extractive industries transparency initiative: combating the resource curse in fragile and...

8/6/2019 Extractive Industries Transparency Initiative: Combating the Resource Curse in Fragile and Conflict-Affected Countri

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SMARTLESSONS JANUARY 2011 1

ABOUT THE AUTHORS

GEORG CASPARYhas served as Task Leader on

EITI implementation in Latin

America and the Caribbean

(LAC), Arica, and Europe and

Central Asia (ECA). He has also

worked on a variety o other

operational tasks in Energy,

Natural Resources, and the

Environment or the Bank and

IFC or the past ve years. He

was assigned most recently to

the Banks Cairo oce.

VERENA SEILERjoined SEGOM (World Bank,

Sustainable Energy Depart-

ment: Oil, Gas and Mining) as

Consultant in October 2010

and works or the oil and gas

team as well as or EITI,

currently on Ukraine, Trinidad

and Tobago, Suriname, and

Guyana.

APPROVING MANAGERAnwar Ravat, EITI Program

Manager and Acting Manager,

SEGOM.

Extractive Industries Transparency Initiative:Combating the Resource Curse in Fragile andConfict-Aected Countries

Access to extractive industry resourcesand to the revenues springing rom them

is at the root o many conicts. Recent examples include the several wars ought, in

part, over access to oil in the Middle East and wars ueled by blood diamonds in

West Arica. The Extractive Industries Transparency Initiative (EITI), launched in 2002

and endorsed by the World Bank in 2003, has provided tangible governance

improvements in resource-rich conict-aected countries. It works with multiple

stakeholdersa coalition o governments, companies, investors, international

organizations, and civil society organizations (CSOs)to manage a process opublication and verifcation o company payments and government revenues rom

oil, gas, and mining (see Box 1). This SmartLesson shares our experience implementing

EITI in fve prominent conict countries (Table 1) and provides recommendations

and lessons that may inorm implementers o other World Bank programs in ragile

and conict-aected countries.

A Liberian diamond miner displays his nd while colleagues continue to dig. Two recent civil wars, ueled byblood diamonds, killed and displaced hundreds o thousands and enslaved several thousand children aschild soldiers. Since the cease-re, Liberia has become (with the Banks help) the astest implementer o EITI,voluntarily establishing a mineral resources law that goes beyond the EITI requirements to manage resourcessustainably. But tensions remain. We could approach the miners only ater the head o the Liberian minersassociation assured them o our good intentions. (Photo by: Georg Caspary).

JANUARY 2011


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2 SMARTLESSONS JANUARY 2011

EITI in Action

Control over natural resources oten plays an important role inarmed conicts, either because warring actions fght over accessto natural resources or because natural resources help fnanceone or several o the actions. EITI acilitates public control overthe wealth generated by natural resources and limits corruption.

EITI has proven highly successul in reducing the risk o post-

conict countries relapsing into conict. In this way, EITIcontributes to wider peace and reconciliation processes in post-conict countries, such as those shown in Table 1.

Recommendations and Lessons

We present below six general recommendations or operationsin ragile and conict-aected countries. The recommendationsare based on challenges that EITI implementation aced in suchcountries and the lessons learned rom tackling these challenges.

Recommendation 1: For each stakeholder, defne a specifcinterest that will motivate that stakeholder to come onboard.

Challenge: In post-conict situations, it is oten difcult to bringon board all the stakeholders necessary or the implementationo the project. There might be, or example:

deep mistrust between stakeholders, especially i theextractive industries played an important role in the conict.

reluctance o companies and governments to disclose theirpayment and revenue ows.

CSOs that are weakened and traumatized by persecutionduring times o conictpossibly at the hands o peoplewho might still be represented in government.

Lesson Learned

In discussions with stakeholders, emphasize their keyinterests that will be served by EITI.

Table 1: Five Countries Implementing EITI

Country Circumstances Achievements

Liberia 14-year civil war (19892004) sustained bydiamond resources

Successully conducted presidential and legislative elections,October 2005

First Arican country to be designated EITI-compliant, October2009

Best EITI Implementing Country award granted by the EITI boardin Doha, Qatar (2009), based on Liberias rapid progress andtrend-setting perormance

Sierra Leone 11-year war (19912002) sustained by diamonds Parliamentary and presidential elections, 2002 and 2007 First EITI report published, March 2010 Meaningul progress and excellent quality o the report

acknowledged at an EITI board meeting, October 2010

Timor Leste Occupied by Indonesia (197599), which claimedpart o Timor Lestes oil and gas resources

Armed violence ater pro-independence reerendum,1999

Two successul election rounds, 200102 and 2007 EITI candidate country since February 2008 Declared EITI-compliant, July 2010

Iraq Several international wars since the 1980s, withthe worlds third-largest oil reserves as a strongcontributing actor

Two election rounds, 2005 and 2010 Iraqi government has ormally committed to implementing EITI

Aghanistan Extractive industriesextensive mineral deposits andpotential or oil and gas productionare urgently neededto inance reconstruction but remain underdeveloped dueto deeply ragile situation

Two election rounds since 2004 Ocial EITI candidate country since February 10, 2010

Box 1: About EITI

A undamental principle o the EITI is its participativemultistakeholder approach, where CSOs and extractive industry(EI) companies are actively involved in governing the process.The World Bank Group, the EITI Secretariat based in Oslo, andother bilateral donor agencies provide technical and nancialassistance to almost all countries implementing EITI across ve

continents. The World Bank Group (WBG) administers the Multi-Donor Trust Fund and supports EITI-implementing countries by:

making EITI advisers and consultants available to thegovernments;

sharing international best practice; and providing grants to governments to help support EITI

implementation.

IFC increasingly uses EITI implementation as a proxy orcommitment to governance improvements in a country where itis considering investments, and makes EITI implementation animportant part o its investment decision in the natural resourcessectors o post-confict countries.


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For example:

CSOs usually have a natural interest in EITI, because itmakes governments and companies more accountableto the countrys citizens and is a crucial step toward the

broader sharing o the gains o natural resources.

governments can use EITI implementation todemonstrate to their own people the benefts derivedrom large and sometimes controversial EI projects; toimprove credit-worthiness; and to achieve a recognized

stamp o approval or good governance.

companies can prove via EITI that they are contributingfnancially to the development o the country. Forinstance, EITI implementation allowed Arcelor MittalLiberia to show publicly that it contributes 75 percent othe total tax and royalties rom the oil, gas, mining andorestry sector, and is meeting all tax and royalty

requirements.

Evidently, such arguments need to be tailored to specifccountry circumstances. Ultimately, when each stakeholderunderstands how its own interest is served by EITIimplementation, they all begin to understand their commoninterest in it as well: namely that common ownership onatural resource data avoids capture o these resourcesand ultimately o the stateby actions prone to fght witheach other.

Usually, one stakeholder group takes the lead in pushingor EITI. In Liberia, or example, the government enorcedstakeholder participation and data publication via law. InSierra Leone, highly vocal CSOs were the driving orce.Sometimes the key drivers are large Western companiessensitive to their image, not wanting to be seen investingin a nontransparent environment (see also Table 2).

Recommendation 2: Provide a platorm or

institutionalized dialogue among stakeholders.

Challenge: In post-conict situations, distrust still existsamong stakeholders, particularly those that were onopposite sides during the conict.

Lesson Learned

Facilitateas honest broker and through fnancingregular collaborative eorts o a multistakeholdergroup.

This can be done by, or example:

providing initial capacity building on the extractiveindustries sector and fnancial transparency issues (notablyor CSOs).

accompanying the collection and comparison o revenue

and payments data.

identiying gaps in EITI implementation that might hindereventual successul EITI validation o the country.

The multistakeholder platorm helps strengthen democracy,restore shattered trust, and prevent a relapse into civil war. Inthis way, EITIbesides serving its own purposesbecomes avehicle or encouraging stability and sustainability in post-

conict countries.

Recommendation 3: Use credible and verifed data toallow stakeholders to negotiate peaceully.

Challenge: In post-conict situationsin particular wherethe conict was about who gets what o the naturalresourcesreliable, ofcial data concerning the extractiveindustries sector are rarely available in the public domain.Without having the data verifed by an independent body, it

A community outreach meeting in Liberia. (Photo credit: courtesyo EITI Secretariat, Oslo).

Table 2: Examples o Motivations or Implementing EITI

Country Motivations

Iraq The political class, including the prime minister, shares a consistent, high-level commitment to EITIseeing EITI as anessential part o the postwar recovery or Iraq.

Despite remaining social and regional ssures, representatives o the Kurdish areas and the nascent CSOs also see thebenet o actively engaging in EITI, because it serves as a convening orum where ew, i any, alternatives exist or suchdialogue and concrete actions on transparency and better governance.

Aghanistan Despite the ongoing confict, there is consensus among stakeholders or EITI as a mechanism to address decision makingand transparency concerning mining revenues, once donor contributions start drying up.

These insightul stakeholders understand the potential or EITI in a setting where the mining sector may prove to be theoremost source o ormal economic activity and national budget revenues when international development assistancebegins to draw down.


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4 SMARTLESSONS JANUARY 2011

is difcult, i not impossible, or the dierent parties to havea constructive dialogue.

Lessons Learned

To reduce the potential or recriminations and mistrust,ensure the publication o reports containing all the declaredrevenue and payment ows. For stakeholders with divergentinterests to cooperate on sensitive subjects, there must be

unambiguous and reliable data to serve as a basis ordialogue. EITI places immensely rich data and inormation inthe public domain.

Have all stakeholders agree on an independent auditor orreconciler to prove the sensitive data, thus ensuring that thecorrectness o the data is guaranteed and that alldiscrepancies will be questioned and disclosed. This thenallows or the joint planning o the use o natural resource

proceeds toward peace building and poverty reduction.

Recommendation 4: Use a preemptive approach to avoidgiving involved parties the opportunity or wrongdoinginstead o going ater rule breakers ater the act.

Challenge: In post-conict situations, corruption otenremains a huge problem, especially in resource-rich countries.Traditional anticorruption measures rely on commissions orcourts, which carry great potential or conict by corneringperpetrators, who may respond with briberyor, worse,recourse to arms.

Lesson Learned

Reduce the opportunity or corruption by obligingcompanies and governments to disclose revenue owsrather than going ater corruption ex post.

Recommendation 5: To oster cooperation toward peacebuilding among neighboring countries, bring themtogether to share capacity-building best practice.

Challenge: Conicts over natural resources oten involveneighboring countries. Even in post-conict situations,lingering grievances among neighboring countries mayprevent deeper eorts toward peace building.

Lesson Learned

To create a basis or urther cooperation and evenregional integration, take a precise, technical topic (suchas EITI and management o the natural resource sector)and provide the platorm or regional knowledge

sharing. 1

Such regional cooperation is essential or a stable politicalenvironment. Countries that are more advanced in EITIimplementation can help newcomers (see Box 2).

Recommendation 6: Use the implemented initiative as aspringboard or relevant related governance eorts.

1 Such cooperation on a similarly technical topic (coal and steel) allowed or regionalcooperation between ormer warring countries in postwar Europe in the 1950s, pav-ing the way or regional integration and leading to the European Union.

Challenge: In post-conict countries, resource governanceproblems may go well beyond the need or transparency orevenue ows into other realms o the EI value chain (seeFigure 1).

Lesson Learned

The institutionalized EITI implementation ramework

multistakeholder group, independent reconciler, capacitatedCSOs, and reliable data on revenue owscan be used to

subsequently intervene at other levels o the extractiveindustries value chain.

Thus, EITI oten becomes a springboard or broader reorm.Whether to extend EITIand to which level o the EI valuechainis a country-specifc decision. This can eventually leadto more transparent negotiations o contracts between thegovernment and companies operating in the extractiveindustries, or to better monitoring o EI frms activities.

It is relatively easy to extend EITI training activitiescarriedout by the World Bank and bilateral development partners

to these additional eorts, especially once stakeholders aregenerally capacitated on technicalities o extractiveindustries. For example, EITI was closely integrated with theestablishment o the national oil und in Timor Leste tofnance the countrys long-term development, and thegovernment used EITI structures to communicate withcitizens on broader oil-sector issues.

Conclusion

Its considerable contribution to good governance in ragileand conict-aected situations has helped EITI become arecognized brand in many countries. As Negbalee Warner,National Coordinator o EITI in Liberia, points out, ...through this process, suspicion and distrust are beingreduced, helping to diuse the tensions that led to conictin the past. As an increasing number o countriessuccessully implement EITI, this lays the groundwork orthe next steps o good governance. Thus, the World Bank iscurrently designing assistance strategies or EITIimplementation at the subnational level. Given thatrevenue sharing between the ederal and regional level isoten a sensitive issue due to spatial concentration onatural resources, subnational EITI holds signifcantpotential or conict-prone regions o EITI-implementingcountries (e.g., Indonesia, where conict about EI resources

Box 2: Example o Regional Cooperation

To help Sierra Leone benet rom Liberias successes inimplementing EITI, the World Bank team organized a visit o theLiberian EITI Secretariat to Sierra Leone in 2009. The new Minesand Minerals Act o Sierra Leone, similar to the Liberia ExtractiveIndustries Transparency Act, was signed into law at the end o2009.

The Liberian EITI Secretariats visit helped motivate the SierraLeonean EITI Secretariat to speed up implementation o EITI,which had stalled during the 2007 elections. Sierra Leone is nowwell advanced in its EITI implementation process.


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Bank or the governments they

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has caused riction between the centralgovernment and regions such as Aceh).

For an example o the benefts o EITIimplementation in ragile or conict-aectedcountries, see the video (approximately 10minutes) on EITI & Transparency in Timor-Leste.

The authors would like acknowledge thecontribution o Anwar Ravat, Diana Corbin,Liane Asta Lohde, Victoria Chang, and Mary-Shannon Bui (all WB/IFC) and Sebastien Brack(International Committee o the Red Cross)

whose helpul comments contributed to theproduction o this Smart Lesson.

Figure 1: EI Value Chain: Five Stages o Turning Natural Resources into Development.
http://wbmsmmww03.worldbank.org/IRIS/saveALDPrompt?assetUuid=65:F0D42CB9-510DE-01180-22000-000000000&requestUuid=dd7016ed-ce0a-4ad7-b581-9ca8494ab4d0http://wbmsmmww03.worldbank.org/IRIS/saveALDPrompt?assetUuid=65:F0D42CB9-510DE-01180-22000-000000000&requestUuid=dd7016ed-ce0a-4ad7-b581-9ca8494ab4d0

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