Guyana’s first EITI Validation Report

Yesterday was World Environment Day, established by the UN General Assembly in 1972 following the Stockholm Conference on the environment. It marks 50 years since the United Nations Environment Programme was created ‘to provide leadership and encourage partnership in caring for the environment by inspiring, informing, and enabling nations and peoples to improve their quality of life without compromising that of future generations’. Today, the survival of the planet is under the greatest threat from global warming and climate change caused mainly from the extraction and use of fossil fuels. The phasing out of this source of energy and replacing it with renewable sources therefore needs to be accelerated to keep the average global temperature rise to below 1.5°C. At the moment, there is a serious risk of exceeding this threshold within the next ten years or so.

Turn to page 17In last week’s article, we referred to the Government’s decision to resuscitate the Amaila Falls Hydro Project and to engage China Railway First Group Ltd. in its construction under in a Build-Own-OperateTransfer (BOOT) arrangement. We expressed the view that, considering the high cost under this arrangement, the Government should consider using oil revenues to finance the project. The Chinese company has since indicated that it is no longer interested in the BOOT arrangement and prefers an Engineering, Procurement and Construction contract instead.

We had raised the issue of the absorptive and distributive capacity Guyana Power and Light (GPL). Considering the current situation whereby technical and commercial losses in generated electricity is approximately 30 percent, some 50 of the 165 megawatts of electricity to be supplied by the project is likely to be lost. We expressed the hope that GPL will undertake significant upgrades in its distribution infrastructure network while at the same time seeking to minimise the extent of commercial losses through theft and other causes. We had stated that the Government needs to be extremely cautious as to whether it should proceed with the project, considering the other concerns raised by various stakeholders. These include the need for:

(a) Adequate mechanisms to be put in place for the protection of the environment;

(b) A thorough and independent evaluation to pronounce definitively and conclusively that the Project is economically, technically and otherwise feasible, and that all associated risks have been properly addressed;

(c) An independent review confirming that the electricity costs would indeed be reduced, and by what amount; and

(d) A final reformulated cost of the project that would represent the best value for money.

The Government should also reflect on the International Energy Agency’s conclusion in its World Energy Outlook 2020 that solar power is now the least expensive source of energy, before proceeding further. See https://www.carbonbrief.org/solar-is-now-cheapestelectricity-in-history-confirms-iea/.

In today article, we discuss the key findings contained in the recently released EITI Validation Report on Guyana.

Background

In October 2017, Guyana became a member of the Extractive Industries Transparency Initiative (EITI), a global standard for the good governance of oil, gas and mineral resources. The Standard outlines 12 principles

that provide the cornerstone of the Initiative, as well as the requirements that EITI implementing countries are expected to follow. These principles relate mainly to: (i) the prudent use of natural resource wealth for economic growth that contributes to sustainable development and poverty reduction; (ii) the importance of transparency by governments and companies in the extractive industries and the need to enhance public financial management and accountability; and (iii) public understanding of government revenues and expenditure over time that could help public debate and inform choice of appropriate and realistic options for sustainable development.

Specific implementation requirements include: (i) how licences/contracts are awarded and recorded; (ii) who are the beneficial owners of those licences/contracts; (iii) what the fiscal and other legal arrangements are in place; and (iv) how much is produced, how much is paid; and where the revenue is allocated and its contributions to the economy, including employment. EITI member countries are required to publish a detailed annual report disclosing information in relation to these requirements. Additionally, they are to undergo a quality assurance mechanism, called Validation, at least every three years to assess progress towards meeting the EITI Standard and in promoting dialogue and learning at the country level.

Guyana’s compliance with the EITI Standard

Guyana’s first EITI annual report was in respect of 2017. However, significant shortcomings/deficiencies as well as non-compliance with several of the requirements of the EITI Standard were identified. As a result, 14 recommendations were made with a view to bringing about improvements. These include:

(a) Establishing an open database, especially as regards beneficial ownership of companies operating in the extractive sector;

(b) Inventorising licences/permits and maintaining a register;

(c) Publicising mining agreements and maintaining an archive;

(d) Awarding mineral agreements based on tendering and providing a clear definition of and distinction between large-scale licences and medium-scale permits; and

(e) Accelerating reform of the petroleum legislation.

The 2018 report highlighted similar shortcomings, indicating little progress or no progress was made to implement the recommendations contained in the first report. As a result, the Independent Administrator was unable to determine that all significant contributions made by the extractive entities to the revenues of Guyana were included in the report. The report includes a table showing the status of implementation of the recommendations made, none of which were fully implemented; while some were pending, and either little or some progress was made in respect of the rest.

The 2019 report has since been completed and will be subject of discussion in another article. See https://eiti.org/documents/guyana-2019-eiti-report.

EITI Validation methodology

The EITI Validation involves an assessment against three components: stakeholder engagement; transparency; and outcomes and impact. Stakeholder engagement relates to the participation of the constituencies and multi-stakeholder oversight throughout the EITI process. This includes having in place: (i) a functioning MultiStakeholder Group (MSG) comprising government, companies, and the full, effective and independent participation of civil society; (ii) an agreed work plan with clear objectives for EITI implementation; and (iii) a timetable that is aligned with the deadlines established by the EITI Board.

Transparency refers to the disclosure requirements of the EITI Standard. These include: (i) legal framework and fiscal regime; (ii) allocation of contracts/licenses; (iii) maintenance of registers of contracts/licences; (iii) details of beneficial ownership; (iv) State participation; (v) information on exploration, production and exports; (vi) comprehensive disclosure of taxes and revenues; (vii) data quality and assurance; (viii) distribution of extractive industry revenues; (ix) revenue management and expenditures; (x) social and environmental expenditures by extractive entities; (xi) contributions of the extractive sector to the economy; and (xii) environmental impact of extractive activities.

The outcomes and impact component assesses progress in addressing national priorities and public debate. This includes the extent to which: (i) stakeholders are engaged in dialogue about natural resource revenue management and their contribution to wider public debate; (ii) lessons learnt during implementation are acted upon; (iii) EITI recommendations are considered and acted upon; and (iv) EITI implementation is on a stable, sustainable footing.

Each component is assessed on a score of 100. The overall score represents an average of the component scores.

Validation Results and overall assessment

Guyana has received an overall score of 52. The specific scores under the three components referred to above are: Stakeholder Engagement - 60; Transparency – 53.5; and Outcomes and Impact – 42. Table I provides a summary of the validation results:

Of the 26 EITI requirements on which Guyana was assessed, six were considered fully met, as shown below along with the report’s comments:

(a) Establishment of MSG. Guyana has established a functioning MSG to oversee the EITI process. However, there is scope to promote more analytical and substantive debates, building on the vibrant public debate on the oil and gas sector and the findings of the two EITI reports issued so far;

(b) EITI report coverage: The two EITI reports issued provided expanded coverage to the forestry and fisheries sectors which are economically important sectors having a significant impact on communities. Given the competing land uses among the various sectors, disclosures about to licensing and property rights have garnered particular public attention;

(c) Dissemination of information about EITI:

Guyana EITI has sought to develop innovative outreach and dissemination channels, such as youth competitions, social media, newsletters and hybrid (virtual and in-person) public conferences, to stimulate public debate on the extractive industries;

(d) Dialogue on governance: While the MSG has often discussed issues relating to extractive sector governance beyond the minimum scope of the EITI Standard, these issues are not reflected in the objectives for Guyana’s EITI implementation nor in the Guyana EITI work plan. Ensuring that a broad range of government, industry and civil society constituencies are consulted in developing the annual work plan would help to ensure that the EITI is supporting national reform objectives.

(d) Civil society participation: While civil society has been a driving force in implementation, there have been weaknesses in government and industry engagement in the EITI process. While weaknesses in government engagement in 2020 were largely due to the triple crisis (COVID-19, election impasse and change of Administration), delays in reconstituting the MSG in 2021 reflect ongoing weaknesses that have impacted EITI implementation. Weaknesses in industry participation in EITI reporting, particularly in the mining sector, reflect challenges in terms of coordination and engagement. Some tensions between the MSG and the national secretariat have also affected the MSG’s capacity to fulfil its responsibilities; and

(e) Disclosure of government revenues: Guyana’s EITI reporting has shed some light on the government’s revenues from the extractive industries for the first time. However, because of weaknesses in company reporting and taxpayer confidentiality constraints, only a minority of the government’s revenues have been disclosed. There were weaknesses in government systems and recordkeeping, including the lack of integration between databases of line ministries and the Ministry of Finance, resulting in gaps in EITI disclosures. Weaknesses in tax administration in the extractive industries, including in the lack of consistent tax identification numbers for instance, have also been noted.

EITI Board’s assessment

The EITI Board has concurred with the results of the validation exercise. It, however, expressed concern over Guyana’s low score on the outcomes and impact component which reflects an ad hoc approach to outreach and dissemination; failure to follow-up on EITI recommendations; and insufficient attention to the annual review.

While the Board commended Guyana for its innovative efforts to undertake outreach during the pandemic, ensuring that a broad range of government, industry and civil society constituencies are consulted in developing the annual work plan would help ensure that the EITI is supporting national reform objectives.

Although Guyana has recorded a fairly low score on transparency, it has made commendable efforts to use EITI implementation to ensure disclosures on areas of public interest, including contract transparency, commodity sales and environmental aspects of the extractive industries. Guyana’s EITI reporting has shed some light on the government’s revenues from the extractive industries for the first time, although weaknesses in company reporting and taxpayer confidentiality constraints mean that only a minority of the government’s revenues have been disclosed through the EITI process. In this regard, the Board has urged Guyana to ensure complete and reliable revenue disclosures as a basis to support the government’s public finance management reforms.

Guyana also achieved a fairly low score on stakeholder engagement. While civil society has been a driving force in implementation, the Board expressed concern over weaknesses in government and industry engagement in the EITI process, including in disclosures of required data. Weaknesses in the multi-stakeholder oversight of EITI implementation have led to challenges both in reporting and in ensuring that the EITI provides a meaningful forum for multi-stakeholder consensus-building. Accordingly, the Board has urged the Government to implement legal provisions for public participation in policy making for extractive sector governance. This includes free, prior, and informed consent in the extractive licensing process, with a view to ensuring full adherence to national policies and laws. The Guyana EITI has also been encouraged to closely monitor implementation of these legal provisions.

The Board has determined that Guyana will have its next validation commencing on 1 April 2024. During this two-year period, it is expected that corrective actions will be taken in the 20 areas identified in the Validation Report. The failure to demonstrate progress in these areas may result in temporary suspension.