New provisions allow countries to use the Extractive Industries Transparency Initiative (EITI) to curb corruption in the extractive sector
The mining, oil and gas sector is prone to corruption for a number of reasons. The profitability of the sector, the complex financial and technical expertise required to manage extractive projects and the discretionary decision-making power in awarding licences are just some of the factors that contribute to the existence of significant governance risks in the sector and underpin the EITI’s mission to improve the governance of natural resources through disclosure and dialogue.
Although the EITI declaration can highlight the vulnerable aspects of oil, gas and mining value chains, transparency alone does not guarantee accountability.
In the past, many countries implementing the EITI have avoided tackling corruption issues directly, often due to uncertainty about the role the EITI could play in tackling corruption, perceived limitations of its mandate or a reluctance to tackle corruption when it is seen as a sensitive issue.
However, recent corruption scandals in the sector show that it is essential to define the role of the EITI in the fight against corruption. Aware of this imperative, countries such as Armenia, Gabon, Indonesia, Mongolia, the Philippines, Togo and many Latin American countries have begun to use the EITI to identify corruption risks in their extractive sector. In addition, countries such as Ghana, Nigeria and Zambia are using beneficial ownership data to tackle corruption risks by participating in the Opening Extractives programme. EITI Malawi has also facilitated discussions to address allegations of corruption in the context of a mining licence renewal.
Evolving risks
As countries make the transition to clean energy, the risks of corruption in the extractive sector could intensify. In the oil and gas sector, this may involve reputable companies divesting their interests to smaller or new players who lack the experience and resources to implement the necessary safeguards. Increased demand for minerals needed for renewable energy technologies, such as cobalt, copper, nickel, lithium and rare earths, can fuel corrupt speculation on reserves and attract illegitimate investment in mining projects. Regulators could speed up licence approvals and circumvent existing legislation to meet production demands.
40% of the world’s transition mineral resources are located in countries with poor governance, while around one-fifth of bauxite, cobalt, chromium, tin and nickel reserves are concentrated in EITI countries. With demand for transition minerals expected to quadruple by 2050, this is a critical time for the EITI to contribute to a robust framework for extractive sector governance. The EITI 2023 Standard: what’s new?
The current global context of energy transition underpins some key changes to the EITI Standard. For the first time, the EITI Standard makes explicit reference to the fight against corruption as a central objective of the publication of certain data such as legislation in force, licensing, contracts, beneficial ownership, production, exports, state participation, revenue collection and social expenditure.
Legal framework, licensing and beneficial ownership
The EITI Standard 2023 now requires countries to publish anti-corruption laws related to the extractive sector, allowing citizens to assess the governance of the sector from an anti-corruption perspective. Countries must also disclose whether licensing and contracting practices deviate from the law and are encouraged to explain why they use certain licensing methods, particularly in the case of fast-track approvals. This requirement is intended to counter the risks associated with the increasing tendency of regulators to express a willingness to fast-track mining approvals for transitional minerals projects.
In addition, the EITI Standard emphasises the importance of linking licence information to beneficial ownership data in order to detect potential conflicts of interest in the allocation of licences. In order to avoid loopholes in beneficial ownership disclosure, such as companies deliberately splitting their shares to ensure that they do not reach the percentage of ownership covered by the reporting requirement, countries are encouraged to disclose the identity of beneficial owners with a 10% or less interest in an extractive company.
Countries are also obliged to require full disclosure of the ownership of politically exposed persons (PEPs), regardless of their level of ownership, as well as disclosure of corporate structure. Disclosure of this information can help prevent PEPs from taking unfair advantage of their position to benefit from mining projects. Recognising that many corruption cases involving SOEs are conducted through third parties, the EITI Standard encourages SOEs to disclose the beneficial ownership of their agents or intermediaries.
Contracts
The EITI Standard 2023 places greater emphasis on contract transparency. In addition to disclosing main contracts and annexes, countries are now encouraged to disclose significant exploration contracts, agreements detailing the terms of sale of the state’s share of production or other revenues in kind, and contracts with infrastructure and barter arrangements, including resource-backed loan agreements.
In addition, countries are expected to disclose contracts requiring social and environmental payments. These publications enable citizens to better understand whether companies are fulfilling their contractual obligations beyond the stipulations of the main contracts.
Prospecting, production and revenue
In order to mitigate the corruption risks associated with reserves speculation and potential revenue leakage, the EITI Standard 2023 encourages the disclosure of proven economic reserves of oil, gas or minerals, methods for verifying the accuracy of production data, estimates of artisanal mining production and exports, and project costs. These publications shed light on how governments manage the risk of revenue loss due to corruption.
Strengthening the role of multi-stakeholder groups and businesses
The EITI Standard strengthens the mandate of multi-stakeholder groups to participate in the fight against corruption in their country. Multi-stakeholder groups are now required to include in their work plans objectives related to national priorities, including corruption issues, and to carry out related activities. In addition, the EITI Standard emphasises the importance of addressing corruption-related issues through public debate.
Private and state-owned companies are now expected to publish their anti-corruption policies, detail how they manage corruption risks and explain how they use beneficial ownership data. Private companies and state-owned enterprises are also encouraged to engage in rigorous due diligence processes. These provisions enable multi-stakeholder groups to tackle corruption issues and actively engage private and state-owned enterprises in these efforts.
Establishing a link with national policies
As well as extending the publication of data, the new requirements aim to guide national anti-corruption policies to make them more effective. But for this to happen, countries will need to leverage their EITI process to take action against corruption through the use of their data and multi-stakeholder monitoring.
Many national examples show how the EITI statement can complement national reforms. For example, an analysis of licensing data in Mali shows that licensing has become more efficient over time. In Papua New Guinea, an examination of revenue data sheds light on the amount of extractive revenues accounted for in the national budget and highlights opportunities for improving government systems. In the Republic of Congo, contract terms have been analysed to forecast potential future oil revenues. Finally, in Ghana, there are plans to use beneficial ownership data when considering mining licence applications.
The new provisions of the EITI Standard 2023 give countries a new impetus to use data and dialogue to support their national anti-corruption policies. By strengthening their role in the fight against corruption, multi-stakeholder groups can ensure greater transparency and accountability in their resource governance efforts.
Watch this space for training, advice, notes and articles on the new requirements of the EITI Standard 2023.
