EITI Paris (OECD) 18-19 June 2019

Extractive Industries Transparency Initiative meet hears from Oxfam on auditing oil and gas projects. Open Data and disclosure by default. Mapping and database technology for transparency. UK’s EITI candidacy. Transparency and the energy transition.

Introduction

The headline introduction to the Global Conference of the Extractive Industries Transparency Initiative (EITI) in Paris earlier this was ‘Open Data, Build Trust’. Worldwide, trust in government is under strain. A perceived lack of progress in tackling corruption, tax evasion and illicit financial flows are contributing to the rise of populism and economic nationalism. The impact of the oil, gas and mining industries is often a focal point of public concern and potential source of conflict. The conference was billed as a high-level forum on extractives governance and an opportunity for multi-stakeholder dialogue and openness in addressing these challenges.

EITI 2019 Progress Report

Fredrik Reinfeldt, the outgoing EITI Chair, launched the EITI 2019 Progress Report. In the ensuing discussion, Dominic Emery (VP strategic planning at BP Group) acknowledged the achievements that resulted from ‘robust discussions’ between stakeholders. Emery highlighted the work on beneficial ownership disclosure and reporting which is now accepted in the EU and Canada as a means of disclosing revenues in countries where these companies operate. ‘What’s not to like about beneficial ownership!’ Emery sees such disclosure extending to climate change and revenue transparency, helping to solve the dual challenge of increasing energy availability while reducing the carbon footprint, a ‘significant deal for the coming decade, and frankly sooner than that!’

Oxfam on Petroleum cost auditing

In a breakout session Daniel Mulé presented Oxfam’s 2018 report, ‘Examining the crude details; government audits of oil and gas project costs to maximize revenue collection. Petroleum cost auditing, a new subject for EITI, is key to ‘pro-poor’ accountability and to minimize the downside of oil and gas extraction. Petroleum royalties may have a greater impact on a country than the benefit from employment. Getting taxes right means in-country public benefits and better returns for investors. The EITI’s transparency push is a step in the right direction as is the International monetary fund’s fiscal transparency code of resource revenue management (finalized in January 2019). What is now needed is more effective revenue collection and compliance. This needs sector-specific knowledge, enforcement via audits and tax adjustments and dispute resolution. Oxfam’s own studies have found that ‘ineffective revenue administration and cost overstatement are key risks in modeling emblematic petroleum projects’. Tax avoidance is possible by manipulating transfer pricing in vertically integrated companies, shifting profits from a higher tax host country to lower tax jurisdictions. Significant revenues are at stake and there is little information on audits.

Open data and disclosure by default

A plenary session looked into the impact of the open data movement on ‘disclosure by default’. The 2019 EITI Standard encourages implementing countries to strengthen disclosure of data and information. It encourages government agencies to embrace open government and open data, so that citizens can access up-to-date information. Companies are also providing more detailed information in their annual reports and online. Anders Pedersen presented the Natural Resources Governance Institute’s own open data work. Information on extractive projects are scattered across different company, government and civil society websites. These sources are available in varying storage formats and tabular structures. The NRGI collects and cleans these different sources of project data into a single harmonized data format. Project level data from hundreds of reports is available at projects and contracts. Pedersen also gave a shout-out to Tim Davis’ global report on the State of Open Data 2019.

UK’s EITI candidacy

Matthew Ray from the UK government department for business energy and industrial strategy traced the UK’s commitment to EITI back to 2013. The UK is a ‘candidate’ country, currently going through the EITI validation process. The UK extractives sector represents some £27 billion, with 80% from oil and gas and a £1 billion tax take. Most information is currently disclosed via government or company reporting. Revenue disclosure is currently not in sufficient detail and there are issues around ‘taxpayer confidentiality’. Companies House data is already widely used and there is a move for a wide reform of the company register. There is a strong business case for transparency, notably to combat money laundering. Civil society, investigative journalists, law enforcement and public are encouraged to ‘report it now’. The UK is also consulting on identity verification for beneficial ownership.

In-country activity

Sierra Leone presented ‘SLEITImap’, an Esri development by Integems Ggroup, an elegant GIS map front end with click-through to license information.

The Revenue Development Foundation has rolled out the MoMP Transparency Portal for the Afgani Ministry of Mines and Petroleum. This system contains data on mineral rights, exploration, mining, dealers and exporters licenses and related payments. Data comes directly out of the Mines and Petroleum systems that are in use every day.

RDF has also developed a transparency portal for Liberia leveraging its toolset for portal development and integration with other government departments and data sets. Regarding technology development, RDF considers blockchain as ‘a bad example’. ‘It is better to find a challenge for technology to solve rather than the other way round.’

Total on contract disclosure

In the contract disclosure special session, a new EITI effort, Stephen Douglas, Total’s industry rep, stated that Total’s company policy since 2017 is to encourage and support contract publication, not just in EITI countries but everywhere. Why? Transparency encourages investment and educates civil society. Public contract disclosure is a ‘virtual waiver’ of confidentiality in joint ventures. Confidentiality in the industry has a long history. But when someone asks why, most cannot come up with a good reason. Douglas is not naïve; contracts are fundamental economic moving parts of corporations’ and host country’s economics. Disclosure may or may not please, but at least it avoids suspicion that a deal is dodgy. From 2019, EITI standards will require disclosure of all contracts, published or amended. The situation in regard of old contracts is ‘quite complex’.

Extractives and carbon transition (Chatham House/UN/OECD/YPF/Chevron)

Sian Bradley (Chatham House) chaired a session on the relationship between extractives and the low carbon transition asking, can transparency help? There have been big changes in energy since EITI started in the mid-2000s. COP 21 has profound implications for fossil fuel. Renewables are now cheaper than fossil in some markets, elsewhere there are bans on internal combustion engines in an ‘accelerating process’.

The dilemma facing producing countries was well illustrated by Tony Addison (United Nations University) who has been working with the bank of Mozambique. The country suffers from climate change exacerbated cyclones. At the same time there is the promise of significant revenues from natural gas. This is ‘a really tough one for the government’. More generally there is worldwide uncertainty in the face of climate change as countries ‘walk the talk’, first on coal, then oil and eventually gas. We could see three quarters of world coal and half of the oil stranded. Gas should perform a bit better as a transition fuel. Companies will ‘shrink themselves’ and return capital to shareholders. Poor countries like Mozambique should ‘strand’ later than rich. Of course, this may not happen! Is any of this credible? When? The next decade, couple of decades?

Lahra Liberti (OECD) observed that countries are already reducing methane emissions. There is a World Bank initiative on global gas flaring reduction. Nigeria has pledged to reduce flaring and deploy gas-to-power technology. But there is little incentive for countries and companies to comply. Funding the transition with costly solutions like CCS is challenging. Liberti offered a ‘word of warning’, the last IEA/OECD report on progress in reform of fossil subsidies suggests that these are now rising again after a period of decline.

Bradley observed that low cost producers will vie to be the ‘last producer standing’. There will be a more short-term impact for others, like Canada’s tar sands.

Miguel Gutierrez (YPF and chair of G20 work group on the energy transition) pointed out that developing countries need cash for their energy-poor populations. Such countries need to look out for their own people. If they are rich in natural gas or biofuels, ‘let them do that’. 30% of worldwide CO2 emissions come from two countries. ‘What do you want to do. Solve climate change? I leave it to you!’

Chevron’s Stuart Brooks, an EITI board member, said that this was one of the biggest challenges facing an oil company. The argument that oil and gas will elevate poor people to middle class energy consumption levels is ‘no longer sustainable for the world’. But whether such considerations should be core to the EITI’s agenda is moot. EITI has a lot on its plate with human rights and anti-corruption. ‘We have to be careful what we add to the pile, there are many other players in this space. EITI should maximize what we do.’

Another speaker from the floor disagreed, ‘don’t underestimate potential of EITI in putting climate risks on agenda and into disclosure. EITI has become the place for rigorous debate on topics like this. Under national standard oils will be disclosing financials and opportunity to add in analysis of long-term economic risk of climate change’.

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