EITI Report Analysis

Baku, Azerbaijan15-17 June 2012

Welcome and introduction

•Welcome!

Motives for this workshop

We need reliable data and strong understandings of the extractives sector in order to do good oversight.

EITI can service this purpose, if:•Reports are high quality•Reports are actively used

Objectives1. Better understanding what makes a good EITI report

2. Readiness to analyze the EITI report and use its data to learn about oil and mining sector operations.

3. Better prepared to push for the improvement of EITI reports.

4. Have concrete ideas about how to use EITI reports in future advocacy work

Program

Analyzing Report Data- Answering 5 key questions using EITI reports

Analyzing Report Data- Answering key questions using EITI

reports

Using EITI data

Questions that EITI reports can help to answer

IMPORTANT to remember:– EITI data quality is weak; limited comparability

– Findings are suggestive only, especially about whether government gets a good deal

– They identify important further questions (not many answers)

Using EITI Data• Gathering complementary information

– PRICE data• EITI reports• Country specific prices• Global prices (oil, gold, copper; less so with gas)

– PRODUCTION and EXPORT data• Quite easy to find

– ECONOMIC data• GDP, total government revenues, financial flows• Internal and external sources

Checking EITI Data: Where to look?• National budget reports• EITI country websites thru EITI Secretariat• IMF country reports for Article IV consultations • Publish What You Pay coalition country websites• World Bank EITI MDTF country progress reports• State-owned companies (financial statements and audits where available)

• Reports from the Supreme Audit Authority (e.g. Auditor General)

• Multinational companies (financial statements as well as reports to society)

• BP Statistical Reviews (for production quantities and prices in oil and gas sectors)

• US Energy Information Administration (for prices in all sectors)

• UNCTAD (for export data)

• Platts and Argus for price and export data

5 questions to answer using EITI reports

For each: • 5 minute introduction• 30 minute groups• 10 minute discussion

Q 1. Does Government get a good deal?

EITI numbers can give a very rough calculation of government “take”

Total net EI revenues (earnings minus costs)

/

Total value of production (production x price)

Q 1. Does Government get a good deal?

Example. Ghana & Mali. Gold. 2006

Need to ask more questions!•Does Mali’s EITI report cover more than Ghana’s?•Are Ghana’s costs higher or mines at a different stage of production?•Do the contract terms differ?

CountryProduction (kg.)

Price per kg (global ave)

Total value of production

EITI gold revenues

% of total value of production

Ghana 69,817 $21,376 $1,492,408,192 $64,400,768 4.30%Mali 51,957 $21,376 $1,110,632,832 $221,333,359 19.90%

Q 1. Does Government get a good deal?

Most differences can be explained.

0%10%20%30%40%50%60%70%80%90%

Norway

Timor

Les

te

Niger

ia

Equat

orial

Guine

a

Yemen

Cameroon

Congo

Gabon

Azerb

aijan

Kazakh

stan

Mau

ritan

ia

Ivory

Coa

st

Comparing Oil Producers (average of all EITI data years)

Question 1. Does Government get a good deal?

ExerciseIn groups (30 minutes)

– Review the worksheet for Question 1– Discuss and answer questions

Q 2. Where do EI revenues come from?• Use revenue stream data to determine:

• Which revenue streams are largest?• If possible, which agencies collect these revenues?

• Findings• Understand the fiscal regime• Observe changes in fiscal regime over time• Observe differences in fiscal regime across contracts• Identify oversight priorities

Q 2. Where do EI revenues come from?

Use analysis to identify oversight priorities.

Q 2. Where do EI revenues come from?

• Need to scrutinize the associated transactions• Often barely covered by EITI

National Oil Company

Profit Oil

Oil

Domestic refineries

Export$

$

National Treasuryand/or

Oil Savings Fund

$

PRICE?

Group Exercise:Question 2. Where do EI revenues come from?

• In groups (30 minutes)– Review the worksheet for question 2– Discuss and answer questions

Question 3. How do in-kind revenues become financial revenues?

Some important questions to ask…..How do governments end up with oil?

1. Profit oil. In production sharing contracts, governments and companies agree to split the profit oil.

Profit Oil

Cost Oil

Government

Operating Company

taxes, royalties, fees, etc

Question 3. How do in-kind revenues become financial revenues?

2. Equity oil – oil that is owned and sold by the state• JV share

– E.g. Nigerian national oil company NNPC holds 55% share in producing joint venture, receives 55% of production.

• Produced itself– E.g. Saudi Aramco owns and produces oil from most fields in Saudi Arabia.

• Service contracts– E.g. Iraqi state owns the oil and hires companies to produce it. It

then receives all production.

3. Tax or royalty oilSometimes companies pay taxes or royalties with crude instead of money.

Question 3. How do in-kind revenues become financial revenues?

How do national oil companies sell their oil?• Spot contracts. Sale of individual cargoes at prevailing market price

or• Term contracts. Identify a list of buyers over a set period of time

Who buys their oil?• Traders. The middle-men of the oil world, usually used by NOCs that lack a trading desk

or• End-Users. Entities capable of refining the crude.

or• Domestic users, often government owned refineries, etc.

Question 3. How do in-kind revenues become financial revenues?

How is the price determined? •Iraqi export price usually equals:

international benchmark Europe: Dated Brent US: WTI, now ASCI Asia: Dubai/Oman

+ differential (difference in quality, market factors)

set monthly by government•Term contract holders can usually alter their volumes to a limited degree based on these changes. •Domestic prices often much lower due to subsidies!

Question 3. How do in-kind revenues become financial revenues?

ExampleIraqi oil sold to the Europe, Dated Brent + differential

June ‘11 July ‘11Basrah Light -2.10 -2.00Kirkuk +0.25 +0.00 ----------------------------------------------------Dated Brent $113.76 $116.46

So, selling price is:June ‘11 July ‘11

Basrah Light $111.66 $114.46Kirkuk $114.01 $116.46

Question 3. How do in-kind revenues become financial revenues?

Where do sale revenues go?

National oil company finances are crucial!

How much money do they transfer to the state?– Direct transfers (e.g. Iraq)– Dividends

Transparency and reporting– annual reports with full financial statements– audit reports

Question 3. How do in-kind revenues become financial revenues?

• Exercise• In groups (30 minutes)

– Review the worksheet for question 3– Discuss and answer questions

Question 4. How dependent is the country on oil?

• Calculate total revenues• Be sure to include physical receipts• Use reconciled figures

• Trace changes from year to year• Can these be explained by price and production

changes?

• Assess resource dependency• EI Revenues as % of total government budget• EI revenues as % of GDP

Question 4. How dependent is the country on oil?

$-

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

$1,400,000,000

2002 2003 2004 2005 2006 2007 2008

•Period of sharply rising prices, slowly declining production

•What explains the drop in 2006?

Cameroon oil receipts over time, 2002-2008.

Question 4. How dependent is the country on oil?

EITI Report says 2008 oil revenues = $1.3 billion

How dependent is Cameroon on EI revenues?

1. EI revenues as a % of GDP• $1.3 billion / $23 billion (IMF) = 5.6%

2. EI revenues as a % of total government revenues• $1.3 billion / $4.9 billion (IMF) = 27%

3. EI revenues per capita• $1.3 billion / 19 million = $68 per person

• Oil receipts growing, but declining as % of GDP…. so economy is growing?

• 2006 – what happened? Oil revenues stay stead but total government revenues skyrocket (IMF: $2.9 billion in 2005; $8.5 billion in 2006; $4b in 2007)…. Why?

• Oil provides big share of public revenues….what happens when oil runs out?

Cameroon- resource dependency

0%5%

10%15%20%25%30%35%40%45%

EI receipts as %of govt revenues

EI receipts as %of GDP

Question 4. How dependent is the country on oil?

How does Cameroon compare?

EITI receipts as % of total government revenues, 2008

0%20%40%60%80%

100%120%140%160%

CAR

Gha

na

Kyrgy

stan

Norway

Camer

oon

Mon

golia

Kazak

hsta

n

Azerb

aijan

Congo

(Bra

z.)

Nigeria

Timor

-Les

te

Eq. G

uinea

Question 4. How dependent is the country on oil?

• Exercise• In groups (30 minutes)

– Review the worksheet for question 1– Discuss and answer questions

Q 5. Where do EI revenues go?

Once collected, do the revenues end up in the budget?

• Compare EITI revenue numbers with other revenue numbers:

•Government budget documents•Natural resource savings funds•IMF and World Bank reports

• Relies on the availability of other information. EITI not enough!

Q 5. Where do EI revenues go?

Company Company Company Company Company Company Company

Collecting AgenciesCollecting AgenciesCollecting AgenciesGov’t Collecting Agencies

EITI

BudgetSpending

Extra-

budgetary

transfe

rs

ServicesInfrastructurePublic goods

Q 5. Where do EI revenues go?

Where might EI revenues go, other than the budget? • Natural Resource Funds (e.g. Sovereign Wealth Fund)• Retained by the State-Owned Company for their operations or

equity obligations• Profit oil can be sold to national refineries at a discount, or

given for free• Extra-budgetary accounts held by the executive or the SOC• “Front-line” charges, such a fuel subsidy• Stolen or misappropriatedADVOCACY and OVERSIGHT PRIORITIES

Group Exercise:Question 5. Where do EI revenues go?

• In groups (20 minutes)– Review the worksheet for question 5– Discuss and answer questions

Other questions to ask using EITI data

Discrepancies• What is causing discrepancies?• What’s done about them?• Do they improve over time?Volatility• How volatile are EI revenues? How do changes in

global commodity prices affect government revenues?• Does the fiscal regime increase or decrease the

country’s vulnerability to volatility?

Other questions to ask using EITI data

How much does each company pay? • Which companies pay the most?• Are the fiscal regimes the same?• Do payment levels correspond with production

levels? • Do the differences make sense?

Other questions to ask using EITI dataMysteries….• EITI reports contain confusing information, things that don’t

make sense• Seek out explanations!

Examples:• Cameroon royalties in 2006-08 were negative; government

paid royalties to the oil companies. • Ghana’s and Sierra Leone’s mining revenues appear lower

than expected. • Azerbaijan’s royalty receipts: $400 million in 2004; $52.6

million in 2005. Why the drop?

Final thoughts on analyzing EITI data

• Analyze with other relevant data, such as IMF reports, national budgets, publicly-available production data, etc.

• Use reports to identify questions for further investigation and establish oversight priorities

• Vital importance of IMPROVING REPORT QUALITY!

• EITI data is not comparable across countries. Should it be?

Evaluation

Thank you!