Increasing transparency:

1

• Increasing transparency
• Lessons from the Extractive Industries
• MeTA discussion meeting - 13th March 2007
• Vanessa Herringshaw
• Director, London office, Revenue Watch Institute
  (RWI)

2
Content of presentation

• EITI
• - key elements
• - benefits to date transferable examples
• Practical lessons from implementation
• Strategic issues to consider

3
Extractives Industry Transparency Initiative
(EITI)

• Focus massive revenues paid by extractive
  companies to host governments
• i.e. transparency gt accountability gt improved use
  gt combat the resource curse
• Key elements transferable to other sectors
• EITI Source book lays out criteria/processes
  that are vital
• Audit of company finances independent
  verifiers, to international standards
• Reconciliation - compare statements of
  companies with governments
• Publishing - in public domain
• All companies covered includes SOEs and
  private companies
• Civil society - involved at every stage is a
  requirements
• Workplan - required to show timeframe and
  financing
• Validation adherence judged by external
  evaluator
• Leadership and support multi-party,
  multi-level, but government-dependent
• Multi-sectoral reps in each country, on
  International Board International
• Need strong secretariat adequate staff
  diplomatic/political linkages

4
How can greater transparency effect positive
change?

• General positives EITI process builds
• norms of civil society participation in
  government decision-making
• constructive dialogue between civil society,
  companies government
• improved capacity of government, civil society
  and governments

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5
How can greater transparency effect positive
change?

• Specific positives 1) Within EITI minimum
• Identify missing money at aggregated level
• e.g. Cameroon discrepancies revealed between
  total declared company payments and total
  government receipts. Little use alone but
  prerequisite/source of pressure to push for
• - Improved government financial management -
  specific inquiries / general systems
• Appropriate company payments to government
• e.g. Ghana highlighted non-payment of capital
  gains tax now paid by Newmont
• Raise awareness of total government revenues
• e.g Azerbaijan not so useful alone but
  prerequisite/source of pressure to push for
• Government to use its revenues well
• - Companies and governments to make deals that
  in the public interest
• MeTA
• Q - Focus on payments and receipts? From
  governments? From companies?
• Q - Only really useful linked to other elements?

6
How can greater transparency effect positive
change?

• Specific positives 2) Within EITI plus
  augmentations in different countries
• Identify and publish specific missing money
• By disaggregating individual company information
• By comparing payments to activities production,
  sales etc physical audit
• e.g. Nigeria physical audits determined oil
  production and sales and compared this to
  payments transferred. Identified losses/stealing.
  Officials (admirals) sacked.
• Make the bidding process transparent
• e.g Nigeria now bids and debates open to public
  scrutiny
• Tracking budget allocation, flow and use down
  to sub-district level
• e.g. Ghana templates for tracking use of
  revenues down to sub-national level
• MeTA
• Q - should physical audits (e.g. of drugs
  produced and sold) be a focus?

7
How can greater transparency effect positive
change?

• Specific positives 3) Beyond EITI using the
  stimulus to push beyond
• Contracts transparency
• Should all public-private agreements should be
  published?
• e.g. still looking!
• Policies for sector development public-private
  mix, priorities for development
• Is the government getting the right bang for its
  buck or resource?
• e.g. Indonesia likely privatisation of state
  oil company
• Corporate regulation accounting rules, local
  content rules etc
• Are companies transparency and contributing to
  local societies?
• e.g. Nigeria accounting rules that determine
  what a company must publicly report
• e.g. International Accounting Standards Board
  seeking country-by-country reporting
• Access to information/ Freedom of information

8
What are the practical lessons from EITI?

• Civil society must be a central pillar, built
  in and protected
• Why?
• Transparency -gt Accountability but to whom?
  Citizens
• Sustainability after the wave has passed
  need local pressure
• How?
• Must be there right from before the start
• performance indicator for leaders, not an
  afterthought
• Must be there at every stage two wheels of a
  cart
• takes preparation and investment
• Must be real, self-selected civil society
• not industry associations or government
  selected
• Must be protected when its working, its
  dangerous
• - civil society reaction force funds,
  legal expertise etc
• - international expressions of support and
  sanction

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What are the practical lessons from EITI?

• 2. Leaders must be selected and supported
• Why?
• Totally pivotal at all levels and all sectors
• Importance of individuals vs institutions
• How? push for the following
• Select from each sector
• Governments EITI best where individual has real
  clout, ability and time
• International secretariat need dedicated
  resources political connections
• Companies look for internal leaders, recent
  retirees
• Investors vital to identify champions
• Civil society invest in key individuals to
  drive coalitions
• Sustained focus and nurturing

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What are the practical lessons from EITI?

• 3. Credibility must be protected quality
  control
• Why?
• Need to avoid free-riders
• Need to keep it attractive to members
• How?
• Clear criteria for membership
• Clear process for removal
• Board/mechanism with political will to remove
  non-performers
• Other sanctions??? Compared to Kimberly Process,
  weak at present

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What are the practical lessons from EITI?

• 4. Keep the focus on the necessary information
• Why?
• Pressure from government and companies will be to
  reduce it
• How?
• Resist aggregation lumping together of
  information
• Include information necessary to verify accuracy
  and appropriateness?
• Even once the limits are set at international
  level, continue to push for additions that adapt
  to local needs

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Strategic issues Keeping the focus

• 1. On what will really bring about change
• Transparency is only a tool, a step
• - Not the final destination
• - Should not be a distraction e.g. not using
  what is already available
• Institutional solutions Cause or effect?
• - Does not replace the need for deeper
  political-economic change

13
Strategic issues Keeping the focus

• 2. On companies and home governments not just
  poor corrupt governments
• Practically no government wants to be a member
  of a club for the bad
• - Southern governments and partners resent the
  double standards
• Strategically mandatory company requirements
  have the potential for international impact
• - who is really driving bad practice?
• for every briber taker, there is a briber
  payer
• - mandatory requirements on MNCs
• e.g International Accounting Standards Board
  current opportunity
• or build new international requirement through
  MeTA

14
Summary Learning from EITI

• EITI
• Key elements
• - Multi-party, multi-level, but
  government-dependent
• - EITI Source book lays out criteria/processes
  that are key
• Benefits and Foci for transparency that might be
  useful
• - Generally - Building new norms of
  transparency and dialogue
• - EITI minimum starting point aggregated
  payments and receipts
• - EITI plus pushing for extras bidding
  processes, budget tracking
• - Beyond EITI contracts, sector policies,
  corporate regulation, ATI
• 2. Practical Lessons for initiatives
• - Civil society must be a central pillar,
  built in and protected
• - Leaders must be selected and supported
• - Credibility must be protected quality
  control
• 3. Strategic issues - keep the focus on