Category Archives: Reflections

Opaque Transparency When Seeing through a Corruption Lens

Carlos da Costa, PhD Mining Engineering // Jan 29, 2015

The objective of the Extractive Industries Transparency Initiative (EITI) is to encourage the better use of natural resources (such as oil, gas, metals and minerals revenues) for economic growth and poverty relief through increased accountability and transparency. It encourages governments and companies to independently publish their payments and revenues and then present them to independent auditing.

But over twelve years after its launch it is evident that the EITI initiative continues to lack a real bite. Demanding transparency from governments and corporations in the resources industry is inadequate to guarantee good governance, economic progress and more equitable distribution of wealth. Governments and corporate entities still resort to creative ways of masking their bribes.

Energy and mining companies are linked infamously to numerous human rights violations, kidnappings, conflict, murder and environmental abuse. Uncovering corrupt practices (bribery, fraud, money laundering, tax cheating, etc.) can also be difficult. The EITI certifies compliance on a country-by-country basis. This allows companies with operations in various countries, through their subsidiaries, to hide bribery payments, which are usually masked as fees for consultancy services, in other countries that at times serve as tax havens.

Inflated expenses, questionable accounting practices, exaggeration of overheads, and highly inflated invoice billing to subsidiaries can all have adverse impact to a nation’s tax revenues. Unfortunately, tax authorities and other government agencies in some countries frequently lack the technical knowledge needed to tackle such illegal misdoings.

Many developing countries also lack the capacity to evaluate and qualify the costs involved in these resource-based industries and surrender the responsibility to experts provided by the United Nations, the International Monetary Fund and the World Bank. Unfortunately, these external experts rarely prioritize the interests of the local communities, particularly during contract negotiations. Once the contracts are signed, these countries may not possess the necessary expertise to evaluate the exact quantities of the resources extracted and have to accept whatever values a company declares.

So if the EITI provides only a questionable clean bill of health, should this initiative be maintained? The answer is YES since until just over a decade ago the resources industries in some countries were viewed as an exclusive elite club where governments entered into undisclosed contracts with mining, exploration and energy companies without any involvement of the local communities where such projects impact and the national well-being its respective nations. At least there now is limited publication of information in place, in some cases, where civil societies and its citizens are better informed and thus are better able to challenge their government’s questionable actions and to contest undesirable contracts which they enter into. Also in place countries such as the United States of America and the United Kingdom have implemented anti-corruption laws, such as the Dodd-Frank act and the Bribery Act (respectively).

One of the pillars is EITI

Bulgan Batdorj, MASc Mining Engineering // Jan 27, 2015

I am Mongolian. This may seem like a simple statement. However this simple sentence makes me the owner of a great history, beautiful land, unique tradition and culture. It also means that speaking up and critiquing is part of our culture and is to be encouraged and celebrated rather than resented. Being Mongolian is a privilege and a source of prestige. But in order to maintain and protect that privilege and prestige I have to take responsibility. This is why I am excited to be taking part in the EITI Mongolia project at the University of British Columbia.

As many people know Mongolia is rich in mineral resources and since the transition to a democratic regime, Mongolia has begin fighting to build good governance and develop immunity in the face of a rush of money, and the prospect of misuse and abuse.Mongolia is an EITI compliant country that has achieved a lot of progress since its affiliation with the Initiative in 2006. The EITI Mongolia project at UBC this term will focus on what the new EITI initiative on local reporting would mean for Mongolia and potentially to other EITI compliant countries. This is of great importance because it provides insights and more specifically a toolbox enabling the community and local civil society to push for government accountability to better their lives.

The Mongolian ger(yurt)has two pillars (багана)to stay tall and strong.Extractive industry needs the EITI as one pillar, but without good governance of the industry as the second pillar, there will be no strong nor beautiful white ger under the eternal blue sky.

Civil Society Living in Fear? Well, Good Luck with Local Reporting….

Debbie Prasad, MAAPPSS // Jan 26, 2015

On my last blog post I discussed Myanmar’s candidacy in the EITI and how their participation in the organization was contrary to the argument that they joined the EITI as a means to attract foreign aid and a better world reputation through increased transparency. It’s been just a day since that post and I’m not so sure I can stand by what I said earlier…..

As I’ve been studying the extractive industry in Myanmar, I am seeing a hot mess. On the one hand, the government is passing new mining legislation and anti corruption laws, but on the other hand, they have passed the 2014 Electronic Transfers Law, which in essence limits public access to information. A key component of becoming an EITI member is transparency- as listed in the name! If there are laws which limit public access to information, coupled with only the Central Bank having the jurisdiction to publish annual fiscal reports, (which are not readily available, and unavailable online) how will Myanmar meet transparency goals?

In addition to all this, according to article 1.3 of the EITI Standard, Myanmar has pledged to refrain from obstructing freedom of expression in relation to the extraction of natural resources. This is not so much the case in Myanmar. The recent conflict in Letpadaungtaung has lacked government action on police and military brutality towards civil society in areas that are closely located to mining operations. To take this a step further, Myanmar military-owned companies and holding groups such as UMEHL (Union of Myanmar Economic Holdings Limited) and MEC (Myanmar Economic Corporation) are heavily invested in the extractive sector. The recently established EITI goals of encouraging local reporting makes civil society an integral part of the picture, but in the case of Myanmar, this will prove difficult, when civil society is not given freedom to protest and express their concerns about extractive industries in the region. If the military is heavily invested in industry, how will civil society be able to express concerns without the fear of military coercion and violence? How will living in fear from the military allow civil society to work with other stakeholders to achieve goals to become an official EITI member? It’s high time for the government to mean what they say, and to take responsibility for allowing civil society to express their concerns freely.

Sources:

Thet Aung Lynn and Mari Oye “Natural Resources and Subnational Governments in Myanmar: Key Considerations For Wealth Sharing. June, 2014”

“Whistle Blowers Report Myanmar to Global Mining Body” http://www.elevenmyanmar.com/index.php?option=com_content&view=article&id=8650:csos-report-govt-s-breach-of-intl-eiti-standard&catid=33&Itemid=356

Extracting Transparency in Mongolia and Beyond

Justin Kwan, MAAPPS // Jan 26, 2015

Asia’s rise in the 21st century has been commonly characterized by the dominance of the region’s major powers such as China, Japan, South Korea and India. Far too often overlooked however is the important presence of Mongolia. Situated between both Russia to the north and China to the south, Mongolia has been overshadowed by two of its neighbouring superpowers. While Mongolia may go unnoticed to many countries across the world, China recognizes Mongolia’s strategic importance for its natural resources, primarily copper, coal, gold and uranium.

As an aspiring China scholar, the Middle Kingdom’s interest in Mongolian natural resources also sparked my curiosity for the country, its growing importance to the Asia Pacific Region and my participation here in this year’s policy project. Roland Nash of Renaissance Capital described Mongolia as “a blue-sky opportunity” and as “a country on the point of transformation” (Business New Europe, 2009). His assertion six years ago has been extremely forth telling of the economic development that has been occurring.

This year’s policy project continues with the work produced by last year’s cohort who examined the policy mechanisms for discouraging corruption and improving human development in Mongolia. As part of our investigation, our research this year will look at EITI’s important move to push transparency reporting down from the national to the local level. My initial thoughts immediately gravitate towards a series of questions: Who within EITI is encouraging the reporting to be pushed down to the local level? What are the motivations behind this? In what ways will this benefit and/or complicate the way reporting is completed?

To answer these questions, one important aspect that must be investigated is how actors both at the domestic and national levels impact the policy making process. EITI is a coalition of governments, companies and civil society groups – all who play important roles in shaping the organization. As our research continues, I am particularly interested in investigating how these actors engage with each other to formulate policy as well as the regional variations between how EITI member countries implement them.

I hope from this experience to future my knowledge not only in the field of policy work and transparency initiatives but also to expand my knowledge of the Asia Pacific Region. My current research looks at EITI Compliant Country Indonesia in order to create a comparative framework which will allow us to assess how different member countries are adapting to local level reporting. While much work lies ahead of us, I am most definitely excited for the journey to come.

Myanmar to Follow the Mongolian Path?

Debbie Prasad, MAAPPS // Jan 25, 2015

According to a study conducted European Research Centre for Anti-Corruption and State-Building, some reasons why corrupt countries join the EITI are “because they are concerned about international donors and expect to be rewarded by increase aid”

A country comparison between Mongolia and Myanmar using Transparency international shows that Mongolia holds a rating of 39/100 while Myanmar stands at 21/100. The ratings uses a scorning guide of 0-100 in which 0 is the most corrupt and 100 is corruption free; both countries appear to be quite high on the corruption scale

There is arguably a link between corruption and its negative impact on economic growth. The more corrupt a country is, the less benefits their economy will reap. Since the Mongolia’s initial entry into the EITI in 2006, their GDP has shown steady growth. In 2006, their GDP was 3.4 billion USD and in 2014, their GDP was 11.7 USD. Perhaps, it can be said that the implementation of the EITI has been a positive factor in increasing transparency in resource extraction, and concurrently reducing corruption, attributing to economic growth.

In the case of Myanmar, which has recently sought entry into the EITI, it remains to be seen if the EITI will have a positive impact on reducing corruption and resultantly improving their GDP. Recently, Myanmar has been taking major steps to improve their economy through a new anti-corruption law, and also by requesting a World Bank Public Expenditure and Financial Accountability Assessment in 2013. The report recommended, among various other remedies, a need for more transparency and organized form of reporting in order to eliminate budgetary discrepancies.

According to the EITI, Mongolia, since it’s membership. has had a high level of transparency with their reporting. Company payments seem to equally match government revenues. Mongolia’s implementation of the EITI supports the idea that they have joined the EITI with the intention of improving their economy through sound implementation of transparency, rather than merely paying lip service to the EITI and using membership as a means to get foreign aid.

Currently, it appears that Myanmar may follow the Mongolian path in their entry into the EITI. Their changes in legislation in terms of new mining and anti corruption laws, and also requests of assessment from the World Bank give evidence of their willingness to join the EITI not just to receive foreign aid, and better their reputation in the international community, but rather, to follow the prescribed methods of transparency in order to improve their resource economy. Contrary to the study conducted by the European Research Centre for Anti-Corruption, it can be argued that both Mongolia and Myanmar, (who are seen to have corruption problems) are on their way to economic growth through self sufficiency from their resource extraction industry, rather than joining the EITI merely for foreign aid.

Sources:

www.EITI.org/Mongolia/reports

http://www.worldbank.org/en/country/myanmar/publication/myanmar-economic-monitor-october-2013

Liz David-Barrett and Ken Okamura ”The Transparency Paradox:

Why do Corrupt Countries Join EITI? Working Paper No.38.

European Research Centre for Anti-Corruption and State-Building. November 2013.