Category Archives: Reflections

EITI’s Mongolian Case Study

Stephanie Zimmerling, MASc Mining Engineering // Feb 20, 2015

The EITI has published an interesting read on Implementing EITI as the Subnational Level (https://eiti.org/document/implementing-eiti-subnational-level). The document is from 2011, and therefore may be somewhat outdated, however, includes the EITI’s ‘Rationale for Subnational Implementation’. The Rational highlights increased transparency and knowledge of revenues from the extractive industry at the local level. EITI anticipates that this increased knowledge will empower citizens to hold governments accountable and be knowledgeable to criticize decisions made by their local government. The report includes case studies of emerging countries reporting EITI at a subnational level. Included in the report are Ghana, Indonesia, Mongolia, Nigeria, the Democratic Republic of Congo (DRC), and Peru. As a first step of this year’s project, reports have been produced internally on Ghana, Indonesia, the DRC and Peru with the goal of ultimately informing subnational reporting in Mongolia. While we have a developed a strong understanding of the situations in our countries of choice, we still have yet to breach the hurdles facing Mongolia.

This report expands on the early efforts Mongolia has made with regards to subnational reporting, where companies have disclosed unilaterally direct subnational payments. The report expands upon Mongolia’s taxation system and highlights the dependence of the regional and local governments on the central government for revenue transfers. The report provides additional details on the system in place for revenue distribution from the extractive industry. While some money is transferred from the central government, revenue collected from mining companies at a regional level is dominated by donations made by the extractive industry to local governments. There is currently no efficient reporting system to capture these donations and the EITI report has revealed this payment flow holds the most discrepancies. Accounting and administering donations can be very complex as donations are typically made off-budget. In Mongolia, the central government discounts transfers made by mining companies to ensure equality among non-mining regions. As a result, the subnational government is discouraged from reporting these revenues and the money is therefore unaccounted for.

In 2008, 6 districts of Ulaanbaatar, 18 aimags (provinces) and 57 soums (districts) reported their company receipts. All three EITI reconciliation reports released to date (2011) reveal large discrepancies in data accounting. Company payments largely exceeded government receipts indicating that the government did not report all revenue collected from the mining industry. These discrepancies are predominantly the result of donations made regionally. This has been identified by the EITI as one of the main challenges with subnational reporting in Mongolia.

Sources:

Aguilar, J., Caspary, G., & Seiler, V. (2011). Implementing EITI at the Subnation Level.

CONFRONTING CORRUPTION

Mario Ramirez, MAAPPS // Feb 20, 2015

I would like to share some insights about an excellent article I read a few days ago. The article is about “confronting corruption[1]” and was released by the McKinsey Quarterly magazine January 2015. It was written by Ravi Venkatesan former chairman of Microsoft India and current member of several boards of directors in a variety of important multinational companies. The SME (Society of Mining, Metallurgy and exploration) LinkedIn group had some discussion about it and I found it interesting given our learnings on transparency. The article talks about how multinational companies dealing with businesses abroad face difficult dilemmas regarding corruption and fraud and how they can also overcome those dilemmas.

The article starts off by pointing out a couple factors driving the corruption dilemma, one being the preexistent corruption history of the host countries where a company finds new opportunities for growth, and the other is the previous wrongdoings of corporations in local and international grounds living also a negative impact for future projects. However, on the latest factor, the author believes that the hardest issues to fix are not usually the ethical multinationals scandals hitting media headlines, but the quiet killers of ethical business practices which come in at least four different shapes; bribes, speed money, extortion and employee fraud. The author suggest that albeit corruption and fraud, companies can operate ethically in new markets. However, In order for a company to operate ethically there needs to be sound internal competence, a robust culture, and an excellent leadership.

Some basics that are usually overlooked by companies is the design and implementation of clear policies and procedures to hold employees accountable for wrongdoings involving corruption in the company, especially top management including the company’s CEO. In a survey conducted by EY it was found that about 65% of companies didn’t take actions against workers who were involved in inappropriate activities, also that 1 in 5 employees did not know anything about policies in place or were unaware of such policies in case they existed. Another poll ran by Kroll also stated that less than 33% of respondents had their foreign employees trained about company internal code of conduct, the US FCPA (foreign corrupt practices act) or UK bribery act. Those survey results suggest there is a need for a better communication channel within the company regarding training and deployment of internal code of conduct or federal laws. Companies with interest in foreign countries should have programs to continuously certified new employees and recertified current ones regarding compliance to rules, and regulations dictated by its internal code of conduct or federal laws and regulations.

Another aspect to keep in mind is the importance of investing in key employees, such as managers, finance, internal audits and legal stuff. In foreign grounds those workers are usually the primary contacts to other stakeholders and they need to be thoroughly aware of compliance procedures to act accordingly. It is also important for those people to be experts in their field and understand the country laws to eliminate the probability of falling into the hands of unscrupulous individuals. Compliance training and continuous reviews on Compliance are very important because it helps the company stay on track. Top management need to continuously “preach” about compliance to his or her personnel and do routine checkups on this knowledge. Very few companies though seem to spend good attention to this subject which leads them to face problems in the future especially when those problems are at their doorstep, compromising in many cases the company’s integrity and reputation.

Strong leadership is also very fundamental for a company in the matter of compliance. It is leadership who sets the tone, pace and the bar. As leadership establishes zero tolerance in the organization regarding corruption practices and makes clear policies, procedures and programs the company will follow. Top managers cannot always be involved in every single detail. However, as H. Mintzberg cited a quote from Matsushita in his book Management[2] “big things and little things are my job (referring to managers). Middle level arrangements can be delegated”. Top management is responsible for setting the bar high up but it is also responsible to ensure everyone follows, everything in the middle can be delegated. As a final note I would like to quote, as the writer of the article did, some words from the head of an IT company who addressed his employees about standing tall against corruption. “We ask our people to persist and prevail, not to take shortcuts. The message is simple: we will work alongside you. We will not hold it against you if a project gets delayed or we lose money; we will do what is right, not what is convenient. Over time, people will know what is acceptable here and what’s not. Social memory is many times more effective than a bunch of policies.”

[1] http://www.mckinsey.com/insights/corporate_social_responsibility/confronting_corruption

[2] Managing, H. Mintzgerg, 2009. Page 9

Yemeni EITI Meta-data

Bérangère Maïa N. Parizeau, MAAPPS // Feb 17, 2015

To reflect on the potential sub-national reporting frameworks that could be recommended for EITI standards in Mongolia, my cohort and I began our work by researching EITI member countries and their sub-national reporting strategies. We looked at the socio-political context and the processes involved in the implementation of EITI standards in some of the current member countries. Each graduate student individually studied one EITI member country. I decided to look at Yemen, which has a special status as the first Middle Eastern country to become an EITI member. Yemen is a country rich in minerals, gas, and oil. Oil is predicted to be exhausted in 10 to 12 years. It is important for Yemeni’s positive economic development that oil be manage intelligently.

I found fascinating to learn that until the 1990s, the north of Yemen was not structured around governmental institutions. Rather, the numerous Yemeni tribes traded with each other. The network of tribes was interconnected thru countless friendships, and facilitated by the honouring of those friendships. This is called tribal law. The political structure was based on the network of tribal alliances with minimal use of violence. The unique tribal societal politico-economic structure is a good reminder that there are limitless ways in which society can choose to structure itself. Keeping this in mind, I want to underline the importance of creative problem solving when addressing major challenges, and fostering decision-making processes outside expected norms to find intelligent solutions.

Yemen is currently undergoing a security crisis, crippling violence, and the possibility of political collapse. The parliament was recently dismantled by the Houthis rebels. The UN Security Council is demanding Houthis rebels to cease their threats, and called for the reassignment of President Abdu Rabbu Mansour Hadi to his post. Instability in Yemen has caused the country to be suspended from EITI several times between 2011 and 2014 because of Yemen’s lack of timeliness in reporting. Corruption has reach critical levels in Yemen. In fact it is one of Yemen’s core challenges.

It has been eye opening to research the current state of extractive industry transparency and EITI initiatives in Yemen. Yemen is the poorest country in the Middle East. More than 40 percent of the population is food insecure living on less than $2 a day. Yemen is currently experiencing a water crisis. Yemen is the country with the most arable land in the arab world. In December 2011, Tawakkul Karman, a Yemeni politician, and senior member of the Al-Islah political party, mother of three, became the youngest-ever Nobel Peace Laureate for her work as a peace builder activist in Yemen. The country’s civil society is very active, as is exemplified by peace activist and Nobel Peace prize recipient Tawakkul Karman. The multi-stakeholder group overviewing the standardization reporting processes in Yemen is composed of parliamentary members. Yemen is one of the few countries which had parliamentarians involved in revenue reporting and EITI standards implementation processes.

The World Bank has facilitated a knowledge exchange program between Yemen and Kazakhstan. This is a fabulous way to build Yemen’s transparency and accountability capacity in the extractive sectors. The pairing of two countries to build knowledge can be a great tool for knowledge transfer if it is exercised properly. In my opinion, this kind of knowledge transfer could be used more. It is a great way to develop ties and friendships between countries as well. In Yemen, the emerging role of civil society, and Civil Society Organizations (CSOs), are becoming more and more engaged with the various stakeholders and working towards building consensus. Although, too much of a narrow focus on consensus can detract from creative problem solving ideas.

Lessons Learned in Peru

Stephanie Zimmerling, MASc Mining Engineering // Feb 16, 2015

I have spent the past few weeks understanding and reporting on EITI in Peru. While familiar with the country’s dominance in the extractive industry, primarily in copper and gold, I was not familiarly with the decentralized nature of revenue distribution. Peru’s extractive industry revenue framework is built around the ‘canon minero’ and the distribution of mining royalties. These systems emphasize the decentralization in Peru and has put an increasing demand on regional governments. Since joining the EITI in 2004, civil society has criticized the reporting procedure for being irrelevant as it did not discuss wealth distribution at a regional level. Peru has already engaged in multiple sub-national reporting pilot projects.

Prior to the involvement of EITI, the International Finance Corporation (IFC) and the Canadian International Development Agency (CIDA) launched the MIM Peru Project (Improving Municipal Invest). The aim of the project is to address some of the issues present at a local level with regards to the canon fund allocation and to promote greater social accountability. The projects focuses on raising awareness about the importance of investments made with the canon funds and to encourage the expression of public opinion. Each of the projects work in collaboration with civil society organizations. The MIM project provided the information required by the organizations to enable the undertaking of a systematic monitoring of royalty transfers and municipal investment. The involvement of civil society organizations also allowed for more effective dissemination of information to citizens with the intent of promoting open dialogue between government authorities and the public concerning royalty investment. The projects have been successful and behavioural changes are present among communities.

Peru has also been at the forefront of EITI sub-national reporting. The Cajamarca region of Peru has been participating in a sub-national pilot project. The EITI has reflected upon the successes and struggles on these pilot projects as a means of informing the transition to sub-national reporting. Although subnational reporting makes sense in a decentralized nation like Peru, the ease of implementation may be significantly more difficult in centralized countries. The EITI has acknowledged that there are several constraints to overcome to implement subnational EITI successfully. Challenges include constraints of local capacity, legal uncertainty, access to funding, logistics and lack of infrastructure, political issues such as lack of political support, and a lack of engagement with local and civil society organizations. The approaches used by countries will vary in nature and need to be flexible and adaptive.

The EITI Process in Plain English in the Context of Ghana – Part 1

Carlos da Costa, PhD Mining Engineering // Feb 11, 2015

The Ghana Extractive Industries Transparency Initiative (GHEITI) is a national domestication of a global Extractive Industries Transparency Initiative (EITI). Implemented in 48 countries across the world, the EITI has as its mandate the promotion of sustainable development in resource rich-countries. This is pursued through the introduction and institutionalization of a regime of good governance in the management of revenue derived from extractive industries. Central to such good governance regime, in this respect, is the dual process of transparent disclosures and the enhanced capacity of citizens to hold government to account. Ultimately, the overall aim is to maximize people’s welfare and drastically reduce poverty through a governance process that is robustly participatory.

EITI’s basic framework focuses on free and unstinted disclosure of taxes, royalties, etc. paid by extractive industries companies to public coffers in resource rich countries and honest acknowledgement in complete disclosure by government of such countries of what was actually received from the companies on behalf of the people. A reconciler is then engaged to verify and certify the figures disclosed from both sides and reconcile any discrepancies between them. A report of this exercise is then written by the reconciler, then published and disseminated widely, in a comprehensive manner by the multi-stakeholder group (MSG). The purpose of this process is to empower the citizens of resource-rich countries, with incontestable data and information, to hold their governments to account in the way the revenues are managed and expended. This aim cannot be realized without a full, equal and free participation of civil society organizations in the entire process.

EITI’s structure, from a top down perspective, can be viewed as a consortium of governments of supporting countries, private corporate bodies, producing companies, investors, and a coalition of international plus national civil society organizations operating under a single umbrella, known as “Publish What You Pay.” At the national level, when a country joins the EITI Standard which requires it to establish a MSG together with companies and civil society. In Ghana, for example, it is known as the National Steering Committee. While the composition of the national MSG, in terms of the balance among the stakeholders, may differ from country to country, a common feature is that companies, civil society organizations and government are represented on it, and participate as equal partners.

Through such groups civil society organizations play an important role in implementing EITI at both national and international levels. At the international level, it was civil society organizations that provided the initial impetus for the creation of the EITI. Today, it is the coalition of national and international civil society organizations that form the back bone of the maintenance of high standards in its implementation as well as the validation of the application of EITI principles and criteria to specific national situations.

At the national level, it is civil society organizations, not government, and not companies, that are best suited to organize the citizens, enlighten them, train them, source funding for them, inform them and help to protect them as they strive, and take action to hold government to account. At both levels, civil society organizations are confronted with a dilemma arising from their dual mandate. At one level, civil society organizations, as members of, and participants in MSGs, are policy makers and supervisors of policies made pursuant to the implementation of EITI at the national level. At another level, civil society organizations are free to monitor and evaluate independently, the implementation of the EITI principles and criteria. The dilemma arises from the necessity to strike a balance between the role of the participant with that of the observer, monitor, and evaluator. As participant, civil society organizations share equal collective responsibility for the policies and actions of the MSG. But as observer, monitor or assessor, they play the role of critics, distancing themselves from the policies and actions of the MSG, and detaching themselves from the process, in order to write and publish “shadow reports” on the process.

Thus, when success is achieved, all stakeholders, including civil society organizations, claim credit, when success is either slow in coming or is not so manifest, one stakeholder jumps ship, stands ashore and pronounces a verdict while the rest of the group is still on deck. How can an MSG resolve such a dilemma? Through sustained training on team building within the context of an MSG for the implementation of EITI. Without a functional team, no MSG can succeed in implementing EITI at either the national or subnational level. To achieve such harmony the first step should be to gain deeper knowledge and acquire the skills for team work in a multi-stakeholder environment.