Extractive Industries Transparency Initiative

What it is

The Extractive Industries Transparency Initiative was announced by UK Prime Minister Tony Blair at the World Summit on Sustainable Development in Johannesburg, September 2002. Its aim is to increase transparency over payments by companies to governments and government-linked entities, as well as transparency over revenues by those host country governments.

Why it is needed

Revenues from oil, gas and mining companies, in the form of taxes, royalties, signature bonuses and other payments should be an important engine for economic growth and social development in developing and transition countries. However, the lack of accountability and transparency in these revenues can exacerbate poor governance and lead to corruption, conflict and poverty.

Why it will focus only on extractive industries

Extractive industries are important in over 50 developing countries, home to some 3.5 billion people. Although a greater degree of transparency of payments is desirable in many sectors, there is a close correlation between the countries rich in natural resources and the countries with high levels of poverty. There is nothing intrinsically wrong with these sectors, but the high-risk, high cost and uncertain nature of exploration, coupled with a long gestation before profits are realised and the finite nature of resources, makes financial management of this sector difficult. Some countries rich in oil, gas and minerals have under-performed relative to other countries without natural wealth. Other industries have been able to relocate to countries with a more conducive enabling environment.

Who will benefit

Increasing transparency and knowledge of revenues will empower citizens and institutions to hold governments to account. Mismanagement or diversion of funds away from sustainable development purposes will become more difficult. It should also benefit developing and transition economies by improving the business environment, helping them to attract foreign direct investment. Responsible companies stand to benefit from a more level playing field, a more predictable business environment and better prospects for energy security.

A multi-stakeholder initiative

For the initiative to be successful, it needs to be devised by a range of stakeholders. Countries either host to extractive industries or with extractive industry companies registered in their country will need to be involved.

State-owned companies and small, private companies, as well as the multinationals, will need to be involved to ensure a level playing field with those companies backing the initiative. Business and industry associations play an important role in communicating standards and expectations to their members.

International groups can give important political momentum to the initiative, for example, African partners in the NEPAD (New Partnership for African Development). The World Bank and IMF are playing an important role in working up the initiative, using their experience of government reporting processes, and developing expertise, alongside bilateral donors. The UN and OECD are also important partners.

NGOs have a critical role to play in continuing to research the issues and to raise awareness of the importance of this initiative for sustainable development and poverty reduction. The role of civil society will be critically important in terms of using the data disclosed to hold governments accountable for its expenditure.

Finding a workable solution

DFID hosted an International Multi-stakeholder Workshop in London on February. It was supported by some 70 representatives from all of the groups outlined above. A copy of the workshop report and discussion paper are available on www.dfid.gov.uk

All options for achieving transparency are being considered, including both voluntary and mandatory approaches. One option, that the multi-stakeholder workshop agreed could provide a pragmatic first step, is a country level agreement setting out provisions for annual disclosure of company payments and government revenues by all parties in each country to a trusted third party, using standardised templates. The data disclosed could then be collated, aggregated where necessary and summarised into a country output report. This report would be published for others to use in their in-country dialogues.

Next Steps

The UK will host an international conference (involving ministers, senior officials, industry and NGO leaders) to offer the opportunity for supporters to sign up to a voluntary compact on transparency in the extractive industries. This will take place on 17 June 2003 and participation will be by invitation only.

We hope that participants will agree a Statement of the Principles underpinning EITI and agree actions to take the initiative forward. Some countries may be ready to pilot the approach. We also hope that the transparency standard will be picked up in other initiatives, guidelines and codes, so that transparency is increased across an ever-widening group of countries and companies.

Leadership of the Initiative

The Extractive Industries Transparency Initiative is a high priority for the UK Prime Minister. Secretary of State for International Development, Valerie Amos is leading on the initiative.

The work is being co-ordinated by Simon Ray in DFID (s-ray@dfid.gov.uk ); tel: 020 7023 1696) and Penny McMillin (p-mcmillin@dfid.gov.uk ; tel: 020 7023 1211. Further information is available on www.dfid.gov.uk