Making it add up

Report – 08/02/2005

Is the EITI Adding Up?

Since its inception in 2003, the Extractive Industries Transparency Initiative (EITI) has recorded some important achievements. There is now extensive international awareness that transparency of oil, gas and mining revenues is vital to prevent corruption in countries that depend on resource revenues, and to ensure that these revenues are used to promote growth and development.

There is also broad acceptance of the EITI’s central concept that extractive companies should publish what they pay to the government of each country where they operate, and governments should publish their receipts of these revenues. The EITI has brought together companies, investors, governments, civil society groups and international institutions to promote this shared aim, which is in the enlightened self-interest of all. Several countries have already begun implementing the EITI principles in a way which brings credit to their governments and citizens.

However, the success of the EITI as a concept is increasingly threatened by the lack of clarity about what it means in practice. The criteria for EITI reporting are “understandability, relevance, reliability, comparability and consistency.” If EITI is to be a credible international benchmark for measuring the governance of oil, gas and mining revenues in different countries, then the guidance in the EITI Reporting Guidelines and the draft EITI Source Book must meet these criteria. Unfortunately, it does not.

At present there is no way for EITI stakeholders to tell who is truly implementing the EITI in letter and spirit, and who is merely going through the motions. As a result, countries and companies which are genuinely implementing EITI may not get the credit they deserve for improved governance, while free-riders will be able to claim participation in EITI as a way of evading international pressure to curb corruption. This problem has already emerged in several countries.

Nearly two years after the inception of EITI, there is still no clear benchmark for what it means to implement the EITI Principles, a benchmark which countries can refer to when designing their own initiatives, and which can be used by citizens, investors and others to compare one country or company with another. The benchmark needs to include the following seven elements:

1. companies in each country publish all their payments to government, in a full and timely manner which allows for meaningful comparison;

2. governments publish their receipts of these payments, in the same manner;

3. the data from both parties is independently verified and the results published;

4. there is a transparent mechanism for resolving any discrepancies in the data and, if necessary, taking action against those responsible;

5. that data published be readily and freely accessible to citizens;

6. state fiscal agents which handle resource revenues (like national oil companies) are independently audited and the results published;

7. citizens and civil society groups play an active part in and help to oversee all stages of EITI implementation.

Of course, none of these benchmarks preclude flexibility in national implementation.

Save the Children and Global Witness asked Richard Murphy, an independent chartered accountant, to analyse the Reporting Guidelines and the EITI Source Book and assess whether or not they provide a clear model for implementation. His conclusion is that they do not.

His report reveals major flaws, inconsistencies and opt-outs which, we fear, could allow a country or company to claim to be implementing EITI without providing anything like a clear picture of revenue flows.

The report makes recommendations which, if adopted, would greatly strengthen the EITI. If these recommendations are not adopted, EITI’s credibility will be put at risk, and the original aims endorsed by its stakeholders from government, industry and civil society will not be achieved.

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