Ethical Corporation, 30 April 2008 - The Extractive Industries Transparency Initiative is determined to stamp out embezzlement, but has its work cut out.
When it launched in 2002 the Extractive Industries Transparency Initiative aimed high. A coalition of go
vernments, companies, civil society groups and investors, it promised member countries an improved investment climate, strengthened accountability and good governance. Those outcomes would contribute to economic stability, it said, and prevent conflict in the oil, mining and gas sectors.
In return for these benefits, countries would be asked as members of the anti-corruption scheme to publish details of revenue received from extractive companies. The declarations would be checked against company disclosures to look for any mismatch between what companies said they had paid for contracts and what governments said they had received.
As operators in capital-intensive industries that depend on long-term stability, companies equally saw the attraction of the scheme. But it was not until the initiative was revamped in 2005 to include a more rigorous auditing process that it really got noticed, says Jonas Moberg, head of the EITI international secretariat. He says: “One of the main strengths of EITI today is that it is flexible enough to allow countries to implement it in different ways, yet robust enough to ensure minimum standards are achieved.”
But since then, just three of the the 37 oil, gas and mining companies that have endorsed EITI have complied with the requirements to report on steps to meet its transparency requirements. These three companies are Shell, Chevron and StatoilHydro. Radhika Sarin, international coordinator at Publish What You Pay, a global coalition of NGOs campaigning for transparency in the extractive industries, says the problem is that there is too much onus on the countries involved in the scheme.
“This is a voluntary scheme that relies on the will of a country to sign up and make all extractive companies party,” Sarin explains. “This means that companies are not liable even if they have endorsed EITI, because there is no provision in EITI that says, ‘a company that has endorsed EITI must disclose this information voluntarily'.”
Poor man's club
Yahia Said, Middle East and North Africa director at Revenue Watch Institute, an NGO, says companies do not want to be among the first to join the EITI, because of fears they will be penalised when bidding for government contracts. And he thinks countries have been reluctant to join a “poor man's club”, saying: “Rich countries have been hesitant to associate themselves with countries with bad governance issues.”
Some countries, such as Norway, have felt their own systems were sufficiently transparent, although Norway has in fact now joined EITI as a candidate.
When EITI first launched it was popular with poorer countries because it had more to offer them – it was obvious why they would want the potential investment that extra transparency could attract. And the trend continues. Of the seven new countries that joined EITI in February, six of them are African. Iraq has committed to join the initiative, as has Azerbaijan, Kazakhstan and Nigeria. Said believes it is particularly important that middle income, oil-rich nations support the scheme but admits it is a challenging proposition to convince them of the benefit. “Countries in the Middle East for example are invariably closed societies and have very different perspectives on the role of civil society,” he says.
Another challenge for EITI is to go beyond the current group of 37 companies to engage large, developing world extractive industry firms that also have problems with transparency, says Moberg.
Time to deliver
Despite good intentions, no country has been formally validated as EITI-compliant. The risk now is that the initiative will allow countries to ride free, using the EITI label to continue business as usual. As a result, Publish What You Pay has called on companies and governments to deliver concrete results.
The good news is that the EITI board is beginning to flex its muscles. If countries do not become validated within two years they risk losing their status. So far Chad, Trinidad and Tobago, and Bolivia have been disqualified.
For now, the EITI hopes to attract members using case studies. Nigeria, for example, has seen its GDP swell by $1 billion since it first audited its petroleum sector between 1999 and 2004.
EITI's lows and highs
- EITI membership helped save Nigeria $1 billion in petroleum revenues from 2004 to 2005, the country says.
- Gabon was recently forced to lift the suspension of 22 NGOs after its government was confronted with the fact that the ban was incompatible with its membership of EITI.
This article is reproduced with permission from the April edition of the London-based global business magazine Ethical Corporation. For a free trial or to subscribe to the magazine email: subs@ethicalcorp.com or go online www.ethicalcorp.com/subs/trial/
