The Extractive Industries Transparency Initiative (Part II)

This column has been hesitant to comment on the recent visit to the Houston headquarters of ExxonMobil by five Ministers of the Government, the Petroleum Advisor to the President and two staff members of the Ministry of Natural Resources, until the fact are known as to the purpose for the trip and the source of funding. We now know that the purpose was to obtain an update on progress being made by the U.S. oil giant in relation to the extraction of crude oil in Guyana’s waters and that the trip was funded by ExxonMobil.

Several concerns arise from the above disclosures. First, both the Government and ExxonMobil should have been aware that it is highly inappropriate from an ethical and moral standpoint for latter to fund the trip. The agreement with ExxonMobil is in the nature of a procurement contract, and our Procurement Act prohibits the acceptance of gifts and other favours from suppliers/contractors. Such acceptance has the potential of influencing decisions in favour of suppliers/contractors, hence a potential conflict of interest. Additionally, the Integrity Commission Act has a schedule of Code of Conduct that prohibits the acceptance of gifts and other favours. The Code has since been revised and gazetted but the related amendments to the Act are yet to be tabled in the National Assembly.

Second, in an apparent attempt at damage control, Government officials have indicated that the cost of the trip will be included in Exxon’s investment to be recovered against revenue when production begins in 2020. This explanation should be rejected since the U.S. oil giant’s investment cannot include expenditure incurred on behalf of the Government of Guyana. A competent and independent auditor is more than likely to reject such an expenditure as a charge to Exxon in its books. This practice can also open the floodgates for all sorts of government expenditure to be incurred and included in Exxon’s investment.

Third, there is no provision in our Fiscal Management and Accountability (FMA) Act or our Constitution that allows expenditure to be incurred and charged against future revenues; nor can there be netting off of expenditure against revenue. In fact, Section 38(1) of the FMA Act specifically states that “All public moneys raised or received by the Government shall be credited fully and promptly to the Consolidated Fund …” (Emphasis mine). The cost of the trip should therefore have been funded by the Government through the budget process.

Fourth, one needs to reflect on whether such a costly visit to obtain an update on progress made by ExxonMobil, was indeed necessary, considering that in an age of rapid advances in information technology, virtual meetings can be conveniently held via Skype, conference calls and other technology-related means. Is it not a case of waste and extravagance in the use of public funds?

In the circumstances, ExxonMobil should be requested to present to the Government an invoice for the expenditure incurred and reimbursement made at the approved travelling rates for Ministers and other officials. As it stands, the expenditure will not be reflected in the public accounts. One hopes that there will not be a repeat of this practice.

On a related matter, this Column is not impressed with the explanation provided for failure to make the agreement with ExxonMobil available to the public. Everything that our neighbour to the west needs to know about the agreement is already in the public domain. If there are some clauses that border on territorial integrity or national security, a redacted version of the agreement can be released to the public.

Finally, the Stabroek News should be applauded for taking the high ethical and moral ground by declining the offer by Exxon Mobil to fund a trip to a California oil and gas seminar. One wonders if any other media house was provided with a similar offer and whether such an offer was accepted.

Last week, we began a discussion of the Extractive Industries Transparency Initiative (EITI) by providing some background information about its establishment as well as the steps that have to be completed before a country can apply for membership of the EITI. Since its establishment, the EITI has promulgated standards which participating countries are required to observe, the latest being the 2016 EITI Standard. The Standard is composed of two parts. Part I deals with the implementation of the Standard while Part II covers the governance and management of the international EITI.

There are three aspects with regard to the implementation of the Standard: the EITI principles; the EITI sign-up; and the requirements for implementing countries. The first two were already dealt with in last week’s column.

Requirements for implementing countries

There are two groups of implementing countries: EITI candidate and EITI compliant. EITI candidate countries must take timely measures to ensure compliance with the EITI Standard after which they become eligible to be considered EITI compliant. In order to do so, implementing countries must demonstrate through a validation process that they have met all the EITI requirements. The validation is undertaken in three stages: (i) the initial data collection and stakeholder consultation undertaken by the EITI International Secretariat using the Validation Guide and the submission of a report to the Independent Validator appointed by the EITI Board; (ii) the Independent Validator’s examination of the Secretariat’s report, detailed assessment of compliance and recommendation to the EITI Board via the Validation Committee; and (c) the EITI Board’s final determination of the compliance requirements, and the country’s overall compliance. If the Board is satisfied that these requirements have been met, the country is then categorized as EITI compliant.

The compliance requirements fall into the following eight categories:

(a)          oversight by the Multi-Stakeholder Group (MSG);

(b)          legal and institutional framework, including allocation of contracts and licences;

(c)           exploration and production;

(d)          revenue collection;

(e)          revenue allocation;

(f)           social and economic spending;

(g)          outcomes and impacts; and

(h)          compliance with deadlines for implementing countries.

Oversight by the Multi-Stakeholder Group

The EITI requires effective multi-stakeholder oversight, including a functioning Multi-Stakeholder Group (MSG) that involves the government, companies, and the full, independent, active and effective participation of civil society. There must be an agreed work plan with clear objectives for EITI implementation, and a timetable that is aligned with the deadlines established by the EITI Board. The government is required to issue an unequivocal public statement of its intention to implement the EITI and to appoint a senior individual to lead the implementation. The appointee should have the confidence of all stakeholders, the authority and freedom to coordinate action on the EITI across relevant ministries and agencies, and be able to mobilise resources for EITI implementation.

For their part, companies must be fully, actively and effectively engaged in the EITI process. The government must ensure that there is an enabling environment for company participation with regard to relevant laws, regulations, and administrative rules as well as actual practice in implementation of the EITI. The fundamental rights of company representatives substantively engaged in the EITI, including but not restricted to members of the MSG, must be respected. The government must also ensure that there are no obstacles to company participation in the EITI process.

A similar arrangement must be in place for civil society’s participation in the EITI process. The fundamental rights of civil society must be respected, and the government must ensure that there are no obstacles to participation. It must refrain from actions which result in narrowing or restricting public debate in relation to implementation of the EITI. In addition, stakeholders, including but not limited to members of the MSG, must be able to speak freely on transparency and natural resource governance issues. They must be substantially engaged in the design, implementation, monitoring and evaluation of the EITI process, and ensure that they contribute to public debate. Stakeholders must have the right to communicate and cooperate with each other, and be able to operate freely and express opinions about the EITI without restraint, coercion or reprisal.

The government, for its part, is required to commit to working with civil society and companies, and establish an MSG to oversee the implementation of the EITI. In doing so, it must ensure that the invitation to participate in the group is open and transparent and that stakeholders are adequately represented. The MSG must comprise appropriate stakeholders, including but not necessarily limited to the private sector; civil society, (including independent civil society groups and other civil society such as the media and unions); and relevant government entities which can also include parliamentarians. Each stakeholder group must have the right to appoint its own representatives, and the nomination process must be independent and free from any coercion. Civil society groups, as members of the MSG, must be operationally independent of government and/or companies and consider establishing the legal basis of the group.

The MSG must have clear terms of reference for its work including:

(a)           its role, responsibilities and rights;

(b)          capacity to carry out its duties;

(c)           undertaking effective outreach activities with civil society groups and companies;

(d)          disseminating public information about the EITI process;

(e)          liaising with constituency groups;

(f)           approving work plans, EITI Reports and annual progress reports;

(g)           appointing the Independent Administrator;

(h)          overseeing the EITI reporting process and engagement in the validation process;                and

(i)            internal governance rules and procedures.

To be continued –

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