Untold Billions, Too Little Change
Energy policy is a crucial and often underappreciated cause for public discontent. Most severe irregularities occur in opaque upstream deals. The EITI multistakeholder initiative has significant unrealized potential to inform the public about irregularities around energy governance.
Failed resource governance remains one of the leading causes of civil unrest in resource-rich countries, exhibited en masse just in the last few weeks. Protests occurred in places which vary to a maximum possible extent according to the Bertelsmann Transformation Index’s (BTI) governance measure, from very well-governed Chile to badly governed Lebanon and very badly run Iran. The triggers were a relatively modest rise of a subway fare, planned taxes on gasoline and a state-sanctioned petrol price hike respectively. In addition, Iraqis are taking to the streets to protest corruption, and Bolivia, which contains important lithium deposits needed for electric batteries and natural gas, just forced out President Evo Morales.
With global demand increasing and an unclear transition to renewable sources, the governance of natural resources must move to the absolute policy forefront of resource rich countries and its importance be effectively communicated to citizens.
Upstream policies less visible but highly damaging
The very visible “downstream” impacts of governance, those that citizens experience daily – fare and fuel rises, lack of affordable housing and exorbitant tuition fees – draw intense criticism. However, many citizens still do not understand the impacts of “upstream” policies and the potential for graft in the sector. If they did, protests would likely occur even more often.
Why would a national oil company build a golf course for $100 million?
Upstream irregularities can range from license allocation to a minister’s relatives, a state-owned oil company financing a “non-core” business and unclear barter agreements with foreign countries. Although the actual number of corrupt transactions may be small, the impact on the entire economy and citizens can be enormous. Just one transfer to a tax haven can mean a generational loss of revenue and the eternal enrichment of just a handful of people.
To add a few details, Kazakhstan’s national oil company KazMunayGas was tasked to build a golf course outside of the capitol Astana, which begs the question, why would a national oil company build a golf course? Cost? $100 million.
Regarding barter, China has made a strategic decision to acquire large mineral assets in Africa, including the Democratic Republic of the Congo, sometimes “paying” in roads or bridges. Both are crucial, but one wonders what the financial arrangements are, the types of materials used as well as the future maintenance structure. These barter arrangements allow governments to quasi “sub-contract” their work to foreign entities, deskilling their own public sector bodies. Equally disturbing is the potential for human rights abuses in resettling adjacent communities.
EITI’s potential game changing role in resource governance
The Extractive Industries Transparency Initiative (EITI), initiated to shine a light on the traditionally opaque sector, has had a good start, leading to some reforms and facilitating some public debate. However, EITI implementing countries must dramatically improve their communication, to fulfill its unrealized potential of making a tangible difference in the lives of citizens.
EITI, introduced in the early 2000s and with over 50 implementing countries, provides a real opportunity to better govern the sector.
Initially reconciling data between what companies said they had paid the government and what the government said it had received from companies, its coverage has expanded. EITI’s Standard now covers beneficial ownership (disclosing the actual persons owning a company’s shares), license allocation processes, the role of state-owned enterprises, contract transparency, revenue allocation and the 2019 version (very laudably) includes gender.
What makes EITI so unique is its multistakeholder characteristic. Governments, the private sector and civil society organizations come together for a dialogue about the extractives sector which provides the lion’s share of income and makes up the grand majority of exports in resource rich countries. This multistakeholder aspect is crucial, but can be challenging given each group’s different priorities. It’s more debate and less dialogue.
Considering the civil unrest cited above, thanks to the EITI, Iraq disclosed the country’s revenue between 2011-16 totaling nearly $450 billion, close to $11,800 per person for that period. Unfortunately, post-2016 revenue data are not yet available.
Lebanon expressed its willingness to implement EITI, however, little progress has been made since the initial announcement in early 2017.
Chile is not a member of the EITI, however its main copper producer Codelco, a state run company and “property of all Chileans”, is the largest copper producer in the world and an “EITI supporter”. Given the important role that minerals play in the Chilean economy, recent civil unrest and the need for a responsible dialogue with civil society particularly, Chile should consider EITI implementation.
In the past, Bolivia has shown no interest in the EITI; perhaps that will now change soon.
In many countries, citizens are starting to understand the sector’s scope and scale through the EITI. However, some elites have been critical – reports written by accountants, largely approved by politicians and read by too few.
EITI Reports – vastly unrealized potential
The Initiative’s impact remains plagued by its main product – the EITI Report itself.
Unread reports are no strangers to the development sector. EITI reports detail transparency, but the lack of wide uptake has made the subsequent accountability under realized. Many EITI countries tout their “satisfactory progress” (“pays conforme!” in French), despite no visible progress in infrastructure, healthcare and education. This persistently slow lack of real change resembles a public relations exercise, as opposed to a country’s strategic engagement. It equally erodes the EITI brand. With some countries implementing EITI for close to 15 years, change on the ground should be noticeable.
While donors have invested in civil society capacity to spur wider engagement, notably GIZ, an enormous challenge remains.
Accountants master numbers, communicators master letters
With many EITI reports exceeding 200 pages (without counting the myriad of annexes and tables), they are difficult to read and understand. To have more impact, those involved with the commissioning and writing of reports should move communications to the forefront. Some suggestions include:
Analog vs. Digital – while data-driven EITI Reports may be a natural fit for the digital world and elites in the global north, its main target audience largely works in the analog world and delivery mechanisms should more reflect that reality.
Design – Empathetically designed reports, including more legible font, better layout and significantly more engaging charts and pull quotes would widen interest and readership.
Writing – With target audiences traditionally consisting of financial institutions, many accountants do not have the necessary writing skills, thus professional editing is vital to reduce verbiage.
Campaigns – Current publicity practice usually includes a press release, a conference, and maybe a short regional tour or training, finances permitting, until the next report in a year. Reports could be released traditionally, with separate briefs released monthly concentrating on specific regions, minerals or contracts.
A country’s natural resource governance should be the prism through which every aspect of daily life is viewed.
Some of these options are being carried out, but not nearly enough. While EITI has pushed for mainstreaming – embedding requirements digitally in existing processes – much of the population is being inadvertently excluded.
Implementing the small changes above would lead to substantial change in individual countries in a matter of months and move the debate to where it should be – the absolute front and center. A country’s natural resource governance should be the prism through which every aspect of daily life is viewed.
An accountable future through effective communications
In the last 15 years, EITI reports have been in the hands of extractive industry elites. For the EITI to have a significant, visible impact in the next 15 years, reports must be in the hands of communication experts. Only then will EITI have a chance to initiate a genuine and effective “public debate” over a country’s natural resources. With this full potential reached, its accountability could act as a much needed safety valve, reducing civil unrest in resource rich countries.
Richard R. Dion is a governance and communications consultant based in Germany. Formerly a Regional Director at the EITI International Secretariat, he has evaluated the EITI in the Democratic Republic of the Congo and Guinea for the GIZ.