Fighting corruption in a global economy: transparency initiatives in the oil and gas industry.

Nigeria, as I have already said, was the first country to come out formally and declare its intention to implement EITI. It formally launched its program in February 2004. (36) Led by the Minister of Solid Minerals, its team has been working hard and hopes to extend its program from oil to solid minerals soon. (37) The project has the personal backing of the President and is steered by an impressive National Stakeholder Working Group--one of whose meetings I have been privileged to attend as an observer. Recently, a comprehensive series of audit reports were produced, including analyses of the financial flows during 2003 and 2004, as well as a mapping of the physical flows of oil, so that eventually the figures for financial and physical flows can be reconciled. (38) This work was publicly discussed at a second anniversary briefing in the capital, Abuja, in February 2006. (39)

Nigeria has gone beyond the most basic level of EITI, and requires the open publication of not only aggregated payments from all companies to government, but also the breakdown by individual company, production field, and category of payment. (40) This goes beyond the basic requirements of the EITI Criteria, and some companies are unhappy with it. On the other hand, some other companies have no difficulty with this degree of disclosure.

Personally, I do not understand why a degree of transparency that gives no problem to some of the major players should be found so objectionable by others. It is also disappointing to discover companies that previously expressed an intent to always comply with the legal requirements of their host governments now objecting when those requirements turn out to demand a higher degree of transparency than expected.

B. Azerbaijan

Azerbaijan is the other oil-producing country that has made great progress. The country has adopted a basic model of EITI, publishing at the aggregated level rather than in the detail required by Nigeria. It also has a multistakeholder approach to the initiative that is led by the head of the State Oil Fund and includes the National Chapter of Transparency International in a leading role. (41)

A Memorandum of Understanding (MOU) was negotiated, and in November 2003, the country was able to announce that twenty foreign and local extractive (oil and gas) industry companies, including State Oil Company of the Republic of Azerbaijan, Exxon, Statoil, Total, Lukoil, Unocal, Shell, and Devon Energy signed the MOU. (42)

In January of this year, a press release was issued, jointly prepared by the Committee on EITI, extractive industry companies, and the NGO Coalition, announcing the release of the Azerbaijan government's third EITI report (covering January through June 2005). (43) The report had been audited by the independent aggregator appointed by the multistakeholder committee. (44) Last week the ancient city of Baku generously hosted the fourth meeting of the EITI International Advisory Group. (45)

C. Other Countries

In addition to Azerbaijan and Nigeria, other countries working on implementation include the Congo, Ghana, Kyrgyz Republic, Sao Tome and Principe, Timor Leste, Trinidad, and Tobago. There is also a group of countries whose governments have made statements endorsing EITI, some of which are working actively on the initiative, including Angola, Bolivia, Cameroon, Chad, Democratic Republic of Congo, Equatorial Guinea, Gabon, Guinea, Kazakhstan, Mauritania, Mongolia, Niger, Peru, and Sierra Leone. Other countries, such as Mexico, are interested. (46) Presently, one of the challenges is to develop a process to validate a country's implementation so that credit for transparency cannot be claimed without substantiation.

V. EITI--ISSUES

As should be expected, the development of EITI has had some challenges. The differences of opinion over whether individual company payments or only aggregated figures should be publicly reported have already been referred to. I will now look briefly at a few others.

A. Legal Implementation

There is the challenge of ensuring compliance with the requirement that the initiative must cover "all companies including state-owned enterprises" (Criterion 4). (47) Various approaches are being adopted, including calling for signatures of a Memorandum of Understanding, issuing a government decree, and passing legislation through parliament. (48) The Principles and Criteria do not specify how implementation should be achieved, but do require the collation of fully comprehensive national figures.

B. Contract Confidentiality

The public's divulgence of the terms of contracts between governments and companies is associated with EITI, but not strictly part of it. Governments take different approaches to contract confidentiality. Some have gone as far as publishing production sharing agreements on their websites for the public. As to the aggregation/disaggregation debate, some companies have no problem with this which others object strongly.

From my personal experience as mineral law advisor to the government of Botswana in the early 1970s, I have to ask the question: "Why should the people of a nation not be free to see the financial terms on which their government has sold their prime asset?" Transparency gives more stability and predictability to these investment arrangements.

C. Civil Society Involvement

One of the pillars of this process is the cooperation between the government, industry, and civil society. In some countries, however, there is very little organized civil society due to authoritarian repression. The fifth EITI criterion clearly states that civil society must be "actively engaged as a participant in the design, monitoring and evaluation of this process and contribute[] towards public debate." (49)

In some places, this may require a significant shift in the government's attitude to freedom of discourse in the public space. It may also require the willingness of civil society activists to adopt a less politically confrontational and more competent role, and develop a nonpartisan approach. It certainly means that public attacks and threats from government ministers and officials, aimed at members of civil society coalitions working on the subject of revenue transparency, are intolerable within the multistakeholder philosophy of EITI. Governments should not put together national working groups made up of only their own tame friends.

Just last weekend, I received bad news from the Republic of Congo that two members of the civil society coalition involved in the revenue transparency question, had been arrested. (50) This is not what we look for in the behavior of a government claiming to be implementing a multistakeholder transparency process.

D. Whitewash

"Whitewash" has for centuries been a term to describe hypocrisy. EITI, like many other aspects of good governance and good corporate behavior, is something potentially prone to abuse.

It is important that we do not allow EITI to simply become a badge worn to declare good intentions without any reality under the surface. There must be effective arrangements for the validation of claims by both governments and companies to implement the EITI requirements.

Yes, companies as well as governments! Implementing companies deserve protection against "rotten apples" in their basket that undermine the credibility of the whole process. There are many ways in which companies can make life difficult for the people collating data at the national level, and this needs to be monitored just as much as the governmental side. At the international level, it is not inconceivable that a company might claim to be a supporter of the EITI Principles but quietly, behind the scenes, lobby to prevent or minimize its endorsement by the government of a country where it operates; or publicly declare transparency while simultaneously negotiating fresh confidentiality clauses aimed at obscuring financial realities. This type of behavior at the international level must be identified and publicly reported. "Whitewash" has no place in the EITI scheme of things.

VI. EITI--SKEPTICAL VOICES.

It is often pointed out that EITI will not eliminate the transparency problems of countries dependent upon oil and gas economies. Of course not! No one connected with the EITI would claim this. There are many other forms of theft, fraud, and corruption than the illicit diversion of revenues. It does not, for example, seek to address the rigging of licensing rounds, the corruption surrounding construction contracts, or the theft of oil. Similarly, EITI does not attempt to cure the ills of poorly budgeted and weakly controlled public expenditure, but it does lay the basis for greater budget accountability. It does not recommend any particular form of fund for the preservation of revenues for the benefit of future generations.

The EITI seeks to do one thing only: ensure that the amounts of money paid by companies are monitored and publicly reported so that the population of a country can hold its government accountable by whatever processes are in place for that specific country. There have been many requests for the initiative to be broadened, but it has been held to a sharp focus, seeking to do one thing well.

VII. EITI--INTERNATIONAL ADVISORY GROUP

I have referred more than once to the International Advisory Group (IAG), which I chair. It is a privilege to work with a group of women and men from around the world, from very different backgrounds, and with different perspectives on many of the subjects discussed, but united by a solid commitment to develop an effective EITI for the future.