Preparing for Guyana’s oil & gas industry: Membership of the Extractive Industries Initiative (EITI)

Last Sunday’s column completed my presentation of ten lessons which I have argued the Guyanese authorities can profitably learn from a studied appraisal of worldwide experiences with oil-based sovereign wealth funds (SWFs) over the past six decades. As I had indicated at the start of that presentation on the lessons to be learnt, after completion, I intended to turn toward evaluating the equally important government’s policy preference that focuses on governance and regulation of the impending oil and natural gas extractive industry. I begin this task today with an evaluation of Guyana’s Extractive Industries Initiative (EITI) membership, which the authorities have clearly prioritized.

Background

The EITI, as its website declares, is a global standard designed “to promote the open and accountable management of extractive industries”. It works on the premise that a country’s natural resources belong to its citizens and therefore should be used to promote the economy’s growth and sustainable development. Global experiences, however, suggest corruption, lack of accountability, transparency, public scrutiny, openness; and poor governance has led all too frequently to conflicts (armed and otherwise), the dreaded ‘resource curse’, discussed before, and other such negative outcomes.

The basic aim of the EITI standard (described below) is to develop a partnership between government, companies (private sector) and civil society, dedicated to the publishing and disseminating of information, necessary for the promotion of informed public debate on how the country’s natural resources are governed. This governance covers everything along the value chain, ranging from how the rights to the country’s natural resources are issued and allocated to how they are monetized in order to benefit citizens and the economy. This information is expected to strengthen government, the private sector and civil society systems, thereby promoting greater understanding between these sectors.

Indeed, going forward, from the point of extraction of oil and natural gas there are six essential elements in the value chain, namely: (1) the issuance and registration of licences and contracts and the beneficial owners of these, (2) oil and gas production /output, (3) fiscal and legal arrangements governing revenue collection arising from 2, (4) revenue allocation based on 3, (5) spending on economic and social development, and (6) the public benefit derived therefrom.

The lineage of the EITI goes back to the United Kingdom-led civil society-driven Publish What You Pay (PWYP) campaign launched in 1999. This campaign was aimed at making large multinational natural resources companies operating in developing countries compulsorily disclose publicly what monies are being paid to their host governments as compensation for their rights to extract these natural resources. It is presumed that such disclosure and financial transparency would in turn make transparent, transactions that are typically opaque, thereby opening these up to the glare of public scrutiny. By so doing this is expected to reduce the scope for potentially severe underpayments and/or the corrupt use of actual payments made to host governments.

Prime Minister Tony Blair took the idea to the 2002 World Summit on Sustainable Development held in South Africa. The idea was accepted and the EITI was officially launched in 2003. The EITI Standard is structured in two parts. Part 1 describes the implementation of the Standard. Part 2 describes the management and governance of the Standard at the international level. These are considered in brief below.

Part 1: Implementation

In summary form Part 1 is composed of six features. First, there are the principles underlying the EITI as agreed to by its stakeholders (government, industry and civil society) in 2003. This includes its general aims and commitments. Second, there are the agreed procedures which are to be followed by countries seeking membership of the EITI. Third, there are the EITI requirements which form the core for implementing the EITI. Penalties for noncompliance, deadlines to be met and their timeframes are stipulated.

Fourth, Part 1 specifies how countries are validated to the satisfaction of stakeholders as regards meeting the provisions of the Standard. The validation procedure combines country data collection and consultation within the EITI along with a review by an external validator appointed by the EITI. Fifth, there is a Protocol on the participation of civil society. Given its origins in the civil society-driven PWYP campaign the Protocol gives substantial recognition to civil society in the EITI processes. And finally, there is the open data policy which is rapidly emerging as a global best practice.

Part 2: Governance and management

In summary form Part 2 is composed of four features. These are 1) The Articles of Association: The EITI is a not-for-profit members association, incorporated under Norwegian law. It provides the legal framework and governing structure for the global EITI. The key bodies are the biannual Global Conference, which is the main decision-making body, and the Members Meetings which convene between the Global Conferences, the International Secretariat, and the EITI Board. 2) The EITI declared Openness Policy: This basically underwrites the EITI’s foundational principle of transparency. 3) Its Constituency Guidelines: In point of fact, each constituency represented on the EITI Board ‒ civil society organizations, implementing countries, supporting countries, supporting companies ‒ is fully responsible for the selection of its nominees to the Board.

And, finally there is the EITI Code of Conduct. This code applies to all board members and their alternates; all staff of its secretariat, at both the national and international level; as well as members of the multi-stakeholder groups formed to manage the EITI processes at the local level.

Concluding observations

In next week’s column I shall provide further elaboration on some of the items referred to in the above commentary on the EITI. This will focus in particular on the governance structure, the EITI Standard requirements, and the Government of Guyana’s revealed preference for its management of the Guyana-EITI processes.

This will be followed by a third concluding column devoted to a constructively critical evaluation of the EITI, as in truth readers need to be aware that it exists, not without blemish and with room for improvement.