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

We are grateful to the governments of the United Kingdom, Nigeria, and Azerbaijan, and to the World Bank, for generously and efficiently hosting our four meetings so far. One more session is scheduled for June in London before presenting our work at the next high level conference in Oslo on October 17th.

Our principal areas of work are on validation of payment information and on the future governance and structure of EITI. The evolving consensus in the group has been documented in a series of detailed technical papers on the validation of implementation at country and company levels; the future management and transition to new arrangements; the provisions of financial and technical support for implementation; incentives to implementation; possible extensions to subnational levels, especially in mining countries; and the promotion of a greater acceptance of EITI, particularly by the governments of rapidly developing and energy-hungry economies. The papers relating to the IAG meetings are published, transparently, on the EITI website. (51)

Validation addresses the extremely important challenge to ensure that implementation is real. EITI "implementation," which does not fulfill the minimum requirements of the six criteria, must not be allowed to boost a country's reputation while providing a smokescreen for malpractice. This includes not only the technical assembly of data, but also the processes by which the scheme is run--especially the independence of auditing and the full involvement of civil society.

I must also say a few words here about future organization. The initiative has been very generously supported by the U.K. government, and in some parts of the world it is still seen as U.K.-driven. However, although the U.K. has been the major contributor, it also has solid support from other governments, several of which have donated to a trust fund administered by the World Bank to help provide financial and technical support to countries and civil society as needed. France, Germany, Norway, the Netherlands, and the United States, together with the U.K., have all contributed, substantially, either in active support, financially, or both. It also has benefited greatly from the backing of the IMF and the World Bank, which has provided technical advice for many countries. (52)

It is felt that the time has come to create a governance structure that can give EITI the nature of a truly international program; this structure will be "light touch," including an ultimate authority of a biannual, high-level conference, a small multistakeholder board, and an independent secretariat under its guidance. It will mainly support the work that is carried out in implementing countries within their similar organizations. (53) In its meeting last week in Baku, the IAG developed draft recommendations about this structure for presentation at the next high-level conference in Oslo. (54)

The structure is not proposed as a permanent institution, because eventually, perhaps in approximately five years, it is hoped that the program will have become so well entrenched as "the normal way of doing business" that there will be no need for a dedicated body at the international level.

VIII. THE FUTURE OF REVENUE TRANSPARENCY

Where does this initiative need to go? Clearly we need to see it spread to more countries, and we are encouraged by the positive reference to EITI in the IMF guide to fiscal transparency in resource rich economies--which we hope will be followed widely. As to the rapidly developing economies of China, Brazil, India, Mexico and South Africa, we would like to see them endorse EITI and encourage its implementation, not only in their own territories, but also in countries from which they must obtain their oil and gas from in the future to meet rapidly escalating energy needs, and especially where their national oil companies become active. It is important to develop a level playing field of transparency internationally.

Considerable encouragement for countries to endorse and implement EITI would come from the passing of a U.N. General Assembly Resolution. I would like to see this happen. Energy security will be a major geopolitical issue for a long time. It will certainly be on the agenda of the forthcoming G8 meetings in Russia and Germany. If EITI can make a small contribution to the increase of trust, the strengthening of currently poor economies, and the avoidance of conflict, it will have been effort well spent.

So far, although some countries have applied it to mining, the emphasis has been on oil and gas. Two international conferences are planned for the next few months to explore issues specific to solid mining revenues. Another question currently being investigated is whether and how EITI might effectively be applied to other extractive industries, such as forestry or fisheries. It might also be applied at the subnational level; this is seen as particularly important by the mining industry.

IX. CONCLUSION

In closing, I should repeat my earlier plea for approaching transparency in extractive industries as a joint challenge for the rich and poor countries and for the public and private sectors alike. Although EITI is presently designed for the protection of operations in developing countries with a history of corruption and looting by the state, I would like to see developed countries join as major actors in EITI, including their insistence on a rigorous implementation by companies headquartered in their jurisdictions. Countries which are major producers, even though not on the IMF's natural-resource dependency list--such as the United Kingdom and the United States---could send a strong signal by voluntarily submitting themselves to the same transparency processes that they advocate for others.

Your invitation for me to address you on these issues at such a prestigious forum in Houston is a very promising signal. It is a signal that the message about transparency in the extractive industries sector has been accepted by the people that matter. It is a signal that the present problems of global governance are seen as a common responsibility, a joint challenge for joint solutions. It is a signal that the idea of building coalitions between the state, the private sector, and civil society organizations for a better world is gaining ground. This bodes well for shaping globalization in a way that is sustainable, fair, safe, peaceful, and prosperous for all the people on this earth.

X. APPENDIX 1

The EITI Principles (55)

1. We share a belief that the prudent use of natural resource wealth should be an important engine for sustainable economic growth that contributes to sustainable development and poverty reduction, but if not managed properly, can create negative economic and social impacts.

2. We affirm that management of natural resource wealth for the benefit of a country's citizens is in the domain of sovereign governments to be exercised in the interests of their national development.

3. We recognize that the benefits of resource extraction occur as revenue streams over many years and can be highly price dependent.

4. We recognize that a public understanding of government revenues and expenditure over time could help public debate and inform choice of appropriate and realistic options for sustainable development.

5. We underline the importance of transparency by governments and companies in the extractive industries and the need to enhance public financial management and accountability.

6. We recognize that achievement of greater transparency must be set in the context of respect for contracts and laws.

7. We recognize the enhanced environment for domestic and foreign direct investment that financial transparency may bring.

8. We believe in the principle and practice of accountability by government to all citizens for the stewardship of revenue streams and public expenditure.

9. We are committed to encouraging high standards of transparency and accountability in public life, government operations and in business.

10. We believe that a broadly consistent and workable approach to the disclosure of payments and revenues is required, which is simple to undertake and to use.

11. We believe that payments' disclosure in a given country should involve all extractive industry companies operating in that country.

12. In seeking solutions, we believe that all stakeholders have important and relevant contributions to make--including governments and their agencies, extractive industry companies, service companies, multilateral organizations, financial organizations, investors and nongovernmental organizations.

XI. APPENDIX 2

The Extractive Industries Transparency Initiative (EITI) International Advisory Group (IAG) (56)

Members of the IAG:

Chairperson

Peter Eigen, Transparency International

Industry

Sam Laidlaw, Executive Vice President, Chevron Texaco Graham Baxter, Vice President, Corporate Responsibility, BP

Edward Bickham, Executive Vice President, External Affairs, Anglo America Countries

Yannick Tagand, DE/ETI, Ministere des Affaires etrangeres, France

Larry Greenwood, Deputy Assistant Secretary for International France and Development Bureau of Economic and Business Affairs, U.S. Department of State

Tormod Endresen, Government of Norway

Samir Sharifov, Executive Director, State owned Oil Fund of Azerbaijan

Dr. Oby Ezekwesili, Minister for Solid Minerals Development, Nigeria

Carlos Garaycochea, EITI Coordinator, Adviser to the Minister of Energy and Mines, Peru

Stephen Krasner, U.S. Government

NGOs