper in the CISDL(Centre for International Sustainable Development Law) “Recent Developments in International Law Related to Sustainable Development” Series, March 2005, Oxford, UK, p 4: http://www.worldfuturecouncil.org/fileadmin/user_upload/papers/CISDL_P5_Governance.pdf .

⁴ A. Akintoye C. Liyanage, S. Renukappa, Public Private Partnerships, Doctoral Research Workshop, University of Central Lancashire, United Kingdom, October 2011, p 5.

⁵T.M. Shaw, ‘New’ Multilateralism for Global Governance: from SIDS to Kimberley Process. Two Policy Coalitions? Two Worlds? Draft only for June 2006 ESRC related conferences in Glasgow and London, 2006.

⁶ V. Haufler, Disclosure as Governance: The Extractive Industries Transparency Initiative and Resource Management in the Developing World, Global Environmental Politics, Volume 10, Number 3, August 2010, p. 60.

⁷ Dilan Őlcer, Extracting the maximum from the EITI, OECD Development Center ,Working Paper No. 276, p 4. ⁸http://web.worldbank.org/WBSITE/EXTERNAL/EXTSITETOOLS/0,,contentMDK:21727814~pagePK:98400~piPK:98424~theSitePK:95474,0 0.html

⁹ M.E. Keblusek, Is EITI really improving global good governance? Examining the Resource Curse, Corruption and Nigeria’s EITI Implementation Experience, January 2010.

8 http://web.worldbank.org/WBSITE/EXTERNAL/EXTSITETOOLS/0,,contentMDK:21727814~pagePK:98400~piPK:98424~theSitePK:95474,00.html 

¹⁰ http://www.regjeringen.no/en/sub/eiti—extractive-industries-tranparency/les-mer/norway-and-eiti.html?id=634673