EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE Using the EITI - - PowerPoint PPT Presentation

EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE

Using the EITI Standard for Reform

[Date] [Location]

INTRODUCTIONS:

• Name/organization/ country
• What would you like to learn

from this training?

“We recognize that a public understanding of government revenues and expenditure over time could help public debate and inform choice of appropriate and realistic

• ptions for sustainable

development.” EITI Principle 4

What’s the goal of EITI?

How can information drive change?

• Creates neutral space for building trust and

facilitating discussion

Multi-Stakeholder Dialogue (MSG)

• Links EITI to broader national policy

priorities

Objective Setting (Work plan)

• Useful in evaluating pressing questions &

concerns

Disclose Relevant Information (Reconciler TOR & EITI Report)

• Enables informed public understanding &

policy debates

Analysis of Information (CSO & Media Analysis)

• Increases accountability & development

Links to Policymaking & Institution building (Parl., Min., Reg.)

What has been then impact of EITI in your country so far?

EITI: IMPACT 2003-2011

Source: 2011 RWI Survey of PWYP Coalitions

Has the EITI Process led to reform?

ₓ Box Ticking and Deadlines ₓ Public relations exercise ₓ ‘Silo’ effect – not linked to reform

Have the reports had an impact on public understanding of the sector?

Data not useful

ₓ

Too Aggregate

ₓ

Misses key streams

ₓ

Does not cover important issues

Reports are not analyzed

ₓ

CSOs don’t understand how to use the data

ₓ

Data is not in a form that is easy to assess

1

Effective oversight by the multi-stakeholder group.

2

Timely publication of EITI Reports.

3

EITI Reports that include contextual information about the extractive industries.

4

The production of comprehensive EITI Reports that include full government disclosure of extractive industry revenues, and disclosure of all material payments to government by oil, gas and mining companies.

5

A credible assurance process applying international standards.

6

Reports that are comprehensible, actively promoted, publicly accessible, and contribute to public debate.

7

The multi-stakeholder group to take steps to act on lessons learned and review the outcomes and impact of EITI implementation.

2013 EITI Requirements

Cross-cutting Concepts For Each Disclosure

Disaggregation: level of detailed reporting e.g. Project? Company? Region?

Cross-cutting Concepts For Each Disclosure:

Materiality (Revenues): what level of payments to include?

Cross-cutting Concepts For Each Disclosure Materiality: Licenses

Cross-cutting Concepts For Each Disclosure: Reconciliation

Production? Contracts/Licenses?

Non-fiscal revenues Local Government Social Impact

Revenue Collection Production Data

State Owned Enterprises Sub- National

Revenue Management

Allocation of Rights

Social Impact

What policies get us from resources to development? How is value captured? Where do benefits go?

Allocation of Rights Production Data

Revenue Collection

How is value captured? What information does the EITI capture?

What the EITI requires: Register of licenses(§3.9) License award/transfer process & any deviations (§3.10) *Beneficial owners (§3.11) *Contract/license disclosure(§3.12) What the EITI requires: Exploration activities (§3.3) Production volumes & values (§3.5(a) & §3.4(e)) Export volumes & values (§3.5(b)) What the EITI requires: Legal framework & fiscal regime (§3.2 ) Economic contribution (§3.4(a)-(c)) Taxes & primary revenues(§4.2(a)) In-kind revenues(§4.1(c)) Infrastructure/ barter provisions(§4.1(d)) Transportation Revenues(§4.1(f))

Sub- National SI

What the EITI requires: Direct payments/receipts (§4.2(d)) Mandated sub-national transfers (§4.2(e)) What the EITI requires: Employment §3.4(d) Mandated social payments (§4.1(e)) What the EITI requires: Revenues recorded & not recorded in national budget (§3.7) *Earmarked revenues & budget/audit processes (§3.8) Revenue Management

Where do benefits go? What information does the EITI capture?

SOE What the EITI requires: SOE level of beneficial ownership (§3.6(c)) Government transfers by SOEs (§4.2(c)) SOE quasi-fiscal expenditures (§3.6(b))

What is the role of SOEs? What information does the EITI capture?

Register of licenses (§3.9) Exploration activities (§3.3) Legal framework & fiscal regime (§3.2 ) SOE level of beneficial

• wnership

(§3.6(c)) Direct payments/r eceipts (§4.2(d)) Employment §3.4(d)

Revenues recorded & not recorded in budget (§3.7)

License award/ transfer process & any deviations (§3.10) Production volumes & values (§3.5(a) & §3.4(e)) Economic contribution (§3.4(a)-(c)) __________ Taxes & Primary Government transfers by SOEs (§4.2(c)) Mandated national/su bnational transfers (§4.2(e)) Social payments (§4.1(e)) Earmarked revenues & budget/audi t processes (§3.8) Beneficial

• wnership

(§3.11) Export volumes & values (§3.5(b)) Revenues (§4.2(a)) __________ _ In-kind revenues (§4.1(c)) SOE quasi- fiscal expenditures (§3.6(b)) Contract/ license disclosure (§3.12) Infra./ barter provisions (§4.1(d)) Transport

Allocation of Rights

Production Data Revenue Collection

SOE

Revenue Management

Sub- National Social Impact

Register of licenses (§3.9) Production volumes & values (§3.5) Taxes & Primary Revenues (§4.2(a)) SOE level of beneficial

• wnership

(§3.6(c)) Subnational payments/recei pts (§4.2(d)) Mandated company social expenditures (§4.1(e)) Revenues recorded & not recorded in national budget (§3.7) License award/ transfer process & any deviations (§3.10) In-kind revenues (§4.1(c)) Government transfers by SOEs (§4.2(c)) Mandated national /subnational transfers (§4.2(e)) Earmarked revenues & budget/audit processes (§3.8) Register of beneficial

• wners

(§3.11) Infrastructure/ barter provisions (§4.1(d)) SOE quasi-fiscal expenditures (§3.6(b)) Contract/ license disclosure (§3.12) Transportation Revenues

Key Requirements for Policy Linkages

Allocation of Rights

Production Data Revenue Collection

SOE

Revenue Management

Sub- National Social Impact

EITI work plan objectives reflect national priorities (§1.4(a)) Annual MSG review of EITI impacts on natural resource governance (§7.2)

Transition Arrangements: IMPLEMENTING COUNTRIES

required to implement the new EITI Standard as soon as possible, including : (1) EITI workplans updated with necessary actions (2) annual activity reports that document progress

[Insert applicable 2014 or 2015 reporting deadline(s)] [Insert applicable country name(s)]

First Report under New Standard

RWI Guide to the EITI Standard Online

www.revenuewatch.org/eitiguide

www.revenuewatch.org/eitiguide

www.revenuewatch.org/eitiguide

www.revenuewatch.org/eitiguide

www.revenuewatch.org/eitiguide

www.revenuewatch.org/eitiguide

Group Exercise: What are the priority challenges in the extractive sector?

Form Country Groups and discuss the following:

• What are the most pressing problems in extractive

sector governance that need to be fixed in your country ?

Target concrete policy needs: ✓ Try: “ensure companies pay the taxes they owe” X Not: “increase accountability”

• Identify three priority problems in each group and

write them on separate cards. These will be collected and discussed in the debrief.

Instructions

Identifying Policy Priorities using the Resource Governance Index & Natural Resource Charter

Natural Resource Charter

The NRC Framework

A framework to think through the governance and economic management of extractive resources. Takes a comprehensive and inclusive approach. Provides the framework and support. Implementation is locally driven.

The NRC & EITI

• Identify policy priorities that EITI should address
• Contextualize reporting topics (Guide)
• Turning EITI reports into a reform agenda
• Facilitate Charter benchmarking processes

– MSGs and the benchmarking process, some risks – Map compliance with Standard against benchmarking – Avenue for pursuing action plans

• EITI as entry point

How are the NRC & EITI being used in

• ther countries?

Tanzania: – A national process to learn from mistakes in mining so that they get natural Gas right. TEITI represented on the expert panel. Sierra Leone: – A national planning process housed in the Ministry of Mines, to help the country develop a new Core Mineral Policy and develop the post-EITI validation plan.

A measure of transparency and accountability of the oil, gas and mining sector in 58 countries.

– 2012 data – 173 questions – 50 indicators – >100 researchers

http://www.revenuewatch.org/rgi

80% of countries do not meet satisfactory governance standards

Satisfactory (71-100) Partial (51-70) Weak (41-50) Failing (0-40)

[insert applicable region]

Asia-Pacific Regional Assessment

RGI Factsheet for the region at http://www.revenuewatch.org/rgi Satisfactory Weak Partial Failing

Methodology

2013

Afghanistan RGI Assessment

http://www.revenuewatch.org/countries/eurasia/afghanistan/overview

49th/ 58

[insert applicable country RGI Assessment]

2013

Afghanistan RGI Assessment

http://www.revenuewatch.org/countries/eurasia/afghanistan/overview

[insert applicable country RGI Assessment]

Comparing Regional Performance

The RGI & EITI

Using the RGI can help:

• Identify reporting gaps that EITI should

address

• Highlight EITI as avenue to address poor

RGI scores

• Incentivize advances
• Demonstrate feasibility and good practices

• Including SOC balance,

• Legislative oversight
• Review of revenue by

• Legislature reviews

• Comprehensive, timely

• Cash flow statements
• Joint ventures

• f transfers

• Reports are audited

RGI x EITI 2013 Standard: What can the RGI tell us?

Allocation of Rights

Production Data Revenue Collection

SOE

Revenue Management

Sub- National Social Impact

• Including SOC balance,

• Legislative oversight
• Review of revenue by

• Legislature reviews

• Comprehensive, timely

• Cash flow statements
• Joint ventures

• f transfers

• Reports are audited

Afghanistan RGI x EITI 2013 Standard: What can the RGI tell us?

Allocation of Rights

Production Data Revenue Collection

SOE

Revenue Management

Sub- National Social Impact

100 100 78 100 50 33 44 33 50 67 67

Group Work

Form Country Groups and read the RGI assesment for your country. Be prepared to present your group’s assessment in a 5 minute presentation

• Where are the biggest transparency gaps?
• Which EITI policy areas do these gaps corresond

to?

• How can the RGI support your advocacy in EITI or

beyond?

Capturing the Value of Our Natural Resources

Allocation of Rights Production Data

Revenue Collection

Is my country effectively capturing the value of our natural resources?

Capturing the Value: What explains these differences?

Comparing Oil Producers in 2010 (average of all EITI data years)

Exploration and Exploitation: The Production Cycle

Royalties Production Peak Tax

Time

Exploration/Capex

Monitoring revenues not enough – need to understand

contracts and production data

AZB, KAZ CAM, GAB, CON

Project Revenues

Typical Fiscal Regime

Gross Revenue To Investor Profit After-Tax Profit After-WPT Profit

Investor’s Dividend

W/H tax

Government Revenue

Revenue From Petroleum Sales Royalty

Production Cost

Profit Tax WPT

Govt. Equity Dividend (minus W/H tax)

Investor Return

Bonus/ Rentals

[WPT = windfall profit tax

• r resource

rent tax] [W/H = withholdin g tax]

Allocation of Rights

AR

Policy decisions regarding the allocation of rights to extract natural resources can either lay the foundation for successful sector management or set a path towards misuse. Governance challenges related to the allocation of rights include:

• Bribery
• Politically-exposed persons
• Poor negotiation
• Lack of oversight of the terms of the license

Governance Challenges

Allocation of Rights

AR

Source: Radio Free Europe/ Radio Liberty http://www.rferl.org/content/azerbaijan_gold-field_contract_awarded_to_presidents_family/24569192.html

What will the EITI Report tell us?

Key Questions

EITI Disclosure

How can you find license registries and key terms?

License Registry §3.9

What is the process for licenses to be given away?

License Allocation §3.10

Who owns extractive sector licenses?

Beneficial Ownership §3.11 & §3.6(c)

*Where can you find the contracts that govern natural resource projects ?

Contract Disclosure §3.12

AR

License Registry: Why is it important?

AR

Color Key:

Blue = EITI Standard Requirement Orange = RWI Recommendation Teal + * = EITI Standard Encouragement

What can the EITI report tell us?

License Registry: Basic Requirements §3.9(a)/(b)/(c)

License Holder Commodity Dates: application/ award/duration Coordinates

• f license

area

License Registry: RWI Recommendations

Level of Ownership/ Operator GIS Beneficial Ownership, contract, production levels, project level payments

What can the EITI report tell us?

AR

Example: Zambia’s Online License Database

License Allocation: Why is it important?

AR

License Allocation: Basic Requirements §3.10(a)-(c)

description of award/ transfer process recipient information technical and financial criteria list of applicants and the bid criteria

License Allocation: RWI Recommendations

*efficiency & effectiveness reasons for refusal conflicts arising out

• f bids

non-trivial deviations key terms of winning bid Special conditions

AR

Example: Afghanistan Aynak copper tender process

AR

POP Quiz!

Name one EITI requirement and one RWI recommendation for license registries

Why is it important to have information on the technical or financial criteria for the license allocation process?

What is the materiality level for license registries?

Beneficial Ownership: Why is it important?

*Subject to successful piloting, the EITI Board will develop detailed provisions with a view to make this a requirement from 1 January 2016.

AR

Beneficial Ownership: Basic Requirements §3.11(a-b) & §3.6(c)

Gov’t, SOEs and their subsidiaries

Beneficial Ownership: RWI Recommendations

*publicly available register legal ownership and control company name, proof of incorporation, address legal form and status shareholder register >5% share *identity and the level of

• wnership

*entities that bid for,

• perate or invest in

extractive assets Politically Exposed Persons AR

International push to crack down on tax avoidance (OGP, OECD, G20, G8)

Contract Disclosure: Why is it important?

AR

Contract/License Disclosure: Requirements §3.12 Contract/License Disclosure: RWI Recommendations

exploration & exploitation un-redacted active contracts & new contracts public education & dialogue strategies * publicly disclose all exploitation contracts and licenses

• nline, free of charge

& anonymous to search AR Gov’t policy on contract/license disclosure for exploration & exploitation Legal provisions, actual disclosure practices & planned reforms Overview publicly available contracts/licenses & reference/ link

Example: www.resourcecontracts.org

Example: www.contratsminiersguinee.org

Example: www.mom.gov.af

POP Quiz!

True or False: Disclosing beneficial ownership information will continue to be encouraged in EITI.

True or False: A country could chose to skip including any information about contracts in EITI reports because it’s just encouraged.

Production Data

PD

Production volumes and values can be an important factor in the level of government take that countries receive from extraction. Lack of information on production can result in underpayment. Governance challenges related to production include:

• Tax evasion/underpayment
• Poor revenue forecasting

Governance Challenges

Production Data

PD

What can the EITI Report tell us?

Key Questions

EITI Disclosure

What is the resource (and revenue) potential? – Implications for sustainability

EXPLORATION ACTIVITIES §3.3

What are the current levels of production? – implications for revenues, sustainability

TOTAL PRODUCTION §3.5(a) & §3.4(e)

What is the level of economic impact and resource dependency?

TOTAL EXPORTS §3.5(b)

PD

Exploration Data: Why is it important?

PD

Exploration: Basic Requirements §3.3

• verview of

exploration activities

Exploration: RWI Recommendations

displayed with relevant info: exploration license and any revenues

PD

Production: Why is it important?

PD

Production: Requirements §3.5(a) & §3.4(e)

Total production volumes for covered fiscal year

Production: RWI Recommendations

Estimated proven reserves Value of production by commodity, state/region Stage of production of commodities in each state Figures for reporting year + prior year Source for volume data & methodology for valuation PD Contribution to the economy of EI in key producing regions for covered year Disaggregation by company, project & major commodity sub-type If challenges with measuring production, then reconciliation

Exports: Why is it important?

PD

Exports: Basic Requirements §3.5(b)

total export volumes/values

Exports: RWI Recommendations

information on the destination market for exports purpose and buyer for non- exported commodities e.g. those that are processed domestically Figures for reporting year + prior year Source for volume data & methodology for valuation PD

POP QUIZ!

Why is it important to have exploration data?

Why is the stage of production of a project important?

Burkina Faso Example: Contract + Production + Revenue data

Inputs Royalty Formula (Contract, Art. 11.4): 3% of FOB value Production 2009 (EITI Report): 54,430.62 oz Average global gold price, 2009 (London Fixing): $972.35/oz Average gold price in Burkina Faso, 2009 (EITI report): $936/oz Average exchange rate, 2009 USD/fCFA (www.oanda.com): 481

Estimates and Results

(A) Rate (B) Estimated price (fCFA) (C) Production Total (A X B X C) Expected revenue using global price 3% 467 700 54,430.62 763,716,601 Expected revenue using Burkina price 3% 450 216 54,430.62 735,166,080 Actual revenue, according to EITI 845,162,117

Revenue Collection

RC

Policy decisions regarding revenue collection determine the wealth available from natural resources for financing national development. Governance challenges related to the revenue collection include:

• Weak tax administration
• Lack of coordination across government / oversight bodies,
• Weak oversight over non-financial revenues
• Corporate tax evasion
• Others already covered (e.g. poor negotiation)

Governance challenges

Revenue Collection

RC

Typical Fiscal Regime

Gross Revenue To Investor Profit After-Tax Profit After-WPT Profit

Investor’s Dividend

W/H tax

Government Revenue

Revenue From Petroleum Sales Royalty

Production Cost

Profit Tax WPT

Govt. Equity Dividend (minus W/H tax)

Investor Return

Bonus/ Rentals

[WPT = windfall profit tax

• r resource

rent tax] [W/H = withholdin g tax]

What will the EITI Report tell us?

Key Questions

EITI Disclosure

What laws establish the economic contribution of the sector?

LEGAL FRAMEWORK & FISCAL REGIME §3.2

What is the economic impact of revenues? ECONOMIC CONTRIBUTION

§3.4(a)-(c)

What is the value of taxes & primary revenues?

TAXES & PRIMARY REVENUES §4.1(a)/(b)

What is the value of in-kind revenues?

IN-KIND REVENUES §4.1(c)

What is the value of barter deals?

INFRASTRUCTURE/BARTER ARRANGEMENTS §4.1(d)

What is the value of transportation revenues?

TRANSPORTATION REVENUES §4.1(f)

What level of detail can the report provide?

DISAGGREGATION §5.2(e)

RC

Legal/Fiscal Framework & Economic Data: Why is it important?

RC

Legal Framework & Fiscal Regime: Requirements §3.2

Overview of laws & regulations

Legal Framework: RWI Recommendations

Describe contract system and key features Link to legislation & summarize main provisions Summary of fiscal regime, including decentralization Explain if core fiscal terms in legislation or negotiated in contracts (describe) Indicate authority(ies) collecting major payments; division of roles Describe method of subnational transfers Roles/responsi bilities of gov’t agencies *Document reforms underway RC

Example: Ghana EITI Report 2012

Economic Contribution : Basic Requirements §3.4(a)-(c)

size of EI (value , % GDP), incl. estimate of informal sector

Economic Contribution : RWI Recommendations

total gov’t revenue from EI (number and %) exports from EI (number and %) tie to domestic economic context informal sector RC

Example: Kyrgyzstan EITI Report 2011

C RC

Taxes and Primary Revenues: What have been the reporting challenges in your country?

RC

Taxes and Primary Revenues : Basic Requirements §4.1(a)/(b)

• The host government’s production entitlement (such as profit
• il);
• National state-owned company production entitlement;
• Profits taxes;
• Royalties;
• Dividends;
• Bonuses, such as signature, discovery and production bonuses;
• License fees, rental fees, entry fees and other considerations

for licenses and/or concessions; and

• Any other significant payments and material benefit to

government.

RC

Taxes and Primary Revenues: Basic Requirements §4.1(a)/(b)

description of each revenue stream, materiality definition and thresholds

• ptions / rationale

for each revenue stream RC

Example: Liberia’s 2011 EITI Report sets materiality thresholds per sector.

Example: Tanzania’s 2011 EITI Report explains how materiality threshold was set and indicates that threshold results cover 99 percent of the total revenue RC

Example: Mozambique EITI Report 2010

RC

In-kind revenues: Why is it important?

RC

The Importance of In-Kind Revenues

% Revenue in ‘In-Kind Receipts’

Yemen 98%

Cameroon

80%

Nigeria 67%

Azerbaijan

88%

GBN

Azerbaijan EITI reports 2003-2010 In Kind receipts as a % of total Revenues

RC

RC

In Kind Revenues: Basic Requirements §4.1(c)

where production share or other in-kind is material, disclose volumes sold & revenue received

In Kind Revenues: RWI Recommendations

* Disaggregate product, price, market and sale volume *reconciliation of volumes & revenues Reconciliation >10%

• f extractive revenue

reporting by company and by sale list buyer, date, price, volume and grade disaggregate as with

• ther payments

(company, project) SOEs should publish sales data Registered traders should report payments RC

Example: Nigeria EITI Report 2009-2011

Infrastructure/Barter: Why is it important?

RC

Infrastructure / Barter: Basic Requirements §4.1(c)/(d)

MSG review: agreements, parties, goods and services committed and resources pledged

Infrastructure / Barter : Recommendations

Status of good/service and any audit Full text disclosure of agreement Estimated value of good/service (quality, speed, budget estimates vs. actual spend) vs. evaluation methodology for commodity RC

DRC EITI 2010: list of infrastructure/loans and value

RC

Transportation Revenues: Why is it important?

RC

Cameroon EITI 2011: value & volumes / Chad-Cameroon Pipeline

Project by Project Reporting: Why is it important?

RC

Revenue Disaggregation: Basic Requirements §5.2(e)

Company Government entity Revenue stream RC Project level, provided that it is consistent with the United States Securities and Exchange Commission rules and the forthcoming European Union requirements

Disaggregation of Revenue Reporting: Project by Project Reporting §5.2(e) “The multi-stakeholder group is required to agree the level of disaggregation for the publication of data. It is required that EITI data is presented by individual company, government entity and revenue stream. Reporting at project level
is required, provided that it is consistent with the United States Securities and Exchange Commission rules and the forthcoming European Union requirements.”

RC

EU Accounting Directive (effective, Oct 2013)

Project definition: “the operational activities that are governed by a single contract, license, lease, concession or similar legal agreements and form the basis for payment liabilities with a government”

RC

POP QUIZ!

Does every country have to report transportation revenues?

For in kind transactions, is it the volume sold or the revenues received that gets disclosed?

Group Exercise: Role play

• 1. Review RWI’s Guide to the EITI Standard considering the

disclosures that fall under that Policy Issue you have been

• assigned. Review the governance challenges, EITI

requirements, RWI recommendations & country examples for each disclosure.

• 2. Agree on one EITI disclosure requirement or encouragement

that you want to discuss further.

• 3. Plan out what a conversation would look like between one

party who is advocating for this disclosure and one party who staunchly opposes it.

• Each side should express and counter 2 or 3 different

arguments for/against such disclosure.

• Pick 2 members of the group to play the roles.

Instructions

SOE State Owned Enterprises

• Dominant players in many countries
• High governance risks: autonomous, often politicized, weak oversight,

multiple roles and conflicts of interest

• Examples of challenges from Angola, Nigeria, Cameroon, Congo-

Brazzaville, Ghana

Governance challenges

State Owned Enterprises

SOE

State-owned Enterprises Fiscal Roles and Transactions

“Quasi –Fiscal Expenditures”

What will the EITI Report tell us?

State Owned Enterprises

Key Questions

EITI Disclosure

How exposed/involved are SOEs?

LEVEL OF BENEFICIAL OWNERSHIP §3.6(c).

What is the value of SOE transfers and payments to treasury?

• TRANSFERS AND PAYMENTS

§3.6(a); 4.2(c)

What is the value of SOE spending?

QUASI-FISCAL EXPENDITURES §3.6(b)

SOE

SOEs: Basic Requirements §3.6(a-c) & §4.2(c)

Level of beneficial ownership and any changes, transaction details, equity, liabilities & loans

SOEs: RWI Recommendations

Details of purchases/sales, retention, dividends,

• perational costs including

selection of buyers Structure of subsidiaries, activities,

• bjectives, governance structures,

earning, identity/share level of other

• wners

Transfers and payments QFE disaggregation/ reconciliation Quasi-fiscal expenditures Transfers from Gov’t to SOE (contributions to operating/capital expenses, loans, in-kind transfers, fuel subsidies) Annual Reports SOE

Statoil transfers to CBoN in EITI

• Nigeria EITI: QFE Security Operations
• Cameroon (2006-8): SOE Transfers & Payments to

Treasury

• Cote d’Ivoire (2007-8): Transfers between partners

& with treasury

• DRC: disaggregated shareholding revenues of SOE

SOE reporting in EITI

SOE

POP QUIZ!

What is the difference between an SOE and a Company?

What are some typical forms of Quasi-Fiscal Expenditures?

Sub-National SI Revenue Management

Where do benefits go?

AR

Subnational Revenues

SR

Governance challenges related to subnational revenues include:

• bribery of local officials to gain a social license to
• perate;
• low technical capacity of subnational governments to

negotiate and monitor company obligations;

• poor coordination and information asymmetries with

national government; and

• ineffective spending facilitated by opacity around the

receipt of extractive revenues at the local level.

Governance Challenges

SR

Subnational Revenues

SR

What will the EITI Report tell us?

Subnational Revenues

Key Questions

EITI Disclosure

How much is transferred to SN and what is the formula for revenue sharing? And are there any differences between actual and expected transfers?

Mandated Transfers and Revenue Sharing Formulas §4.2(e)

How much do companies pay and SN govts receive? And are there any differences btn actual and expected transfers?

Direct Payments §4.2(d)

SR

Example: Peru’s Revenue Sharing Formula (minerals)

SR SR

Example: Indonesia’s Revenue Sharing Formula (Oil)

SR

Subnational Transfers: Basic Requirements §4.2(e)

Transfer amounts

Subnational Transfers: RWI Recommendations

Authorized assignments Revenue sharing formula Tax base, tax rate and price if useful and timelines for transfers Discrepancy between calculated and transferred amount Legislation and institutional arrangements *Disclosure and reconciliation of discretionary and ad hoc transfers

SR

Example: Ghana (2010)

Subnational Direct Payments: Basic Requirements §4.2(d)

Material disclosure and reconciliation

Subnational Direct Payments: RWI Recommendations

Contract disclosure Local MSG oversight Subnational reporting on direct payments as % of budget and how it was spent

SR

Must include: proceeds sharing; local tax raising; non-tax charges e.g. fees, levees, fines

Example: Zambia EITI Report (2010)

Example: Peru’s National Government Website

POP QUIZ!

How would you monitor transfers from central government to subnational entities?

What is the right level

• f materiality and

disaggregation for subnational payments?

AR

SR

Social Impact

SI

• Economic inequality (distributional)
• Community discontent with companies (unmet expectations)
• Use of funds to buy off local actors
• Lack of coordination with local development plans

Governance Challenges

Social Impact

SI

What will the EITI Report tell us?

Social Impact

Key Questions

EITI Disclosure

What are extractive industries contributing to employment?

Employment§3.4(d)

What are Companies social expenditures and who is receiving it? Reconciliation if possible.

Social Expenditures§4.1(e)

SI

Employment: Basic Requirements §3.4(d)

Total EI Employment and EI employment as % of national employment

Employment: Recommendations

National vs. Foreign Template for employment and procurement Local Content policies Indirect employment Company spend Suppliers/ chain development Expand MSG and reporting template

SI

Mineral and Petroleum Resources Development Regulation (2004)

• human resources development plan requires reporting on the

number and education levels of the employees

• number of vacancies unfilled for more than 12 months
• report on the implementation of a career progression plan, a

mentorship plan and an internship and scholarship plan in line with the skills development plan and the needs for the specified groups of workers

Example: South Africa

SI

Social Payments: Requirements §4.1(e) Social Payments: RWI Recommendations

Discretionary social expenditures Entity responsible for allocating and disbursing benefits in community Reconciliation, if possible Actual cost of in- kind and valuation methodology Name & function of non-gov’t beneficiaries Contract disclosure ESIAs Objective of the payment

SI

Reporting on material mandated (required by law or contract) payments Nature/ deemed value of in kind payments *Reporting on discretionary social payments

• Stream and

relative contribution

• Disaggregated
• Evolution from

previous year

Example: Brazil Social Expenditure reporting template

Report lists the value of company donations to nongovernmental

• rganizations.
• cash and in-kind
• objective
• funds devoted to environmental protection.

Example: Mongolia’s 2010 EITI Report

In 2006 in lieu of a windfall profit tax, government signed a 5-year agreement with 30 mining companies to attract voluntary contributions to the Solidarity with the People Mining Program (PMSP)…Contributions are

• disaggregated by participating companies
• at regional and local level
• by sector / function
• funds for the Truth and Reconciliation Commission.

Example: Peru’s 2008-10 EITI Reports

POP QUIZ!

Why are contracts important to understand social impact?

Should EITI reports contain information on absolute EI employment

• r just its percentage of

total employment?

AR

SR Revenue Management RM

The Boom and Bust Cycle – how could it affect your economy?

(Source: Nigeria Federal Ministry of Finance)

Effect on Budget: Nigeria’s Budget Volatility (1971-2005)

Start Stop Public Spending

• 30
• 20
• 10

Kuwait and Norway: Expenditure volatility

Norway: % expenditure change (kroners) Kuwait: % expenditure change (dinars)

Budget Sensitivity to Oil Prices

Exhaustibility

CONGO: $24 TRILLION IN MINERALS USA: $15 TRILLION GDP

VS.

Sharing with generations

Policy decisions regarding management of oil, gas and mineral revenues determine whether natural resource wealth translates into sustainable development and poverty reduction. Governance challenges include:

• Misappropriation of revenues before they reach the national or

subnational budget

• Nepotism and patronage resulting in direct allocations of resource

revenues to special interests

• At the macro level, lack of fiscal rules leading to expenditure volatility and

poor investment decisions

• At the micro level, weak public financial management systems leading to

poor investment and wasteful spending

Governance Challenges

Revenue Management

RM

What will the EITI Report tell us?

Revenue Management

Key Questions

EITI Disclosure

Which revenues (cash or in kind) go to the national budget?

Distribution of Revenues §3.7(a)

What are the other places revenues go? E.g., sovereign wealth and development funds, sub-national governments, state-

• wned enterprises, and other extra-

budgetary entities

Distribution of Revenues §3.7(a)

RM

RM

Distribution of Revenues: Requirements §3.7(a) §3.8

Describe Distribution

Distribution of Revenues: Recommendations

Explain related legislation Natural Resource Fund info:

• rules/governance
• Deposits, withdrawals, principal and

returns

• Disaggregate data on Investments
• fund managers and external managers fees

Indicate recording in budget

• r explain off budget

allocations, w/links to financial reports

*IMF revenue classification *Description of revenues earmarked for regions or programs *Revenue projections + resource dependence *Description of budget/ audit practice w/ links *Price assumptions, revenue forecasts Assumptions behind revenue forecasts Mainstream reporting into budget process

Example: Timor Leste Petroleum Fund

Fund investments by assets Fund investments by managers Fund net return

Example: Alaska Petroleum Fund

Returns from Alaska’s Funds Revenue Forecasts

POP QUIZ!

What are two key disclosures related to natural resource funds?

Where could revenues go before getting to the budget?

Common themes:

• Evaluating current EITI information
• Drawing on existing external information
• Engaging a broader range of actors
• Using electronic information
• Need customization to ensure relevance!

Group Exercise: Developing an Action Plan for Your Country Priorities

Form Groups based on priority policy areas and discuss the following questions. Use the RWI Online Guide for additional research. Be prepared to present in plenary.

• What information is most relevant to analyzing this policy area in your

country? What information is required/encouraged by the Standard? What information is recommended by RWI?

• Based on the above, what important information is missing from your

country’s latest EITI report?

• How would you recommend going about obtaining the missing information?

(Who will gather the information? Are there already existing sources for this information that the EITI report could link to? What ministries and agencies need to be involved? What should the MSG/EITI Secretariat do as next steps?)

• How are your recommendations linked to the priority policy challenges in

your country?

Instructions: Single country

Form Groups based on country and discuss the following questions. Use the RWI Online Guide for additional research. Be prepared to present in plenary.

• What information is most relevant to analyzing your priority policy area in

your country? What information is required/encouraged by the Standard? What information is recommended by RWI?

• Based on the above, what important information is missing from your

country’s latest EITI report?

• How would you recommend going about obtaining the missing information?

(Who will gather the information? Are there already existing sources for this information that the EITI report could link to? What ministries and agencies need to be involved? What should the MSG/EITI Secretariat do as next steps?)

• How are your recommendations linked to the priority policy challenges in

your country?

Instructions: Multiple countries

Group Presentations

Is the recommendation relevant to the problem? How will the information be attained? Is there a clear plan for next steps?

Thank you!

www.revenuewatch.org/eitiguide