The Extractive Industries Transparency Initiative Discussion Paper for International Stakeholders Meeting

11-12 February 2003

Summary

1. In preparation for the international stakeholder meeting on 11-12 February, this paper sets out the background to the Extractive Industries Transparency Initiative (EITI). It highlights: the background to the initiative; issues to be addressed; existing measures to achieve transparency; and proposes one possible initial way forward for the Initiative.

2. The aim of the February meeting will be to discuss and agree the principles underlying the initiative, to build consensus around how the initiative might be taken forward and agree a specific action plan on next steps.

3. Attendance at the meeting is by invitation only, due to limited space. However, we would welcome all comments and suggestions on this paper. Similarly, examples of existing work in this area or papers to table at the meeting could be sent in advance. They should be addressed to Simon Ray and Penny McMillin, Department for International Development, 1 Palace Street, London SW1E 5HE (s-ray@dfid.gov.uk and p-mcmillin@dfid.gov.uk)

Background to the Initiative

4. The Extractive Industries Transparency Initiative (EITI) was launched by the UK Prime Minister, Tony Blair, at the World Summit on Sustainable Development, in Johannesburg, September 2002. The Initiative encourages governments, extractive companies, international agencies and NGOs to work together to develop a framework to promote transparency of payments in the extractive (oil, gas and mining) industries. The hope now is to develop further the initiative with critical stakeholders.

5. The Initiative is grounded in a shared belief that the prudent exploitation of natural resource wealth should provide the basis for sustainable economic growth that contributes to sustainable development. Draft principles are set out in Annex A. Transparency over payments and revenues increases the likelihood that the revenues generated by the development of natural resources are used in an efficient and equitable manner and can assist governments in financial and macro-economic planning. It also reduces the risk of diversion or misappropriation of resources. 

6. The proposal to encourage greater disclosure of payments by companies in the extractives sector has been pursued actively by non-governmental organisations (NGOs). The Extractive Industries Transparency Initiative (EITI) focuses on both company payments and government revenues. It will be taken forward through an international multi-stakeholder process, involving a critical mass of governments, oil, gas and mining companies, International Financial Institutions (IFIs) and NGOs, which collectively and critically must consider the most appropriate means for achieving transparency. 

The broad issues

7. The Extractive Industries - defined here as oil, gas and mining industries - are critically important in over 50 countries, home to some four billion people. In some of these countries, revenues from the extractive industries have been an important engine for economic growth and social development. 

8. However, in many countries, the existence of natural resource wealth has not led to economic growth and development. On the contrary, the 'gift' of natural wealth has sometimes been linked to increases in conflict and poverty. 

9. The key issue is of governance or stewardship of the natural resources and the revenues flowing from their extraction. A number of factors make the wise management of natural resource wealth in the short- and long-term particularly difficult. These include the unusually large size of the revenues in relation to national income, price fluctuations in commodities markets and the finite nature of these natural resources. An extensive range of governance factors affecting the extractives sector is being addressed by other interventions, including improved public financial management, capacity building and anti-corruption measures, which are not discussed in this paper. This initiative focuses on one key factor - that of transparency of legitimate payments and revenues.

10. Based on experience gained through this initiative, it may be appropriate eventually to extend its scope so as to promote greater transparency in other sectors.

The specific issue

11. The Extractive Industries Transparency Initiative proposes that a necessary step - although not sufficient in itself - towards better governance of natural resource wealth is greater transparency over the payments and revenues in the extractives sector. 

12. At present, most multinational companies do not report publicly financial information disaggregated to country level in each country where the company operates. Further, even where companies may be willing to consider making disaggregated payment disclosure, confidentiality clauses in contracts to protect commercially sensitive information could sometimes constrain disclosure of basic financial information. 

13. On the producer country side, there is no international requirement to make budgetary and fiscal information fully transparent, although countries are encouraged to permit an IMF Report on Codes and Standards (ROSC) in relation to fiscal transparency. Even where it is transparent, the revenues from the extractives sector may not be presented in a manner that facilitates access by citizens.

14. This lack of specific information about the payments and revenues in the extractive industries has prevented stakeholders with an interest in the equitable and efficient use of those resources from holding their governments to account for the use of funds.

Potential benefits of transparency

15. Transparency, improved financial management and accountability contribute to the better, more efficient and more equitable use of resources, which, in turn, contributes towards a stronger economy and the basis for sustainable development. There are domestic benefits for governments adhering to high standards of transparency and accountability, since this helps demonstrate good governance to their citizens. Governments would have access to better information about the payments made, and resources received, by national or foreign companies to ensure full compliance with fiscal regulations. Governments adhering to the principles of transparency and accountability may find it easier to gain accreditation for foreign direct investment and may be able to borrow at a lower cost. Donors, international financial institutions and other investors are more willing to offer finance and technical assistance to countries committed to - and implementing - transparent public financial management. 

16. Extractive companies typically work to long-term investment horizons, which involves a premium on good governance and political stability. Transparency over payments and revenues should bring about greater accountability and therefore reduce the risks of social instability over the perceived misappropriation of resources. Further, transparency over the payments made by companies will show citizens of producer countries the amounts investors are contributing to the national economy. Transparency can help to focus attention on the use of revenues by local, regional and national governments, where responsibility ultimately lies.

17. For state-owned companies there would be reputational benefits domestically, in terms of demonstrating good corporate governance, openness and social responsibility. They would enhance their capital market access and their ability to attract companies committed to transparency as partners.

18. There are benefits to other stakeholders too. Industry bodies will wish to have their member companies upholding the highest standards of transparency in the sector. Likewise, countries home to companies with foreign interests will wish 'their' companies to be of good reputation by practising transparency in their business transactions and operating in politically stable countries. These home countries will, in many cases, be energy importers looking for more secure and stable sources of supply for the future. 

19. Greater transparency should be beneficial for investors who are seeking to minimise risks arising from social and political instability, and ensure that they are able to exercise proper scrutiny over investment decisions. Similarly, as progress is made in cracking down on corruption and money laundering, the financial sector will also need to demonstrate its commitment to good governance in the companies in which they invest: this will become easier as transparency and accountability become more comprehensive.

20. International organisations may find that the initiative complements existing processes to enhance transparency, reduce corruption and promote corporate responsibility (including the UN Global Compact, Global Reporting Initiative the OECD Guidelines on Multi-National Enterprises and the OECD Anti-Bribery Convention, the Wolfsberg Principles on Money Laundering, the IMF Government Finance Statistics and the IMF Code on Fiscal Transparency, and IMF and World Bank work on Public Financial Management). 

21. Information disclosed at country-level should provide a basis for citizens of any producer country to hold their governments to account for the use of natural resource wealth. This would facilitate the allocation of funds to development purposes.

Objectives of the initiative

22. The Extractive Industries Transparency Initiative aims to provide transparency over the legitimate payments by companies to governments and government-linked entities, as well as transparency over legitimate revenues by those host country governments. Comparison of the data (although differently sourced) should allow the detection of discrepancies and so bring about greater accountability.

23. A clear picture of the payments and revenues in the extractives sector is a vitally important tool for others - governments, non-governmental organisations, citizens of any producer country - to use in endeavours to achieve wider goals of:

• Greater accountability, so that revenues from the extractive industries are used towards the elimination of poverty and promotion of sustainable development;
     
• Reduced risk of conflict and political instability through more equitable distribution of resources, with better prospects for long-term investment and energy security; and 
     
• A business environment that is conducive to investment.

How to achieve these objectives - a multi-stakeholder coalition

24. There has been interest in promoting transparency for some time amongst some governments, companies, international organisations, NGOs and investors. Some of the initiatives launched by international organisations have been mentioned above. 

25. The momentum behind transparency that each of these initiatives has created is invaluable and paves they way for a more comprehensive, global approach. The Extractive Industries Transparency Initiative aims to bring together all the relevant actors in the extractives sector - governments (producers, home countries, developed, transition and developing), extractive companies (international and state-owned), service companies or contractors, investors, international organisations, industry bodies and NGOs to agree on the need to promote transparency and together to look at the best ways of achieving it. 

What should be made transparent?

26. A comprehensive approach to transparency requires commitment from both governments and companies to disclosure of revenues and payments.

27. Government revenues from the extractive industries would include any income earned in cash or in kind, including tax receipts, royalties, lease fees, rental payments, bonuses, share of production, dividends and other profit transfers or receipts from asset sales. 

28. Company payments (by both state- and privately-owned extractive companies) to host governments and their agencies might include any transfer of funds (in cash or kind) for the purchase of an asset, or the payments of a tax, dividend, royalty, fee, rental or bonus. A draft template outlining the types of payments made in the sector is attached at Annex B.

Achieving transparency - Options for change

29. Options for pursuing transparency of the government revenues and company payments listed in the template at Annex B are analysed below. Initial conclusions are that no single mechanism will suffice and that a combination of mechanisms will be needed. Stakeholders may wish to suggest other approaches not analysed in this paper.

30. Each option must be considered for its effectiveness in meeting the desired objectives and the extent to which it offers:

• Collective action - drawing in a critical mass of actors to forge wide consensus and maximise the acceptability and application of this initiative;
     
• Confidentiality - protecting commercial confidentiality and respecting existing contract provisions;
     
• Comprehensiveness - capturing critical payments and revenue flows; and
     
• Comparability - providing easily aggregated data.

Options for transparency by companies

31. Options include:

• Unilateral disclosure to model best practice 
     
• Global Reporting Initiative
     
• OECD Guidelines for Multinational Enterprises (MNEs) 
     
• UN Global Compact 
     
• UN General Assembly Resolution
    
• International Accounting Standards
    
• Disclosure Rules for Securities Markets 
    
• Export Credit Agency requirements

These are analysed further in Annex C.

32. To engage the extractive industry, any transparency option will need to address several key issues:

• legality - in countries where companies are subject to a non-disclosure agreement or a law on public disclosure, the transparency option must ensure that the company has received whatever consents are necessary prior to disclosure;
     
• competitiveness - the disclosure of data on country-specific payments should not put companies at a competitive disadvantage;
     
• alignment - the pursuit of transparency must be carried out by companies and host governments in parallel. 

33. Most of the options presented address only company payments and so exclude the substantial revenues earned by host governments from their own production.

Options for transparency by countries

34. Options include:

• Implementing best practice in transparency
     
• IMF Article IV
     
• IMF Code of Good Practice in Fiscal Transparency
     
• Country-led efforts to achieve international standards in public financial management and accountability
     
• IFI / Donor Conditionality

These are analysed further at Annex D.

35. It is clear that governments have a key role in actively promoting transparency in their territories. Adhering governments will need to be assured that adequate capacity building can be provided to help them put in place public financial management and accountability systems. Such assistance might include revenue reporting and management programmes, capacity building technical assistance, support for audits and revenue modelling as a tool in forward macro-economic planning.

36. In each case, a voluntary approach is most easily and quickly implementable. Voluntary approaches can also represent a deeper level of commitment by stakeholders than does passive compliance with a mandatory approach. However, a voluntary approach may not draw in the less enthusiastic players in the sector and also may not over-ride confidentiality clauses (where they exist), unless all parties in any production location agree to abide by a jointly agreed practice. Mandatory routes offer comprehensiveness over company payments to the extent that they are binding, but most fail to cover a sufficient range of countries and companies to achieve full transparency alone. Furthermore, most mandatory measures on companies fail to capture government revenues from their own production, and from state-owned companies (see Annexes C and D).

37. This analysis points to the need for an initial approach that is applicable both to companies and countries, with a role for other institutions in its application. It needs to be tailored to the specific problem that is addressed, in part, in many other options. It also needs to be supported by on-going work on a number of those other routes analysed in Annexes C and D. 

One Way Forward - a voluntary compact?

38. One option that has been considered further as a pragmatic first step is a voluntary compact setting out provisions for full disclosure of company payments and government revenues by all parties in any production contract in each country using standardised templates. 

39. The compact would require signatory governments that are hosts to extractive industry operations to disclosure revenue data in accordance with the standard template. It would also require signatory companies (both state-owned and privately-owned) to disclose data on payments to host governments. The compact would require that the signatory governments and companies provide whatever consents are necessary to allow data disclosure. The compact would also ask signatory governments to require that all companies with operations in their country disclose data using the standard templates. 

40. Signatories to the compact - both countries and companies - would be committing to the annual publication of audited figures against the standard templates. They would also be committing to allow monitoring, auditing and publication of the templates and to promoting the compact amongst other governments and companies.

41. Industry bodies, investors, commercial lenders, international organisations, non-governmental organisations, countries with no oil/gas/mineral deposits but home to extractive companies and other interested parties could be invited to join the initiative as 'associate signatories.' They would agree to promote the transparency standards - possibly by adopting the provisions in their own conditionality/appraisal processes or criteria for membership. In addition, they could assist in monitoring and application of the compact.

42. Such an approach could be detailed in a reasonably short space of time, allowing those keen to practice transparency a mechanism for moving forward with other like-minded actors. Depending upon the success of the initiative in drawing in new pro-transparency actors and creating a level playing field, other options will be considered to complement the initial, voluntary compact approach.

Making it work

43. How could such a compact be applied? There are many questions for discussion during the February workshop, some of which are highlighted below.

44. Monitoring: Who/what would oversee compliance with the compact - would they have the authority to demand disclosure if it were not forthcoming and to report on non-compliance? To whom? Would the compact need to be 'housed' in an existing institution? Would there need to be a secretariat and some kind of independent supervision? If so, which and where (e.g. UN, IFIs, OECD, Regional Institutions, national legislation)? Many existing institutions have partial membership or have a limited remit. To what extent would the initiative stretch these mandates - perhaps beyond the purpose for which the institution was initially conceived? Can institutions each adopt the provisions of the compact into their own principles / criteria and conditionality?

45. Appropriate disclosure: In order to achieve accountability, information must be made available to the public in producer countries. Where would disclosure take place? Would companies file information to their home governments and allow others to access it and disseminate to producer countries, or could the information be made available directly in the country of production?

46. Collection of data: The information disclosed by companies will need to be made available in-country according to a standard template. Some types of information may perhaps need to be aggregated (possibly by an independent third party) to protect commercial confidentiality, but aggregation should be kept to a minimum to simplify the data collection process and to maximise transparency. What role could be played by IFIs, accounting / auditing companies, industry associations, the UN, regional bodies? 

47. Assistance: The information disclosed by governments should be part of a regular process of [budget / fiscal] financial transparency. What provisions and resources are available to assist countries in their implementation of the compact, either by IFIs or by donors? What cost will there be in compliance?

And beyond?

48. The voluntary compact approach seems an appropriate and pragmatic first step for the initiative at this stage, but the key question for the longer-term is whether a voluntary compact of supportive countries and companies will actually promote new, more transparent ways of working? Will it draw in stakeholders previously not committed to transparency? If not, consideration will be needed on whether and how further measures can be adopted. Would a mandatory approach be appropriate? If so, by what means? Could the provisions in the compact be used by other institutions in their standard-setting role, by donors and IFIs in their conditionality, by industry bodies in their eligibility criteria? At this stage no options should be ruled out, and it may be that some form of mandatory approach will need to be considered. NGOs will continue to press for mandatory options to be pursued down a parallel track.

Next Steps

49. The EITI is being taken forward through a multi-stakeholder process, with a first international meeting taking place 11-12 February in London. The February meeting may conclude that working groups will need to consider further some specific elements of implementation. Best practice examples of transparent behaviour in the extractives sector (and the benefits it brings to all parties) could be evaluated and country or regional initiatives would help to highlight the most appropriate route forwards.

50. A follow-up Ministerial conference may be organised in May 2003 to foster further high-level support for the initiative that has been created by the February working meeting. 

51. In addition to the broad range of stakeholders being invited to the February meeting, we are seeking specific commitment to this initiative from the G8, and will be working through the G8 to achieve this by the Evian Summit in June. 

52. Meanwhile, some countries, regional organisations or industry associations may wish to convene discussions to explore the implications of the initiative, for example, NEPAD's proposal to organise discussions with country representatives in summer 2003. 

53. The World Bank and IMF's Spring Meetings should provide a useful opportunity for follow-up discussion and action.

54. The Publish What You Pay campaign continues apace. The leading NGOs in the campaign are working closely with the EITI to develop the Initiative, whilst continuing to pursue the specific objectives of the PWYP campaign itself.

Extractive Industries Transparency Initiative
Department For International Development, UK
January 2003 

ANNEX A

Extractive Industries Transparency Initiative - Draft Principles

• We recognise that revenues from natural resources should be an important engine for economic growth, social development and poverty eradication, but, if not managed properly, can create negative economic and social impacts.
      
• We recognise that the benefits of resource extraction occur as revenue streams over many years and that, although highly price dependent, a public understanding of current and future revenue streams would help inform the choice of appropriate and realistic development options.
     
• We support the principle and practice of accountability for the stewardship of revenue streams - from their receipt to their eventual end use.
     
• We are committed to honest, legal and transparent behaviour.
     
• We support the principle and practise of financial transparency - as a necessary condition for good governance.
    
• We believe that a comprehensive, consistent and workable approach to the disclosure of payments and revenues is required.
     
• In seeking solutions, we believe that all stakeholders have important and relevant contributions to make - including host and home governments, multilateral organisations, regulatory agencies, financial institutions, non-governmental organisations and industry.
     
• We commit to develop effective mechanisms to achieve transparency of payments and revenues in the extractive industries. This will entail disclosure by oil, gas and mining companies of tax and non-tax payments to host country governments and government-linked entities, and transparency by governments over revenues from this sector. We encourage other Governments, national and multinational extractive companies and other interested parties to join us to develop effective and lasting solutions.

ANNEX B

GOVERNMENT TEMPLATE FOR OIL & GAS 

COMPANY TEMPLATE FOR OIL & GAS 

Other Taxes may include (but not exclusively): Import Duties, Export Taxes, Registration Fees, Resource Rents, Turnover Taxes, Withholding Taxes, Capital Gains Taxes, Sales Taxes, Social Development Costs, Stamp Duties, Payroll and Social Security Taxes 

GOVERNMENT TEMPLATE FOR MINING 

COMPANY TEMPLATE FOR MINING 

Other Taxes may include (but not exclusively): Import Duties, Export Taxes,  Registration Fees, Resource Rents, Turnover Taxes, Withholding Taxes, Capital Gains Taxes, Sales Taxes, Social Development Costs, Stamp Duties, Payroll and Social Security Taxes 

The Templates - explanatory notes and questions

The templates seek to balance two contrasting objectives: to apply as broadly as possible to capture the wide range of licence agreements encountered in the oil, gas and mining industries, to be as simple as possible for governments and companies to compile and for users of the information to understand. We want to hear from governments, companies and the information users whether these templates address the main streams of revenues / payments. 

Framework for Revenues / Payments from Extractive Industries

The templates are constructed to capture three main streams of revenues / payments, which are needed to formulate a comprehensive picture of the Government's Revenues from the Extractive Industries:

• Revenues from Government Share of 'Profit Oil' (generally applicable to the Oil & Gas rather than the Mining Industry)
     
• Revenues from International Oil & Gas / Mining Companies
     
• Revenues from the National Oil & Gas / Mining Company

Production Sharing Agreements

Production sharing contracts (PSCs) are generally between oil companies and the governments (or national oil companies) of oil producing countries. Typically, the contractor (the oil company or group of oil companies) agrees to pay and bear the risk of all exploration, development and production costs, in respect of the contract area. If there is production, the contractor receives a share of the production for recovery of its costs ('cost oil'). The remainder of the production ('profit oil') is shared between the contractor and the government in agreed ratios.¹

Detailed Issues to Achieve a Coherent Framework of Disclosure

There will also be a need for guidelines for the attached Government and Company Templates to ensure that there is a common basis of reporting. Noted below are some of the issues that will require more detailed explanation in the guidelines. We would like to get feedback on these issues and other areas that need to be clarified.

• An issue is how Companies report taxes and transfers to the different Host Country Institutions. We propose that all companies differentiate taxes and transfers to the National Government, Regional Government, Local Government and National Oil & Gas / Mining Companies.
     
• Should 'Downstream' revenues / payments be included as well as 'Upstream'? Although this initiative focuses on the 'Upstream', it is sometimes difficult to disaggregate the reporting of 'Downstream' taxes from 'Upstream'. The proposal is that the Government / Company focuses on the 'Upstream' but states where 'Downstream' figures are included.
     
• Cash or Accruals? Companies generally use accrual accounting, but produce cash flow statements. Governments generally use cash accounting, but there is some movement towards accruals. Users tend to understand cash figures better than accruals. The proposal is that the Templates should be calculated on a cash basis.
     
• What is the level of Materiality? The proposal is that where "Other" includes figures material to the clarity of the disclosure (i.e. greater than 5% of the total), such data should be broken down by individual type of revenue / payment.
     
• What is the accounting period? Many countries and companies' reporting period is not the calendar year. At a minimum, Governments and Companies need to report using the same period. Our proposal is to report annual data according to the Government's financial year. 
     
• How will the reassessment of taxes be reported? There can be provisional and definitive payments as well as payments on account. These issues need further investigation. 
     
• In the event that taxes or transfers are netted off, these taxes and transfers should still be recorded as revenue.

ANNEX C

Options for disclosure by companies

Unilateral disclosure to model best practice 
A company could decide to make information about its payments to a host country transparent, for example, by publishing them in the local media. The main drawbacks of this step would be the risk of breach of contract and the risk that competitors would not follow suit, but rather would seek to use the information to undercut the transparent company. Alternatively, a company could seek host government and other partner approval for it to make such unilateral disclosures. However, disclosure by a single company will not provide much information about total government revenues from extractive industries, but a multilateral approach could be useful.

Global reporting initiative
The principles and best practice disclosure models arising out of this initiative could be incorporated into an established reporting standard, for example the Global Reporting Initiative (GRI), which has transparency as a basic principle. The GRI standards are seen as best practice in industry and there is already provision for reporting taxes paid to governments by country. However, the guidelines are voluntary and are intended for gradual introduction, giving companies discretion to postpone compliance against the tax disclosure indefinitely. Very few companies currently report 'in accordance' with the full set of GRI standards and the monitoring mechanism is still evolving. The GRI provisions do not presently cover non-tax payments to governments and would not override existing confidentiality clauses in contracts. 

OECD Guidelines for Multinational Enterprises (MNEs)
The OECD Guidelines for MNEs are non-binding recommendations addressed by governments to all companies based in or operating in their jurisdictions. Thirty-three OECD governments and four non-OECD governments have agreed to the guidelines. Changes to existing provisions for information disclosure would ensure that participating governments actively sought information about payments from companies operating in or from their territory. But this would amount to a radical amendment to the Guidelines by introducing an obligation on governments into an instrument presently mainly focussed on behaviour of multinational enterprises. Another drawback to this approach is the composition of signatories to the Guidelines. Companies from OECD countries could be undercut by companies from non-OECD countries not required to disclose information about payments made to a host government. 

UN Global Compact
The UN, with its broad reach and international standard-setting agenda, could play a useful advocacy role in the initiative. The Global Compact provides an established framework of nine principles of responsible corporate behaviour and is supported by high-profile companies. 

UN General Assembly Resolution
The UN could also provide the institutional home for pro-transparency governments to propose a General Assembly resolution with the widest possible signature by developed, transition and developing country governments. This measure was an important element of a process to gain broad acceptability of the Kimberley Diamond Initiative. 

International Accounting Standards
The International Accounting Standards (IAS) are a set of reporting requirements for companies adopted as standard by 30 countries, although from 2005, all listed companies in the enlarged EU and Australia will report under IAS and in the longer term there is a global convergence on IAS as a single globally accepted set of standards. Changes to the reporting requirements of the IAS (and other similar standards, such as the US' Generally Accepted Accounting Principles (GAAP)) could be made through a binding Statement of Recommended Practice for Extractive Industries to include provision for tax and other payments broken down by country. The key advantage of this mechanism is the comparability of data and the timely reporting of audited data. As a mandatory requirement by home governments, changes to the IAS could override any confidentiality clauses. A drawback is the partial coverage of IAS at present. This would leave out, for example, countries with state-owned companies not fully adhering to the IAS standards. 

Disclosure Rules for Securities Markets
Companies wishing to have their securities admitted to trading on financial markets need to provide information about their activities in a prospectus and then are obliged to report regularly about the company's financial position. Changes to disclosure and reporting requirements in respect of the EITI would need to apply across all major securities markets for there to be sufficient coverage to prevent less transparent players from undercutting those companies that comply. Such changes in requirements across several jurisdictions would take some time to put into effect. Further, companies whose securities are not quoted on financial markets would not be covered and may have the ability to undercut quoted companies. This route could rarely be applied to payments made by state-owned companies to their governments. However, where applied, disclosure rules could override confidentiality clauses in contracts. In addition, they would have a wider application than company law since many multinationals are quoted on a number of securities markets beyond those in which they are incorporated. However, in some cases, Listings Authorities are independent of the government. Direct government intervention to make changes in these rules could compromise the independence of the Listings Authorities. Broadly speaking, the disclosure rules approach is the option favoured by the NGOs' Publish What You Pay campaign, a coalition of over 70 NGOs formed in 2002 to raise awareness of the need for disclosure of payments by companies to governments in the extractives sector. 

Export Credit Agency requirements
Export Credit Agencies extending support to companies could require disclosure of payments as a condition of that support. A statement of business principles is already a feature of some export credit agencies. These could be amended to bring in detailed guidelines about transparency disclosure expectations. However, this scheme would be limited in application to those companies seeking export credit cover and could, inadvertently, result in less transparent companies choosing alternative sources of credit.

ANNEX D

Options for disclosure by countries

Implementing best practice in transparency
A home country could adopt best practice in transparency and insist that all its registered companies are required to disclose the amount of taxes paid, disaggregated by country, when preparing their annual accounts. These reports could be lodged centrally, with public access guaranteed. As with other options, this route risks leaving those companies exposed internationally to competitors who can operate in non-transparent countries with fewer 'requirements' laid upon them from their home country.

Alternatively, a host country could adopt best practice in transparency and require all companies operating in its territory to disclose information about payments and could at the same time declare the amounts it receives from the extractives sector. Where contracts contain confidentiality clauses host governments could provide their consent for the disclosure of data needed for compliance with the EITI. This arrangement would ensure that all parties to any given contract were bound by the same requirements, but would only work in countries committed to this level of transparency. It would also satisfy comprehensiveness criteria as a full picture of company payments and government revenues would be available. 

Regional organisations, such as NEPAD, have also incorporated transparency themes into their codes and standards for achieving good economic and corporate governance.

IMF Article IV
The IMF has a regular mechanism for monitoring macro-economic stability globally - the Article IV surveillance process. The coverage of IMF surveillance has evolved from an initial focus on exchange rate, monetary and fiscal policies to include structural policies, capital account, financial sector and institutional issues. For many developing and some developed countries, the size of the revenues in the extractives sector means that the effective management of the revenues in this sector is crucial for macro-economic stability. In oil-producing countries, coverage of surveillance in recent years has paid attention to fiscal transparency, the treatment of oil revenues, and the provision of data. This practice could be extended to ensure that the Article IV process includes closer monitoring of the extent to which governments of countries with significant extractive industries adhere to high standards of transparency and public disclosure. The almost global reach of the IMF and its regular monitoring programme are advantages. The majority of Article IV reports are already published and there is increasing pressure on all countries to permit publication.

IMF Code of Good Practice in Fiscal Transparency
The IMF already has a good practice standard for fiscal transparency and this is an important tool with which the IMF can conduct its surveillance of fiscal policy and institutional issues. The code contains excellent provisions for transparency and the IMF is able to offer technical support in the implementation of the standards. Forty-six countries are currently reporting against this code. It is hoped that more will demonstrate their pro-transparency credentials by agreeing to report against the code. However, reporting against the code is voluntary, as is publication of those reports. Further, reporting is not undertaken on a regular basis and there is no enforcement mechanism.

Country-led efforts to achieve international standards in public financial management and accountability
Currently the IMF and World Bank review the efficacy of public financial management through the IMF Fiscal Transparency ROSC and World Bank Country Financial Accountability Assessment, Public Expenditure Review and other diagnostics. Countries within the Heavily Indebted Poor Country initiative have also undertaken IMF and World Bank supported 'tracking exercises' of public finance. The IMF and the World Bank are reviewing their collaboration in all of these areas with a view towards improving their support so that countries can more quickly achieve international standards.

IFI / Donor Conditionality
International Financial Institutions and donor countries could make transparency in the extractives sector a condition of their support, where such transparency is critical to achieving sustainable pro-poor growth. This could operate at the overall country assistance level and/or could be specific to projects in the extractive industries. If all IFIs, regional banks and donors were to implement this option, and if donors were to agree to abide by the provisions themselves, most countries would be covered. Precisely due to their natural wealth, many resource rich governments are not dependent upon IFIs or development assistance. However, IFI funding may be sought by investors (state- or privately-owned) for specific projects in those countries. 

¹ Statement of Recommended Practice, Accounting for Oil and Gas Exploration, Development, Production and Decommissioning Activities, June 7th 2001

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