Category Archives: Reflections

Implementation of EITI in Mauritania

Jonathan Brasnett, MAAPPS // Feb 9, 2015

The Extractive Industry Transparency Initiative (EITI) has been implemented in the Islamic Republic of Mauritania since 2007 when it became a candidate country. It was officially named an EITI compliant country in 2012 and, despite a brief suspension in 2013 for failing to provide its 2010 report on time, it remains a compliant state today. What impact has this had on the mining industries of Mauritania? Furthermore, what impact has this initiative had on civil society and the government provision of social services to its citizens? These are the most important questions, but those that are most difficult to answer without flying to Nouakchott and seeing for ourselves.

Mauritania is a semi-presidential republic under the leadership of President Mohamed Ould Abdel Aziz, who first took power in the summer of 2008 through a military coup d’état. Although he was democratically elected in the summer of 2009 and is meant to work hand-in-hand with the Mauritanian government (Senate, National Assembly and Supreme Courts), the country is nevertheless ranked 172nd out of 187 countries on the United Nations Human Development Index, as well as ranked 124th out of 175 countries on Transparency International’s Corruption Perceptions Index. Therefore, the democratic nature of the country’s governance can legitimately be questioned. Furthermore, many social problems persist: unemployment, though much reduced in recent years, is still high (10.1% in 2012), per capita GDP is still among the lowest in the world ($1,224) and slavery still exists in large numbers (10-20% of the population).

A country that is still rife with problems is most definitely in need of greater transparency and greater civil society participation. Thus, the EITI initiative is undoubtedly a beneficial endeavour for Mauritania. As a country whose mining and petroleum extraction industries make up more than one third of its GDP (38% in 2011), it is important that the revenue from these industries finds its way into the provision of social services, not the pockets of corrupt government officials. In observing the EITI reports of the eight years for which they have been issued in Mauritania, one notes the strange phenomenon of greater sums declared by the government than was paid by extraction companies. This occurred from 2005-2008, then this trend reversed from 2009-2012. With the exception of 2011 when the discrepancy between the money paid by extraction companies and that received by the government was more than $23 Million USD, all other years featured much smaller discrepancies of just a few million USD.

For the 2014-2015 reporting years, the National Committee of EITI (CNITIE) in Mauritania plans to initiate subnational reporting at the Walaya (regional) level. To do this, they intend to host workshops for local officials and civil society organizations, as well as establish the bureaucratic structure (likely EITI offices) in each Walaya for reporting at this level. Furthermore, the CNITIE intends to make greater efforts to involve civil society organizations more in the EITI implementation and ensure that they are informed of all changes made, and capable of acting on the reports issued by EITI offices, both regionally and nationally. It will be interesting to see what kinds of changes will be observed in the coming years in Mauritania with regards to its resource extraction industries and the transparency therein. For the citizens of Mauritania, I certainly hope that the wealth in revenue that comes for their country’s natural resources will be put to the provision of social services that can help increase their quality of life for years to come.

How CIVIL SOCIETY ENGAGEMENT helps cope with corruption IN KAZAKSTAN

Lotus Ruan, MAAPPS // Feb 8, 2015

Kazakhstan is the 9^th largest national territory in the world. Its oil reserves are ranked 12th in the world and its natural gas reserves are 19th. It is a global leader in the production of coal, copper, zinc, bauxite, uranium and chrome ore. The extractive industries contributed 33.4% to Kazakhstan’s GDP and because of its substantial amount of natural resources and a relatively open approach to economic reform and foreign investment, Kazakhstan has been enjoying more than two decades of impressive economic growth.

The annual volume of FDI has been increasing year by year since 1998 and the share of investments in the oil and gas industry in total volume of FDI remains high. But over the last several years, state participation in the oil and gas industry has increased. The vertically integrated National KMG controls 20% of total oil and gas proved reserves of Kazakhstan and produces 27% of total oil and gas condensate and 14% of gas.

Under the leadership of President Nursultan Nazarbayev, Kazakhstan has been experiencing an impressive economic growth for the past two decades. With a GDP of US$ 201.7 billion and a population of less than 17 million, Kazakhstan aims to join the world’s top 30 economies by 2050.

However, Kazakhstan’s heavy reliance on natural resources has also made it more susceptible to external pressure. As I mentioned in my previous blog post, the slumping oil prices has taken its toll on the economic growth of this oil-rich country. At the same time, rising social problems such as shrinking job markets in some ageing oilfields and domestic security concerns, potential political instability because the successor of the 73-year-old President Nursultan Nazarbayev remains unknown, worrying Russia-Ukraine and other geopolitical crisis, as well as the global economic recession have all contributed to the slowdown of Kazakhstan’s economic growth.

Another issue facing Kazakhstan’s healthy development of its extractive industries and the country as a whole is corruption and a lack of public supervision in government spending. The level of corruption remains sufficiently high, especially in the spending of public funds. Kazakhstan ranked at the 126th out of 175 countries in the 2014 Corruption Perception Index. The International Crisis Group estimated that more than 50% of Kazakhstan’s GDP is controlled by a single sovereign-wealth fund, Samruk-Kazyna, which was once led by President Nazarbayev’s son-in-law.

Perhaps that’s why the EITI introduced new rules and requirements on the issue of sub-national reporting on resource revenues in July 2011. The rationale behind such is that a more accurate disclosure of corporate payments and government revenues at the local level in the extractive industries would help curtail corruption and other forms of mismanagement of funds.

Kazakhstan, despite its corruption problems and unlimited presidential authority, is worth studying and learning from in terms of civil society participation in the EITI process.

Sergey Gulyayev, General Director of Decenta Public Foundation (DPF) in Kazakhstan, introduced in my exchange of emails with him that local non-governmental organizations (NGOs) as well as civil society organizations (CSOs) initiated the discussion of sub-national reporting earlier than the EITI’s new standard was introduced.

When it comes to civil society engagement, NGOs and CSOs in Kazakhstan have been working hard to push forward public participation. According to a report by DPF, there were a few attempts to develop communication strategy on EITI in Kazakhstan to help better engage the public. These attempts have been made by: Coalition of NGOs “Oil Revenues – Under Public Control”, Dialogue Platform of NGOs, National Stakeholders Council, Working Group of the National Stakeholders’ Council, and Ministry of Information and Culture with Ministry of Industry and New Technologies.

Despite the good progress in civil society engagement and all stakeholders’ awareness of sub-national reporting, Sergey Gulyayev remarked that few specific steps or plans have been taken so far to develop strategy of sub-national development for EITI reporting.

Still, civil society was still the most interested party to promote EITI in Kazakhstan. The experience and progress in EITI Kazakhstan can served as a learning model for other countries such as Mongolia. Advancements in transparency have been seen in Kazakhstan now but additional efforts will be needed to strengthen the accountability side of the equation.

Oil price drop, the potential impact on Republic of Congo and implications for Mongolia

Harry Li, MAAPPS // Feb 8, 2015

In 2014, Republic of Congo received $10.7 billion revenue from petroleum alone, equivalent to 74% of its total GDP. Petroleum export is the biggest resource export of the country, accounting for over 90% of all exports. With such heavy reliance on petro, the global oil price drop recently would potentially play a destructive force toward the national development of ROC.

Currently, ROC has $4.225 billion of growth external debt. Amadou Sy, the director of Africa Growth Initiative, argues that it will be more difficult to service debt as their oil revenues fall and the depreciation of their currencies makes U.S. dollar denominated debt more expensive.

According to the Financial Times, South Sudan is receiving the lowest oil price in the world at $20-$25 a barrel because of the combination of falling prices and unfavorable pipeline contracts. ROC’s government could face similar unpopularity. ROC’s government is currently running as an authoritarian regime controlling nation’s resources, suppressing the activeness of civil societies, such as Observatoire congolais des droits de l’Homme(OCDH). OCDH is the biggest Human Rights group in ROC and it constantly criticizes the government. However, ROC’s decreasing ranking in the Democracy Index, Human Development Index, Corruption Percentage Index and Economic Freedom Index would make its petroleum market less attractive for international investors, since more options are available. All of the impact above would result in national-budget cutting, thus negatively impacting the domestic economy.

In the aspect of export resources, Mongolia is similar to ROC. Although Mongolia is not oil major exporter, but mining export accounts for a large percentage of national’s GDP. Thus the price-drop scenario would apply if prices of coal, copper and gold (Mongolia’s top 3 major resource exports) drop significantly. Resource-export oriented countries like Mongolia is fragile to the fluctuation of global prices. That is why it is very important to find effective ways for sub-national reporting and engage civil society in the policy-making on the mining industries in Mongolia. If appropriate policies on mining are implemented, not only will Mongolia be better protected when the prices of coal, copper and gold suddenly decreases but also increase popularity among global investors.

Reference

Sy,Amadou. “Falling oil prices and the consequences for sub-haharan Africa.” The Brooking Institute, Dec.23, 2014.http://www.brookings.edu/blogs/africa-in-focus/posts/2014/12/23-oil-prices-exports-africa-sy

LEARNING ABOUT EITI & GUATEMALA’S INVOLVMENT

Mario Ramirez, MASc Mining Engineering // Feb 7, 2015

Before becoming part of this project I did not know much about EITI and the excellent initiative they have promoted to improve transparency in countries with extractive industries in place. I am researching about the impact of EITI in Guatemala and the possible sub-national reporting initiatives in process of or being already implemented. After exploring information about the impact of EITI in Guatemala I came across interesting readings about the structure of EITI in Guatemala and how the country has engaged itself in this initiative. Guatemala has, so far, released two reports to the EITI, and is expecting to present the 2012 report in the forthcoming months. I would say I am quite impressed at the communication approach the government has developed in order to ensure proper communication is done at all levels. There is a well-rounded communication strategy and implementation methodology which focuses on making stakeholders of all levels aware of the purpose of EITI in the country, its benefits and how to understand the information that is presented in the reports.

In the following days I look forward to receive information from some of the people involved in this project in Guatemala and read their opinions on how well the communication at different levels is perceived. For now, I can say that the experience of learning how Guatemala and other countries in the EITI initiative are working towards becoming transparent to the public in general gives me the drive and motivation to keep learning more.

When plunging oil prices hit Kazakhstan

Lotus Ruan, MAAPPS // Feb 5, 2015

International news headlines have been hooked by a volatile energy market for the past weeks. In fact, global economies have ben gripped by the unpredictable oil prices since last year. In the past two days alone, we saw crude oil prices going up and abruptly falling below $50—again. WTI oil prices, often used as a grade of crude oil used as a benchmark in oil pricing, dipped 9.6% to $47.95 a barrel whereas Brent crude prices tumbled 6.37% to $54.22.

While we, as common people, might cheer for the falling oil prices when we fill up our car with cheaper gas, most energy-abundant countries which rely their national economy on extractive industries just hate it. The reason is simple: oil deflation or failing prices are most frequently accompanied by economic stagnation or at the very least a loss of revenues. In our local Canada context, Suncor Energy Inc., Canada’s biggest crude-oil producer, reported an 81% drop in fourth-quarter profits yesterday as a result of plunging global crude prices. Kazakstan, my case study country in this year’s Asia Pacific Policy Project, might suffer worse.

To understand the possible impact of plugging oil prices on Kazakhstan, it is necessary to have an idea how important oil and gas industry is to this upper-middle income level country.

Kazakhstan is one of the world’s major oil producers. Its giant Tengiz, Karachaganak, and Kashagan oil fields produced petroleum and other liquids at 1.70 million barrels per day (bbl/d) in 2014. It is estimated that Kazakhstan had proved crude oil reserves of 30 billion barrels as of January 2014—the second largest endowment in Eurasia after Russia, and the 12th largest in the world, just behind the United States.

To Kazakhstan, the oil and gas industry is one of the main drivers of its GDP growth and it is a large tax source to its national budget revenue. The Ministry of Economy and Budget Planning of Kazakhstan announced in 2013 that its average annual growth from 2014 to 2018 will be 6.5%; of its GDP, the oil and gas industry shared 25.2% in 2012 and the figure is still on the rise. The state’s involvement and interests in the oil and gas industry are also reflected in its oil and gas industry structure. The vertically integrated national company KazMunayGas controls 20 percent of total oil and gas known reserves of the country.

The abundant natural resources now turn out to be both a blessing and a curse for Kazakhstan.

Due to its heavy reliance on the extractive industries—the oil and gas in particular, its national economy is more susceptible to external challenges. Analysts point out that the slumping oil prices might lead to the falling prices for other commodities such as gold, which is also one of the main extractive resources to Kazakhstan. Because of such, Kazakhstan’s government recently revised its budget for the period 2015-2017. The current budget is based on the price of oil average $80 per barrel. According to its Ministry of National Economy official, the new budget would be calculated on oil pricing on the level of $50 per barrel.

But challengers are still awaiting.

For Kazakhstan, as some has pointed out, the continuous fall of oil prices will result in serous negative macroeconomic consequences. Employment and the prospect for manufacturing industry might be the first to suffer. While Kazakstan has succeeded in creating job positions and keeping its unemployment rate roughly around 5%, 60% of the manufacturing contracts are for the oil industry. Exports will decrease as well, which leads to the slowdown of its GDP growth. According to the IMF, the oil price at which Kazakhstan can balance its budget is $65.5, but a price below $90.6 means the balance of payments dipping into the red. If the price of crude continues to plummet, Kazakhstan might face zero growth.

There is no doubt that EITI’s goals are important to the healthy and transparent development to a country’s extractive industries. But in face with the challenges brought by a volatile global energy market, Kazakhstan or any other resource-intensive countries might also want to consider how to effectively and reasonably structure their economy structure to make them less susceptible to external crisis.