Guyana’s membership of EITI is necessary but not sufficient

Introduction

Today’s article brings to a conclusion the three-part series of columns that have been reviewing Guyana’s proposed membership of the Extractive Industries Transparency Initiative (EITI). Similar to my earlier examination and assessment of government’s proposed establishment of a Sovereign Wealth Fund (SWF), Guyana’s deliberative effort to secure membership of the EITI is undoubtedly a most important pillar for its proposed framework for the governance of the impending oil and gas extraction and export industry.

That framework highlights above all else the signal importance which the government attaches to transparency, accountability and public disclosure in the governance of the industry. Similar to the conclusion which I had earlier arrived at concerning the SWF, this policy initiative to seek membership of the EITI should not be treated as a panacea for securing all the areas of governance it is designed to address. Indeed, it is precisely to establish this that today’s column offers a brief (yet hopefully constructive), critical portrayal of the limits of achievement one should expect arising from Guyana’s successful membership of the EITI (G-EITI). In what follows, I present these limitations in a serial manner, but with no intended order of relative importance.

 

Critiques

While there are several critiques that I could offer, due to space constraints I am able only to refer to five of these in this column. For a start, the present geopolitical configuration of the EITI is notably deficient. Its current total of just 51 implementing members provides limited, and indeed in some cases no coverage of some of the most important groups of players, in the global oil and gas extractive industry. As examples of this defect, up to last year only Norway is a compliant member among developed industrialized countries. Further, there are at present no members from the Organization of Petroleum Exporting Countries (OPEC); none from the BRICS grouping (Brazil, Russia, India, China and South Africa); and of regional concern, only one each from Latin America and Caricom.

As a commissioned European Parlia-mentary Research Service, 2014 Report on the EITI has pointed out: “considerable gaps in country coverage have … remained and for the EITI to become a truly global standard, emerging economies and industrialized countries will need to join”.

Secondly, as matters presently stand the EITI remains essentially a voluntary organisation. In practice it relies wholly on peer pressure from fellow members, rather than the force of law to maintain its transparency standard. Analysts refer to such dependence as ‘soft law’. Indeed, in its original formulation, this standard was treated by analysts as a bare minimum, because it was focused on a fairly restricted portion of the oil and gas extraction industry value-chain. This circumstance had generated considerable criticism, which led to a 2011 external assessment of the EITI. Following on that assessment, much needed reforms were introduced in 2013.

Furthermore, an earlier 2008 external assessment had revealed that when: “measured against the World Bank’s Doing Business, Voice and Accountability indexes, and Transparency International Corruption Perception Index, a positive correlation was found between EITI Candidate countries with enhanced accountability, and improved business climate.” As the assessment further stated, however, there was an “inconclusive correlation between corruption perception and EITI status of the surveyed countries”.

Furthermore, a later 2013 analysis of EITI performance of candidate countries as compared to their non-EITI peers had revealed: “EITI membership was associated with a small but measurable reduction in corruption”. However, the study went on to conclude: “it was impossible to establish a cause-effect relationship, since it could not be established for certain that the improvement in results was not caused by factors common to both; for example, a change in political regime.”

 

Trumped 

Third, over the years, a persistent critique of the EITI has been that membership of it offers big corporations a safer alternative than mandatory regulation in their home countries. This is so, both because of the general tendency to overstate EITI benefits and protracted reliance on voluntary conduct in situations where the scope of the EITI is restricted and its oversight limited.

This observation has been dramatically made clear, when within days of the new Trump administration taking office in the United States, the US regulation requiring oil and gas companies to report on payments made to foreign governments, which was designed to improve transparency and inhibit corruption, has been unceremoniously removed by the US Congress.

A fourth critique is that, from its very foundation in the United Kingdom Publish What You Pay (PWYP) NGO movement, the EITI has been greatly dependent on the participation of civil society as one of, if not its main driving force (along with government and the private sector). Civil society support is definitely key to EITI success. Unfortunately, however, global experiences have clearly revealed that the capacity of civil society varies significantly among EITI implementing countries. As a consequence, their individual capabilities for driving the EITI focus are very uneven.

Finally, it is important that readers recognize that expectations about the EITI’s impact on governance is effectively managed. As the European Parliament’s Research Service Briefing Statement (2014) on the EITI mentioned above concludes. “Overall results to date have been uneven and partial”.

Such a conclusion suggests that the EITI should be appreciated in the much wider context of related initiatives in the extractive sector. At present, these would include the Forest Stewardship Council; the International Council on Mining and Metals; the Kimberley Process Certifica-tion Scheme; the Natural Resources Charter; the United Nations Global Compact; and, the OECD Guidelines for Multi-National Corporations.

This summary evaluation suggests that while membership of the EITI is necessary for good governance in Guyana’s proposed oil and gas extractive sector. It is far from sufficient.

 

Conclusion

Starting next week I shall introduce some further data on the governance framework of Guyana’s intended oil and gas extractive industry. This will be followed by an appraisal of the third identified policy option of the Guyana Government to date, namely the local content regulation/legislation for the sector.

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