SYDNEY: 28 May 2013 - The Extractive Industries Transparency Initiative (EITI) with 1,300 delegates from 96 countries assembled in Sydney last week. In one of the most remarkable conferences in the history of the city – at times resembling a reinvigorated United Nations – the delegates from all over the world demanded greater transparency and accountability from the resources industries. The extractive industries are mining the most precious material resource many of these countries possess. Largely they are poor countries with impoverished people. These natural resources are owned by the government in most countries, and the people have a right to know how this wealth is managed. These resources are finite, and it is essential they are used to contribute to the sustainable development of the economy and societies of the countries where they are found.

Too often in the past the wealth generated by the resources industries in the developing world has been misappropriated by elites, rather than being used for the development of vital infrastructure such as schools, hospitals, telecommunications, energy and transport. The possibility of advancing the human and social capital of the countries has been squandered in the interests of self-interested insiders and corrupt governments, while the international resources companies have too often been complicit in this long-running tragedy.

The key fact is that many countries rich in natural resources have under-performed economically. There are 3.5 billion people living in countries rich in resources such as oil, gas and minerals and the vast majority see few benefits.

Reversing the Curse of Resources

The Extractive Industries Transparency Initiative holds the promise of a fresh start, which in a decade has won enthusiastic support from the civil society organisations representing the people of these countries, their respective governments, and the international mining companies. The essential aim of EITI is to provide the public of the countries which depend economically on oil, gas and mineral exports with full reports of the revenues paid to the state by the mining companies.

EITI was founded in 2002 in response to the call from the civil activist group Publish What You Pay (PWYP) calling for greater transparency to tackle the problems of weak governance, corruption and political instability in many resource dependent countries. While PWYP put the emphasis on increasing disclosure from international mining companies, the EITI (with the early backing of the British government) has focused on the role of the governments of the resource-dependent countries (O’Sullivan 2013).

This more open reporting process is strengthened by the insistence that it is overseen by multi-stakeholder groups of representatives from government, extractive companies, and civil society groups. The same groups form the constituencies for the global board of EITI which defines the policy and standards administered by a secretariat based in Oslo. Hence the EITI is not a mechanical process of centrally determined standards compliance, but is continuously shaped by negotiations between key participants with diverse world views (though the ‘playpen’ at board level is apparently kept in good order by the robust authority of the chair Claire Short, a veteran British government minister).

The significance of the EITI’s call for greater transparency has been greatly enhanced when transparency rules for the extractive industries were enacted into law in the US in 2010 in Section 1504 of the Dodd Frank Wall Street Reform and Consumer Protection Act, and a similar requirement in the European Union under the revised Accounting and Transparency directives, which extends the rule beyond oil, gas and mining companies to include logging companies and large unlisted companies.

 The advance of the EITI has proved formidable. A total of 37 countries have signed up to the EITI (shortly to be joined by the US, UK and France which have provided support in the past, but now want to become more active). Of these member countries only 2 were fully compliant with EITI standards in 2009, 12 achieved this by 2011, with 21 fully compliant by 2013. When all countries are fully compliant over one billion people will be covered by the EITI, and already the EITI accounts for over one trillion dollars of revenue fully disclosed.

The EITI Principles were developed in 2003 and agreed by all stakeholders setting out aims and commitments. The first principle, further elaborate in the following principles is that: “We share a belief that the prudent use of natural resource wealth should be an important engine for sustainable  economic growth that contributes to sustainable development and poverty reduction, but if not properly managed, can create negative economic and social impacts.”

The EITI requirements must be adhered to by member countries including oversight by multi-stakeholder groups. The EITI reports include full governments disclosure of extractive industry revenues, and disclosure of all material payments to government by oil, gas and mining companies. A credible assurance system is applied employing international standards, with EITI reports that are comprehensive, actively promoted, publicly accessible and contributing to a public debate.

As Claire Short explains “The need for the EITI to encourage national ownership of reform efforts in order to better serve the interests of the citizens of member countries has been an important guiding principle...EITI reporting is grounded in national priorities and reforms.” Contextualisation of reporting is delivered with information about fiscal regimes, contractual frameworks, production, licensing procedures, revenue allocations and expenditures.

It appears that international extractive industry corporations are responding to this message. Over 70 of the world’s largest oil, gas and mining companies have become EITI supporting companies including BHP Billiton, Rio Tinto, ExxonMobil, Shell, BP, Chevron, Total, Anglo American, ArcelorMittal,  Petrobas, Vale and Xstrata. In fact it is hard to find a large reputable international resources company that has not associated with EITI.

This new sense of responsibility in the extractive industries is reflected in the formation of the International Council on Mining and Metals (ICMM) as a catalyst for environmental and social performance improvement in the sector. With 22 member companies and 34 member associations (including national and regional mining associations and global commodity associations), the ICMM members operate in 1,200 sites in 68 countries. ICMM is supporting EITI, and alert to the need to move beyond transparency.

Wherever they go in the world international mining companies are likely to face growing demands for greater environmental and social responsibility. This applies also the international Australian miners. For example BHP Billiton, Rio, Woodside, Newcrest, Santos, Alcoa, Oil Search, Alumina and Paladin together with many other small mining companies listed on the ASX are operating in countries which have become EITI candidates or fully compliant with the EITI. (PWYP/Oxfam 2011)

Beyond Transparency to Accountability

However it is important to move beyond transparency towards fuller accountability if the better management of resources for the benefit of economies and societies is to be achieved. Active in this task is the Revenue Watch Institute (RWI). In backing the EITI the RWI pursues the enhancements in governance and accountability necessary in the resources industries. The RWI recognises the economic fact that one billion people live on less than five dollars a day, while precious resources wealth lies below their soil, but also the political ramifications of misuse of resources wealth, that oil producing countries for example are three times less likely to democratise than non-oil producers.  The governance link between resources/people/companies/economy/government, suggests greater accountability is a vital element in securing better outcomes.

The Revenue Watch Institute has constructed a Resource Governance Index to measure performance in resource governance. The data assembled by a large team of researchers around the world on institutional and legal settings, reporting practices, safeguards and quality control, and enabling environment suggests that only 11 countries have satisfactory standards of resource governance, with the vast majority of countries exhibiting striking deficits.

In campaigning for higher standards of resources governance the RWI calls on governments to:

·       Disclose contracts signed with extractive companies.

·       Ensure that regulatory agencies publish timely, comprehensive reports on their operations including detailed revenue and project information.

·       Extend transparency and accountability standards to state-owned companies, and natural resource funds.

All of this has huge relevance to Australia of course, not only because we have among the world’s largest mining corporations domiciled here which operate in a hundred countries, but because as a resource rich country we are not immune to the problems confronting other resource rich countries. As the long resources investment boom that has both driven and unbalanced the Australian economy for over a decade begins to slow, urgent questions are being asked about how to ensure a more balanced productive economy may be achieved for the future. 

A substantial report  Advantage Australia: Resource Governance and Innovation for the Asian Century  argues: “Looking ahead, Australia faces uncertainties over future levels of commodity demand in a resource constrained world and increased competition from overseas for market share. Back on the ground, the quality of our remaining mineral resource stock is in decline, costs of production and transport are rising, along with community concerns and environmental pressure, while social licence to operate is becoming more difficult to establish and maintain. Moving beyond the mineral sector, it is increasingly apparent that the macroeconomic consequences of the recent ‘boom’ are affecting the prospects of other key industry sectors". 

As with other countries Australia is at a cross-roads where it needs to find a more sustainable path which positions the country for long term development, creating a more resilient and socially and environmentally more responsible economy. The principles of the Extractive Industries Transparency Initiative and the Resource Governance Index, are useful steps to take along this path in collaboration internationally with other concerned countries.