Asia Pacific Policy Project

Bulgan Batdorj, MASc candidate in Mining Engineering // March 27, 2015

In my other class, the lecturer described the companies CSR activities as a teenage sex. “Everybody says that they are doing, but just a few really are and those who do it, do it rather badly”. The same can be said about the Sub-national reporting of EITI. And the difference between the teenage sex and the CSR or SNR is that there is no-one that can tell us how to do it right, rather we have find the unique ways that works for the countries and communities.

There are 48 countries submit national reports to EITI, all with mandate to report on SNR in a near future.  There are obvious demands from the locals of those countries to apply the SNR but the issue is that there is not a single proven mechanism to get there. The differences of political, social, environmental climates are significant at the local levels. But many proclaim that SNR EITI will help them to resolve the conflicts, or bring a development. But these issues could not be resolved without accountability from the government and the local government.

Many countries wants to be part of EITI with the hope that this will help attract the foreign investments to the country which can fuel the country’s development. In addition, transparency’s objective is to trigger an accountability and good governance. But, despite this theory, still some of the EITI countries struggle with domestic politics, resource nationalism, corruption, and poverty. There are many variables that play and without strong (domestic) political will to embrace the accountability the “EITI compliant country status” will not serve you as the ticket out of resource curse.

Lotus Ruan, MAAPPS // March 25, 2015

In my last blog post, I discussed one possible motivation for Mongolia to push forward subnational EITI reporting. Here are some other reasons that why subnational reporting matters to Mongolia and especially its citizens and companies in the countryside.

All Mongolians are affected directly directly and indirectly by the extractive sector, both positively and negatively. So citizens and companies, especially customers of Khan Bank who care about their financial performance, have an vested interest in knowing what taxes and royalties companies are paying to national, provincial and local government, who the beneficial owners are, what they are licensed to mine for.

To companies and investors in particular, subnational EITI reporting provide them with a clearer assessment of local investment climate. While EITI reporting assists and has been proven quite successful in strengthening accountability and good governance, helping individuals and corporates in local communities understand EITI reports can lead to public supervision and contribute to the prevention of corruption or conflicts based around the extractive sectors.

Debbie Prasad, MAAPPS // March 25, 2015

As the semester nears an end, it’s time for a bit of reflection. I had written my first blog post with a lot of excitement and a lot of questions about Mongolia. During the course of the project, I have been able to get some answers to my questions- even despite the fact that we did not get an opportunity to visit Mongolia.

For instance, I had asked what some cultural norms of Mongolia are? Well, I now know that there is a major nomadic and  herder culture in Mongolia. I had also asked what Mongolians identify with most, and I’ve learned that Chinggis Khan is a major component of Mongolian identity. When wondering about population demographics, I have learned that approximately 10% of Mongolian society is employed in the mining industry, even though mining contributes to 18% of the GDP. The low numbers for local employment in mining are expected to contribute to a shortage on mining workers in the near future.

I have learned a lot during the course of this semester, mostly about teamwork and about what positive contributions a diverse background of students can make towards such a project as this.

Our task was to look at sub-national EITI reporting in Mongolia, and although we are still trying to find some distinct trends, we have been able to come up with some creative policy suggestions on how to engage local society with the EITI. The key seems to be local engagement, and how this could be more prevalent in Mongolia. In order for sub-national reporting to matter, it is important for all Mongolians to be aware of how significant mining is in their country. Awareness and engagement is key. It is only then that we will be able to engage all of society into caring about transparency in extractive industry reporting.

Carlos da Costa, PhD Student in Mining Engineering // March 25, 2015

The Extractive Industries Transparency Initiative (EITI), a multi-stakeholder (comprised of governments, companies, civil society groups, investors and international organizations) ground-breaking initiative against corruption and secrecy in the mining and oil industries, was founded in 2003. Its compliant members recognize that transparency is a critical component of sound governance in countries’ oil and other extractive sectors. In May 2013, the EITI Board adopted extensive revisions to the EITI rules to make them more effective in ensuring transparency and accountability in the extractive sector for the citizens of countries implementing this initiative.

Becoming “compliant” is a voluntary initiative that is implemented by countries whose governments sign-up to do so. EITI Standard is currently implemented in 48 countries. It consists of a set of requirements that governments and companies have to adhere to in order to become recognized as “EITI Compliant.”

Before being accepted as an EITI “candidate country,” governments must meet five sign-up criteria. Implementing the EITI involves a range of activities, but in essence it boils down to governments publishing what they receive from extractive companies and the latter publishing what they pay to governments. These figures are then matched up – or not, as the case may be. A country is deemed “compliant” once it has been assessed through the validation process. Although “EITI compliant” does not mean that a country is free from the risk of corruption, or that all areas of its oil or mining sectors are open to public scrutiny, it is a powerful signal to the world that the country is committed to openness.

Despite its successes to date the EITI is still a work in progress, and there are opportunities for further achievements, as well as challenges to such achievements. The EITI must continually meet challenges if it is to be a success in the struggle against corruption and poverty in the resource-rich countries of the world, and in turn possibly become a true global standard for the extractive industry sector. The initiative’s true success, however, is that it is a transparent, multi-stakeholder process, by the continuing alliance between companies, governments and society organisations.

Civil society groups must be able to play a full and free part in EITI since they are not just observers: they help to design, run and oversee the EITI and provide it with legitimacy. This formal, active role for civil society is what makes the EITI more than just a forum for worthy speeches about governance. Because civil society is so central to the EITI, any government that harasses, intimidates or censors its civil society activists is ensuring the failure of EITI in that country and undermining the work of other countries that implement it in good faith. So all EITI stakeholders must take a strong and public stand against any government that harasses its own civil society activists. To retain the support of civil society groups, the initiative must be able to defend its own principles.

In order to be awarded the status of EITI Compliant, a country must implement a series of steps towards greater transparency and have these actions checked by an independent third party. Validation is the gold standard because it shows that a Candidate country has met the standards of the EITI. Without it, the EITI would be little different from the many well-meaning but ineffectual initiatives on governance that exist around the world. For this reason, validation needs to be as objective and credible as possible. Any suggestion that a country has been given special treatment, for political or commercial reasons, would be fatal to the EITI’s credibility. It would also be deeply unfair to other Candidate countries which are making good-faith efforts to reach Compliance. So all EITI stakeholders must be ready to defend the objectivity of the Validation process, even if it produces results which are uncomfortable for some. This is the only way to protect the achievement of the EITI and give it value in the eyes of the world

Reaching EITI Compliance helps a country to build trust with its citizens, improve the efficiency of their extractive sectors and signal to the world their credibility as a destination for foreign investment and credit, at a time when both are scarce. However, these long-term benefits may not be visible at the point when a country achieves Compliance. So the international community must ensure in the short term that EITI Compliant countries receive the recognition that is due to them. This recognition needs to be nuanced by the fact that EITI Compliance is only one of many steps towards beating the “resource curse.” It does not mean, for example, that country no longer faces any risk of corruption. And Compliance is not a once-only event but a process which ensures continuing transparency and public debate.

The resource curse (most often witnessed in emerging markets following a major natural resource discovery) is a paradoxical situation in which countries with an abundance of non-renewable resources experience stagnant growth or even economic contraction. The resource curse occurs as a country begins to focus all of its energies on a single industry, such as mining, and neglects other major sectors. As a result, the nation becomes overly dependent on the price of commodities, and overall gross domestic product becomes extremely volatile. Additionally, government corruption often results when proper resource rights and an income distribution framework is not established in the society, resulting in unfair regulation of the industry.

The core of the EITI is the publication, auditing and oversight of payments to countries, and subsequently to local municipalities, from extractive companies. All EITI stakeholders believe that revenue transparency is vital to combat the resource curse but few believe it is sufficient because there are many other areas to address, from the award of oil, gas or mining rights, to the management and spending of revenues, to the flow of resource wealth through the global banking system.

EITI must continue to evolve beyond its current remit. Some countries (for example: Zambia, Liberia, Democratic Republic of Congo, Kyrgyzstan, Mauritania, Madagascar, and Togo) have already chosen to broaden their implementation of the EITI to other aspects of the oil, gas or mining sectors, or other resources (forestry, hydro, agriculture, fisheries, and tourism), or to trace revenue flows to sub-national levels of government (such as Ghana, Indonesia, Guatemala, Mongolia, and Peru). This versatility and national ownership of EITI is one of its great strengths. As the practice of EITI evolves in different countries, the international rules of the EITI are expected to also evolve.

There is continued international debate about the laws and policies that are needed to fight the resource curse around the world. This debate includes the EITI but goes far beyond it. The ongoing test of the EITI Standard is whether or not it has any real bite to devour the challenges that stand in front of it.

Sources:

Aguilar, J.; Caspary, G.; and Seiler, V. World Bank. Implementing EITI at the Sub National Level: Emerging Experience and Operational Framework. Washington, 2011.

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

Ernst & Young Global Ltd. Disclosing government payments: Implications for the oil and gas industry. United States, 2013.

Rotberg, Robert I. Corruption, Global Security, and World Order. Cambridge, MA: World Peace Foundation, 2009.

Bulgan Batdorj, MASc candidate in Mining Engineering // March 23, 2015

Sub-national reporting is demanded by NGOs, activists and companies despite great difficulties to get there. Since the announcement of the sub-national reporting concept, many countries were excited about the idea and planned to embrace it. But until now there is not a common model which can be applied or adopted by countries. Many countries are having difficulties implementing the sub-national reporting due to many challenges, such as tax governance, politics, lack of public awareness, local government’s capacity and many more.  Yet, the local NGOs’ argue that EITI sub-national reporting is the only necessary dialogue to amend the broken trust between local citizen, corporation and the local government.

According to the study carried out by the Goldman Sachs in 2008, the single largest category which caused the industry slow down and significant increase in the cost was the stakeholder – related risks. Among those the local protest is claimed to be one of the biggest reasons that mine projects are being jeopardized. The extractive industry is starting to recognize the costs of conflicts with local communities and more than ever the emphasis is given to building positive relationship with the local community and aboriginal community.  The cost of conflict is not bared by the company only. The community is as much affected as the corporations if the conflict is not resolved.  Depending on the level of the conflict and the size of the project, the potential to damage to the regional or national economy will materialize.  This is why, it is rather important for the stakeholders to find platform to have a meaningful dialogue to prevent or resolve the conflicts.

In conclusion, the sub-national reporting is not making all the senses to all the stakeholders and there are suspicions that this is just another “condition” from the World Bank to developing countries.  But according to the local activists and civil societies that local reporting and local transparency will enable the informed local participation in the decision making. But many recognize that EITI grants the people the lens to look through but accountability has to go parallel to make changes in corruption and poverty.