Kwame Nkrumah University of Science and Technology

College Of Agriculture and Natural Resource Management

Department of Silviculture and Forest Management

The Extractive Industry Transparency Initiative

EITI

By

OFORI KWASI JULIUS

ABASONTEY VICTORIA
5 November 2016

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Contents
Introduction..................................................................................................................................................3
About The Initiative ..................................................................................................................................3
The Rational behind EITI...........................................................................................................................3
Early Beginnings........................................................................................................................................4
Publish What You Pay...............................................................................................................................4
Stakeholders in EITI ..................................................................................................................................5
Why is it a Governance instrument? ........................................................................................................5
Ghanas EITI program ...............................................................................................................................6
GHEITI Objectives .....................................................................................................................................6
Successes ..................................................................................................................................................7
What are the challenges? .........................................................................................................................7
Recommendations....................................................................................................................................7
Conclusion ................................................................................................................................................8
References ................................................................................................................................................8

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 EXTRACTIVE INDUSTRY TRANSPARENCY INITIATIVE

Introduction
A countrys natural resources, such as oil, gas, metals and minerals, belong to its citizens.
Extraction of these resources can lead to economic growth and social development. However,
poor governance natural resource has often led to corruption and conflict. More openness and
public scrutiny of how wealth from a countrys extractive sector is used and managed is
necessary to ensure that natural resources benefit all. The EITI is a global standard to promote
transparent and accountable management of natural resources. It seeks to strengthen government
and company systems, inform public debate and promote understanding. In each of the 49
implementing countries, the EITI is supported by a coalition of government, companies, and civil
society, (EITI, 2016).

About The Initiative

The Extractive Industries Transparency Initiative (EITI) is an international standard for openness
around the management of revenues from natural resources. It is designed to improve
accountability and public trust for the revenues paid and received for a countrys oil, gas and
mineral resources. It asks companies to publish what they pay for oil, gas, quarrying and mining
governments to disclose what they receive from oil, gas, quarrying and mining. These figures are
audited by an independent administrator and published along with contextual information in the
EITI report, (Nash, 2016).

EITI emerged as a brainchild of the United Nations World Summit on Sustainable Development
(WSSD) in Johannesburg, in 2002. It initially focused on extractive sector revenue transparency,
and operated on the assumption that when citizens receive information on the payments
companies make to governments in terms of share of production, taxes, and royalties, they will
be able to demand accountability and better use of the revenues. In 2013, at the 6th EITI Global
Conference in Sydney, Australia, the initiatives requirements were varied, and replaced with
what is now the EITI Standard, and the scope expanded beyond just revenues, to the other links
in the industry value-chain, ostensibly with a view to addressing some of the critical governance
challenges in the extractive sector, (Javier Aguila, 2011).

The Rational behind EITI

The fundamental rationale behind EITI is that increased transparency and knowledge of revenues
from the extractive industries will empower citizens and institutions to hold governments
accountable. By implementing EITI at the subnational level, countries could reduce opportunities
for mismanagement or diversion of funds from sustainable development purposes, especially for
prominent oil, gas, or mining regions. It is also an effective way of strengthening EITI local
ownership among stakeholders, (Javier Aguila, 2011).

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The initiative aims at increasing transparency in any transaction between governments of mineral
rich countries and companies operating in their jurisdictions. By promoting full disclosure of any
payments made to governments, the EITI aims to give citizens and institutions access to better
information to enable them to hold governments to account for how these payments are spent.

Early Beginnings
In the late 1990s and early 2000s, there was an expanding library of academic literature around
the resource curse by such acolytes as Jeffrey Sachs, Joseph Stieglitz, Terry Lynn Karl and
Paul Collier detailing how the huge potential benefits of oil, gas and mining were not being
realized and were associated with increased poverty, conflict and corruption. The problem went
beyond just the well-known economic phenomenon of 'Dutch Disease' by which natural resource
wealth made other export sectors uncompetitive. Other common effects were around capturing
the revenues by elites, stunting the development of tax systems to capture revenue from non-
extractive sectors, exacerbated regional and community tensions. These writings outlined out the
complexities of extractive resource governance: bidding, exploration, licenses, contracts,
operations, revenues, supply chains, local content, transit, services, allocations, and spending.
They noted environmental, social and political concerns, and each outlined remedies for
addressing the curse, often noting that no single action would be capable of tackling all of these
challenges. However, the literature was clear transparency and dialogue had to be part of the
starting point, (EITI, 2016).

Publish What You Pay

These academic analyses were followed by more and more journalistic pieces and a growing
campaign by Global Witness, Human Rights Watch, Oxfam America, other civil society
organizations. International financier George Soros established a Revenue Watch Programme
under his Open Society Initiative to investigate the flow of funds from oil companies to
governments in the Caspian region. The NGOs were stepping up their enforcement of corporate
social responsibility rhetoric and were looking for a law for companies to report their payments
to developing countries.

The civil society campaign slogan of Publish What You Pay (PWYP) was drawn from a
Global Witness report, A Crude Awakening. Launched in December 1999, it focused on the
opaque mismanagement of oil in Angola. The report had concluded by calling on the operating
companies to adopt a policy of full transparency in Angola and in other countries with similar
problems of lack of transparency and government accountability.

Responding to the campaign in February 2001, oil behemoth BP published the signature bonus
of USD 111 million it paid to the Angolan government for an offshore license. It committed to
publish more. This sparked a strong reaction from Angola. In his 2010 memoir, Beyond
Business, Lord John Browne, the then Chief Executive Officer of BP, recalled how he received
a cold letter from the head of the Angolan National Oil Company, Sonangol, stating that, It was
with great surprise, and some disbelief, that we found out through the press that your company
has been disclosing information about oil-related activities in Angola. The backlash and threats
from the Angola government, led Lord Browne to conclude clearly a unilateral approach, where

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one company or one country was under pressure to publish what you pay was not workable.

The oil companies argued for a shift away from company reporting, as sought by PWYP and
others, to reporting by governments, in order to reduce conflict with host governments and put
contracts at risk. If company reporting was to be required they wanted a global effort to level the
playing field that required all companies in a country to disclose.

The Government of the United Kingdom the Cabinet Office, the Department for International
Development, the Treasury, the Foreign Office, and the Department of Trade and Industry - was
listening both to the PWYP campaign and to the oil companies. They saw the opportunity to
develop an initiative built on the notion of equal transparency from the governments and the
companies.

Stakeholders in EITI
According to Javier Aguila, 2011, the multi-stakeholder decision making body in a national EITI
process that leads and oversees implementation industry companies and civil society
organizations include:

1. Government or public institutions: Agencies responsible for management of natural

resources, agencies responsible for revenue collection and management, Agencies
responsible for economic development, planning and private sector liaison, Sub-national
levels of government, the legislature, for example budget, finance, planning or natural
resource committees, Sub-national bodies, Supreme audit institutions, National oil or
mining companies and Traditional or customary leaders.
2. Private sector: Oil, gas and mining companies operating in the country (including
international state owned companies, domestic private companies and international
private companies), National oil or mining companies, Investors Business and industry
associates.
3. Civil society: Community based organisations, Non-governmental organisations,
International NGOs and their affiliates, Media Trade unions, Academic and research
institutions and Faith based organisations.
4. Organisations contracted to support an EITI process: Reconciler or auditors and
other disclosure agencies.
5. International partners: EITI board and EITI secretariat, International development
agencies and institutions (IMF, World Bank, regional development banks), and bilateral
donor agencies.

Why is it a Governance instrument?

The Extractive Industries Transparency Initiative (EITI) is one of the governance tools aimed at
reducing poverty among natural resource rich countries by improving accountability and
transparency in the payments and receipts of natural resource revenues. This is achieved through
regular publication and verification of company payments and government receipts from natural
resource revenues such as mining, oil and gas sectors among others.

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Ghanas EITI program
Ghana signed on to the EITI in 2003. The Ghana Extractive Industries Transparency Initiative
(GHEITI) has been one of the pioneer countries in implementing the initiative in the mining
sector. Ghana was the first EITI country to deal with the mining sector, as the other early
candidate countries were focused on the oil and gas sector. Since then a number of other mining
countries have joined EITI and benefited from some of Ghanas lessons. Ghana was also the
first country to extend EITI to a sub-national level, looking at ground rent payments and the flow
of royalty payments back to sub-national bodies.
In 2010, with the 2007 discovery of commercially viable oil and gas resources, the country
extended its reporting also to this sector. Ghana has participated fully in all EITI activities both
regionally and internationally. The instrument used for verifying company payments and
government receipts are the annual reconciliation reports, (RRs). GHEITI has produced nine
such reports over the years, covering mining revenues from 2004 through 2011 and oil revenues
for 2010-2011. These reports are disseminated and discussed across the country, including in
regional and community based forums.
GHEITIs highest decision-making body is the National Steering Committee (NSC) which
currently consists of 23 representatives from government, civil society and industry. The
GHEITI Secretariat that supports the NSC in its work is housed in the Ministry of Finance,
which also provides most of the funding for EITI implementation. Additional funding has been
provided by the World Bank-administered EITI Multi-Donor Trust Fund (MDTF) and
Germanys Development Cooperation agency (GIZ), and it is the latter that has provided the
funding for this review. The main objective of the Ghana EITI is to carry out an independent
audit of Ghanas extractive industry. It is also to develop and implement a revenue disclosure,
oversight and publication mechanism that ensures that Ghanaians get all relevant information on
the extractive industrys revenue and expenditure to enable them hold government accountable.

GHEITI Objectives
GHEITI objectives are stated to be, (Mr. Arne Disch, 2014 ) :

Enhance the demand-side of social accountability by providing public insight into

revenues derived from the exploitation of the country's mineral resources.
Create the platform for public debate on the spending efficiency of extractive sector
revenues; Identify gaps and weaknesses in resource revenue management and make
recommendations to prevent revenue leakage.
Enhance the communication efficiency of GHEITI and ensure that mineral revenue /
expenditure information are provided in a timely manner, and in an accessible and
comprehensible format.
Guarantee the sustainability of Ghana's EITI by backing it with legislation.

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Successes
Ghana has been acclaimed an exemplary implementer of the Extractive Industries Transparency
Initiative (EITI), and honored for its strict implementation of the recommendations of the Ghana
EITI (GHEITI) leading to far-reaching policy, regulatory and institutional reforms in its mining,
oil and gas sectors, (citifmonline, 2016).

Ghana was among four countries selected from 49 EITI implementing countries for the
prestigious EITI Chairs award, at the 7th Global EITI Conference in Lima, Peru. The others are:
Democratic Republic of Congo, Mongolia, and the Philippines.
The awards, instituted about a decade ago, are given to countries that have shown leadership,
determination and resourcefulness in ensuring that the EITI implementation improves extractive
sector governance.
Ghana has been implementing the initiative since 2003, and was declared EITI-compliant in
2010 after going through a rigorous international validation exercise and a recent validation that
was due in April 2016.

The policy reforms that have been inspired by Ghanas EITI and for which it has been honored,
include: the review of the fiscal regime under which the mining industry operates and the
development of guidelines for the utilization of mineral royalties at the sub-national level.

A most critical finding from the first Ghana EITI Reports was the abysmally low rate of ground
rent paid to landowners by mining companies in the country. The increase in the rate, which was
a GHEITI recommendation, was finally approved by Parliament in December 2014 through the
Fees and Charges Amendment Instrument 2014 LI 2216 from the low level of GHC0.50/square
Km to GHC15 per Acre. This has resulted in significant improvement in incomes of land owners
on whose land the mineral resources are exploited.

What are the challenges?

It is worth noting that there are a number of extractive sector related governance challenges
which are expected to be addressed by the work plan. Notable among these challenges include
lapses or institutional weaknesses in dealing with revenue management in the extractive sector,
and the challenge of regular monitoring of royalty payments from the central government to
District Assemblies at the sub-national level. There is also the issue of Extractive industry related
capacity gaps.
Difficulty in accessing contracts / data, identifying and preventing the incidence of transfer
pricing, and other tax avoidance, as well as tax evasion practices and the need to address the
potential for role conflict at the secretariat

Recommendations
Readying the path for improved transparency and accountability in extractive industries has seen
great improvement though there are a few areas of concern. Although the EITI is still in its early
days, there is the need for research to ascertain its impact on reducing corruption and other
drivers of the resource curse. Also, there is the need to ascertain its contribution to economic

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development in implementing countries. Additionally, efforts must be channelled towards
sensitizing citizens about the EITI and the opportunity it presents, especially in terms of ensuring
that leaders who are trusted with resources do not use them to satisfy their own parochial
interests.

Conclusion
To achieve maximum results, there is the need to create awareness and develop the capacity of
the Ghanaian citizenry to demand more accountability, especially with regards to the use of
mining revenue.

References

citifmonline. (2016, Febrary 27). citifn online. Retrieved November 2, 2016, from citifm web sit:
http://citifmonline.com/2016/02/27/ghana-wins-global-eiti-
award/#sthash.LeXYTDFq.dpuf

EITI. (2016). What The EITI Does: building trust through tranparency. Norway: EITI.

Javier Aguila, r. G. (2011). Implementing EITI at the Subnational Level. Washington, D.C.: The
World Bank .

Mr. Arne Disch, T. L. (2014 ). Good Financial Governance (Short Term Expert Pool) . GIZ.

Nash, M. S. (2016, september 13). Department for Business, Energy and Industrial Strategy.
Retrieved november 2, 2016, from Department for Business, Energy and Industrial
Strategy: gov.uk/guidance/extractive-industries-transparency-initiative

Anshasy, A. A. El., and Katsaiti, M. S., 2013. Natural resources and fiscal performance: Does
good governance matter? Journal of Macroeconomics 37 (2013) 285298.

Auty, R.M., 2005. Transition reform in the mineral-rich Caspian region countries. Resources
Policy 27, 2532.

Ayelazuno, J., 2014. Oil wealth and the well-being of the subaltern classes in Sub-Saharan
Africa: A critical analysis of the resource curse in Ghana. Resources Policy 40 (2014) 6673.

Brunnschweiler, C. N., 2008. Cursing the Blessings? Natural Resource Abundance, Institutions,
and Economic Growth. World Development Vol. 36, No. 3, pp. 399419, 2008.

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Corrigan, C. C., 2013. Breaking the resource curse: Transparency in the natural resource sector
and extractive industry initiative. Resource Policy 40 (2014) 17 30.

Costa, H. K. de M. and Santos, E. d. M., 2013. Institutional analysis and the resource curse in
developing countries. Energy Policy 63 (2013) 788795.

Extractive Industries Transparency Initiative, 2009a. History of EITI. http://eiti.org/eiti/history.

Date Accessed 29th October, 2015.