Author Archives: Lotus Yang Ruan

Lifting more than its weight – Mongolia and its EITI pursuit

Bulgan Batdorj MASc candidate in Mining Engineering // April 26, 2015

The inspiration of Mongolia joining the EITI has sprung in 2005. There were many studies conducted by Open Society Foundation in Mongolia, Publish What You Pay and many other independent researchers to corroborate its objective to promote and strengthen the governance of extractive sector in Mongolia. The initiative was seen as an important tool for Mongolian officials to help them to regulate the booming industry which has the potential to either develop the country or destroy it.

Since then for a decade, Mongolia and its slowly progressing democracy (and its economy) has gone through crisis, boom growth and endless political manipulation. It is rather amazing to see that EITI Mongolia has survived the big waves without losing their objectives. They have published 8 reports and each report is highly praised for their comprehensiveness. The Mongolia granted a Compliant country status in 2010 and on its 5th anniversary the EITI secretariat in Mongolia is anticipating the adoption of the Law on Extractive Industry’s Transparency.

With this law, the EITI secretariat will have regular funding will start to focus on educating and advocating the public on how to monitor the wealth of the country being earned and spent. Till now, much of the focus was to campaign the extractive industry and the government officials, especially in an unstable environment of legislation and constant changes in the government officials and structures. Also, the secretariat is pursuing to give the information to the locals and the communities those are affected by the mining activities. Although localizing the EITI in Mongolia is not an easy task, much of a progress already been achieved by the EITI secretariat and its stakeholders.

Extractive industry transparency and the transparency overall, seems to be the important step for the country and the community to take before moving on to accountability and good governance. According to our class studies, many countries are struggling to embrace the EITI for the right purposes due to many reasons, but in Mongolia, the EITI secretariat is certainly lifting more than its weight.

EITI Report: Chinese companies reporting in Mongolia and other EITI Implementing Countries

Justin Kwan, MAAPPS // April 13, 2015

While researching about sub-national reporting the other day, a re-tweet from EITI’s official Twitter account caught my eye. The retweet came from Lizzie Parsons Senior Advisor in China for Global Witness, an organization which attempts to “break links between natural resources, conflict and corruption.” Her tweet linked to a recent March 2015 EITI report which discusses the transparency of Chinese organizations in the extractive industry. In one sense, China’s growing economic presence around the world warrants a rightful investigation into its business practices, since corruption as a whole appears to be a large problem in the country. One does not have to look too far to see that Xi Jinping recently launched one of the nation’s largest Chinese anti-corruption campaigns. However, there is a lack of context as to why EITI launched such a report, its origins, and why other countries have not received similar audits. These questions remained unanswered.

The findings of the report are especially interesting since it states not only that “there does not appear to be any cases in which a company based in China has refused to collaborate with a host country implementing the EITI” but rather there is an “increasing number of Chinese companies are disclosing information in EITI countries where they are required to report.” In fact, the companies that were based in Western countries were seen as equally contributing to delays compared to Chinese companies. Furthermore, Chinese companies were reported to have been involved in the extractives industries of at least 23 of the 38 EITI implementing countries which published reports. Here, I would like to highlight the results of two Asia Pacific countries.

In Mongolia, our main case study, it was interesting to see that there are at least ten Chinese companies active in Mongolia as well as two joint venture projects.  On the whole, the information that Chinese companies disclosed went “beyond financial disclosure” although ironically, the largest Chinese Company, PetroChina Dachin Tamsag, and the Chinese-Mongolian joint venture Chinhua MAK Nariin Sukhait both did not disclosure their financial information. While Chinese companies continued to grow within the Mongolian market, the 2012 Strategic Entities Foreign Investment Law passed in Mongolia prevented foreign companies from obtaining more than 49% of shares of a company until it was reversed in 2013 when overseas investment dropped by 43%. While Mongolia may not necessarily want Chinese investments entering into the company, the opposite has happened. But when given the choice between protecting national interests or increasing economic prosperity, a difficult choice must be made. This is extremely problematic for Mongolia given the fact that the country is heavily reliant on Chinese transit routes for exporting its extractive resources.

Mongolia however is not the only country to have raised concerns about Chinese investments. Myanmar, another EITI candidate country has also express public concern with Chinese operations in the Shwe Myanmar-China gas pipeline project which is operated by Chinese company CNPC. The focus however in Myanmar has centred upon environmental degradation and land use by Chinese companies, despite the fact that “Chinese companies [are trying] to gain a more positive image by investing in environment and corporate CSR projects.” Quite interestingly, with the opening up of the country, Myanmar’s civil society has continued to protest the pipeline project as well as the Letpadaung copper mine (which has Chinese company Wanbao as one of the two sponsors in the joint-venture). This suggests not only the potential for civil society to also become involved in the process of subnational reporting when more formal initiatives become active in the country, but also that Myanmar’s civil society continues to grow and is becoming a strong and active voice in discussions. While Myanmar may not be as developed as Indonesia or the Philippines in its timeline for subnational reporting implementation, these points do however suggest great hope for increasing transparency in Myanmar’s extractive resource sector.

Mongolia’s Pre-existing Bureaucratic Infrastructure and Sub-National Reporting

Jonathan Brasnett, MAAPPS // April 13, 2015

The Extractive Industry Transparency Initiative (EITI) issued an executive order in 2008 to begin implementing subnational reporting (SNR) in all member states. It seems that some states had pre-existing bureaucratic structures at the regional or subnational level that was more conducive to such a format of reporting than other states. Among these states are Indonesia, Peru, and most importantly for our own research purposes, Mongolia. While Mongolia’s central government in Ulan Bator is responsible for many governance jurisdictions and has done (and continues to do) an excellent job of legislating to promote EITI reporting (at the national level), there are also governments at the Aimag (province) and Sum (district) levels. At these levels, the bureaucratic structure may not compare to that of Canadian municipalities for obvious reasons like sparse population, vast uninhabitable territory, as well as a large percentage of the Mongolian population living a nomadic herder lifestyle, the institutions nevertheless exist that can facilitate SNR. Recent reforms and initiatives indicate the the accuracy of this last statement.

To begin with, a new budget transparency law (Law on Glass Accounts) came into force just this past January, which makes it obligatory for all government and legal agencies with any involvement in state affairs to make their budgetary and financial information accessible to its citizens. There is also a mandate to discuss and likely pass a law regarding the transparency of the extractive industry in Mongolia. These are actions which show that the Mongolian government is much further evolved than governments of many of the other countries we have studied throughout this course, all of which have made reference to the importance of transparency without taking action to mandate increased transparency. Another action which has been taken by the Mongolian EITI office has been to prepare twenty-five trainers, among which only four are government officials, three are industry representative while the remaining eighteen are “local and national level civil society representatives.” (www.eitimongolia.mn/en/node/ 4823)

So despite the fact that Mongolia is a sparsely populated, inhospitably landscaped country with a wealth in resources and a population that largely relies on a nomadic herding lifestyle for subsistence, the literacy rate of nearly 100% and recent democratic transition (1990) has proven conducive to a bureaucratic system capable of implementing the transparency initiative of the EITI, even at the sub-national level. It is impressive to see that understanding that civil society organizations obviously have in Mongolia to understand the need for such laws and training initiatives is indicative of the level of rapid development of democratic norms in Mongolian society. For civil societies to become active and start demanding accountability from government and industrial agencies shows that they understand their rights as citizens in a democratic country and have become determined to enforce these rights. By increasing the level of proliferation of lessons about EITI and sub-national reporting and the importance of demanding transparency from these actors to ensure adequate allocation of extractive industry revenue to the provision of social services, our team might be able to make a difference to the average Mongolian citizens.

EITI’s Continued Progression

Carlos da Costa, PhD Student in Mining Engineering // April 7, 2015

Companies see value in EITI because it creates a more broadly supportive and secure operating environment. The EITI country process allows for companies to build the bonds of trust with a variety of stakeholders, and increases recognition of corporate contributions to development. Companies make large contributions to domestic tax bases, but also offer indirect benefits through their operation including job creation, capacity built through local supply chains, and local philanthropy. Companies also want to see local tax systems that are fair, transparent and encourage investment. Above all, companies want to see the onus of a country’s development on the country not on companies.

Developing countries, conversely, see value in EITI because it enhances a country’s international standing as a more stable destination for foreign direct investment while promoting a positive international image. EITI boosts transparency and spreads awareness on how governments are utilizing resource related incomes. A number of multilateral development banks (i.e.: the World Bank, Inter-American Development Bank, IMF, African Development Bank, Asian Development Bank, the European Bank for Reconstruction and Development, and the European Investment Bank) provide assistance to facilitate EITI implementation in developing countries. The EITI has also been endorsed by the UN, G8, G20, and AU and is supported by governments including Australia, Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, the United Kingdom, and the United States.

One of the central criticisms of EITI effectiveness is that it hinges on the existing conditions within a given country. Countries with strong civil society and an interest in transparent extractive payments (i.e.: Norway) will find EITI a meaningful tool, whereas countries with weak institutions and less than sincere desire for change (i.e.: Ethiopia) may try to just “go through the motions” to gain acceptance into EITI.

In countries where civil society is being squeezed (i.e.: Azerbaijan), there is an understandable urge to “fail” the country to send a message to the government, yet local NGOs say that the EITI multi-stakeholder group is the only free space of expression currently available. In Myanmar, which was admitted as an EITI Candidate country in July 2014, civil society, government, and industry are working together for the first time as they jointly produce the national EITI report over the next nine months (deadline for next EITI report: Saturday, 2 January 2016). The EITI process will assist the various stakeholders in learning patterns of cooperation while navigating the inevitable disagreements and differences. Beyond the effects on political inclusion, Myanmar’s admission as an EITI Candidate country has real development implications for the country. This responsibility falls with its government and people, but EITI is an instrument which can assist in facilitating the reform and transparency needed for responsible resource management.

One thing that has not been addressed by EITI, and is beyond the purview of extractive companies paying the taxes, is the issue of what governments “do” with tax revenues? In some instances the subnational EITI process has started to report this as well this, but the hope is that the availability of detailed extractive revenue information will create a transformative conversation at the country level. The reality is that this process will take longer in some countries than in others.

EITI does serve another important function in developing countries as often it provides the first opportunity for constructive multi-stakeholder dialogue and this in itself can have a positive effect on effective governance. There is hope that EITI, along with other initiatives focused on accountability and data transparency in the extractive sector, can help developing countries overcome the “resource curse.”

EITI is not a “be-all and end-all” solution, but has prompted a momentum of change in extractive transparency and accountability and will continue to spur dialogue leading to progressive change.

Sources:

African Development Bank Group. Extractive Industries Transparency Initiative. April 2015.
< http://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/extractive-industries-transparency-initiative/ >.

Compaoré, Nadège. South African Institute of International Affairs (SAIIA). Towards Understanding South Africa’s Differing Attitudes to the Extractive Industries Transparency Initiative and the Open Governance Partnership. South Africa, 2013.

EITI International Secretariat. EITI – Extractive Industries Transparency Initiative. April 2015.
< https://eiti.org/ >.

EITI International Secretariat. Impact of EITI in Africa: Stories from the ground. Norway, 2010.

Natural Resource Governance Institute. The Extractive Industries Transparency Initiative (EITI). April 2015.
< http://www.resourcegovernance.org/training/resource_center/backgrounders/extractive-industries-transparency-initiative-eiti >.

Extractive Sector Transparency Measures Act (ESTMA): Canada’s response to EITI

Stephanie Zimmerling, MASc Mining Engineering // April 6, 2015

The Canadian Government has introduced the Extractive Sector Transparency Measure Act (ESTMA) into parliament. The Act will have companies, subject to Canadian Law, annually report any payments larger than $100,000 made to any level of government in Canada or abroad. In developing this framework, the regulations and standards of the US, the EU and the EITI were reviewed to ensure ESTMA somewhat aligned. While Prime Minister Stephen Harper committed to transparency and the implementation of EITI at the last G8 summit, the EITI framework does not align appropriately with Canada’ unique mining industry regime. ESTMA is Canada’s response to transparency in the extractive industry in Canada.

Last week I sat in on a presentation by Borden Ladner Gervais held by the Management & Economics Society of the Canadian Institute of Mining. As part of the event a presentation on Reporting for Mining Companies under the new Extractive Sector Transparency Measures Act was delivered. The presentation was effective in explaining what the Act entails and the who, what, when, why of the reporting framework. As described in the presentation, ESTMA will come into effect on June 30, 2015. Reports will be published annual by companies reporting on one full-year of payments. ESTMA applies to entities that are engaged in commercial development of oil, gas or minerals in Canada or elsewhere that are either listed on the Canadian stock exchange, hold assets in Canada and hold at least 2 of the following criteria: $20 million CAD in assets; at least $40 million CAD in revenue or; employ an average of 250 employees.

Who must report is somewhat complicated. The presentation highlighted that parent companies may report on behalf of their subsidiaries that are required to report. Additionally, reporting entities must report on payments made by non-reporting entities that they control, if the company is participating in the extractive sector. In simpler terms, it depends who is on top. If a Canadian company is operating in Australia, the Canadian company must report on its operations overseas. If a non-Canadian company is operating in Canada and satisfies the criteria mentioned above, the company only needs to report on their Canadian operations.

What payments must be reported includes payments made to government “payees”, with payments being broken down on a project basis. Payees include Canadian and foreign governments, including subnational and local levels. This also includes boards, commissions, corporations, trusts or other authoritative bodies that perform duties on behalf of a government. It is important to note as well that payees include aboriginal and indigenous governments.

Companies will need to make their reports publically accessible by posting them on their website. Should a company not have a website, the Minister will specify an alternative approach. The Minister also has jurisdiction to determine whether other legislated reports from the US or EU can be submitted to satisfy the reporting requirements under ESTMA. This could be applied if a Canadian company is operating in the US or the EU.

With the launch of ESTMA approaching, it will be interesting to see how the transition plays out and the response from the Canadian extractive industry.

An example of an ESTMA report can be found here: http://www.statoil.com/no/InvestorCentre/AnnualReport/AnnualReport2014/Documents/DownloadCentreFiles/01_KeyDownloads/2014%20Payments%20to%20governments.pdf