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Extractive resources are public assets and decisions around their exploitation should be transparent and subject to informed public oversight.
Resource extraction in many countries has a long history and that history is in general not a happy one. In the past, valuable resources have often not been harnessed for broad and sustained improvements in living standards. Sometimes they have enriched foreigners, sometimes narrow local elites, and sometimes they have led to political violence. Control and information have been closely held in the hands of a few officials and the companies. Inevitably given this history, citizens are suspicious that governments or investors will mismanage resource extraction, whether through incompetence, malevolence, or disregard for broader society. This climate of suspicion is itself damaging both for the wider functioning of government and for the tranquility of the society.
Citizens can only be confident about the integrity of the resource extraction process if they know about it. Governments should adopt transparent processes for establishing and implementing resource policies, for awarding contracts, for taxing, collecting and managing revenues, and for taking spending decisions. The citizenry need to be properly informed about the decision to extract and the basic extractive policy framework. Resource decisions involve long-term commitments and these will be more credible if their rationale is understood by citizens. Resource exploitation will be more successful for the country if citizens understand the resource development path and support it. Legislatures should oversee the sector and approve major concession.
Citizens have a basic right to information about government activities and use of public assets. Public availability of information is recognized as an essential part of government accountability to its people.
- More and more countries are enshrining this principle in law. Seventy-eight countries now have so-called Freedom of Information laws stipulating in one form or another that all government information is public unless specifically prescribed by law.
- The IMF’s Code of Good Practices on Fiscal Transparency1 sets out strong rules for informing the public about the use of public assets, specifically including natural resources. In most countries, natural resources, particularly sub-soil minerals, are deemed the property of the state, and are hence public assets. The Code of Good Practices has been formally adopted by the IMF Executive Board and should therefore in principle be adhered to by all member governments.
- The wide international support and country participation in the voluntary Extractive Industries Transparency Initiative (EITI) has established that the public is entitled to information on the payments and revenues derived from extraction.
- The principle that the public has a right to full and timely information necessary to meaningfully participate in environmental and social decision-making, which resource extraction invariably involves, has been enshrined in international instruments including the Universal Declaration of Human Rights,i the Rio Declaration,ii the Aarhus Convention,iii and the OECD Guidelines for Multinational Enterprises.iv The Aarhus Convention provides for only specified and limited exceptions to public disclosure, and that these exceptions “shall be interpreted in a restrictive way, taking into account the public interest served by disclosure and taking into account whether the information requested relates to emissions into the Environment.”v
Transparency has other benefits beyond building public trust and meeting international standards of good governance. Transparency may lower the cost of capital. An IMF study of fiscal transparency found that “Fiscal transparency is associated with higher credit ratings even after controlling for various economic fundamentals.”2 The commercial rating agency Standard & Poor’s cites governance of the extractive sector as strong factor in the risk ratings given to Sub-Saharan African countries and mentions Nigeria’s participation in EITI as a consideration in giving the country its first sovereign risk rating.3 S&P says EITI adherence by Nigeria and 14 other African countries “is a positive signal that these countries are committed to stronger transparency and accountability in resource management.”4 Nigeria’s EITI also figured in the decision of official donors to grant Nigeria debt relief.
Public management of all aspects of the extraction process is likely to improve significantly. Experience shows that public disclosure requirements improve the quality of data the government gathers and maintains. Wide dissemination of critical information around extraction increases the likelihood that all relevant officials, including ministries of finance, energy and mining ministries, and environmental and regulatory agencies, will all have the information they need to do their jobs. Reliable and frequent data will make it easier for the governments that are heavily reliant on extractive revenues to plan and manage their budgets and long term strategic development plans. Making public information such as company payments to the government will make it easier for the government to know if it is collecting what it should and will make complex extractive concessions easier to enforce and monitor, overall. Finally, provided the extractive regime enjoys public legitimacy – which is itself only possible with public information - having key information in the public domain reduces the likelihood that successor governments will make arbitrary and ill-considered changes to a country’s extraction regime.
Transparency is critical at all stages. Policies and legal, regulatory, and contractual frameworks should be clear and public, as should procedures for the award of contracts where applicable. Contracts should be public, and the true identity of contract or concession-holders should be known. If there is a national resource company, it too must be clearly governed and transparent (Precept 6).
Fiscal and governing regimes should be set in law to the greatest extent possible. Licensing and contract terms should be disclosed. The Extractive Industry Transparency Initiative (EITI) has established the widely accepted principle that companies should publish what they pay and the government what it receives. All payments should flow into properly audited government accounts. Spending should be equally transparent and accounted for. Management of savings and stabilization funds should, at a minimum, follow the so-called “Santiago Principles”6 adopted by the International Working Group on Sovereign Wealth Funds in September 2008 and the guidance on best practice in asset management in the IMF Guide on Resource Revenue Transparency and the Peterson Institute blueprint for sovereign wealth fund best practices.
i. Universal Declaration of Human Rights, UNGA Res. 217A(III), 10 Dec. 1948.
ii. Rio Declaration on Environment and Development, Report of the United Nations Conference on Environment and Development, A/Conf.151/26(VolI), Annex I, 3-14 June 1992.
iii. Aarhus Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Decision-making, Doc. ECE-CEP-43 (25 June 1998).
iv. Universal Declaration of Human Rights, U.N.G.A. Res. 217A(III), Article 19, 10 Dec. 1948; Aarhus Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters, Doc. ECE-CEP-43 (25 June 1998).
v. Aarhus Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Decision-making, Doc. Article 4(4), ECE-CEP-43 (25 June 1998).
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Comments
You say in this precept 2 “Extractive resources are public assets and decisions around their exploitation and use should be subject to public oversight.”
Let me introduce myself. I am one of those millions of oil cursed citizens t and I do have some serious reservations with respect to this precept 2 draft. Let me explain.
Let us suppose that all the net results of the exploitation of any extractive resources placed by providence in a country had been equally divided among the citizens, those who arguably are the most legitimate owners of said funds. Let us then suppose that the central government requests the citizens to give to it all the net results in their possession... what would we have? We would have the mother of all the regressive tax systems, with the marginal tax rate for the poorest being 100%.
Would anyone of you in the Natural Resource Charter support such a regressive tax system? I don’t think so. And so why then do you take it as a big given, without even putting it up for discussion, that “extractive resources are public assets”?
In Venezuela, in 1974, the Oil Boom I of my time, Carlos Andres Perez´ time, as a rookie MBA I was appointed diversification manager in the Venezuelan Investment Fund that was being set up in order to safeguard the oil income that the country had no chance to digest in a reasonable way. It took me less than a month to discover that the whole set-up was doomed to fail and so I quit, the same day my new desk arrived. I thereafter worked as a financial and strategic consultant in Venezuela for 28 years.
In 2002 as a result of some almost inexplicable events, like being recruited for it on the web, I was appointed for two years an Executive Director at the World Bank. I have since suffered and witnessed in detail, though from a sufficient distance to see the forest, the Oil Boom II of my time, Hugo Chavez´ time. Frankly I know more than most what the oil curse is really all about and I pray for and do the most that I can in order to find a way for my country of not wasting Oil Boom III whenever it comes.
This week I assisted the “Improving Extractive Industries Benefits for the Poor” (those taxed at 100%) organized by the World Bank´s Oil and, Gas and Mining Policy Division. There were many interesting conferences but, with respect of how to avoid the oil-curse, I heard no new lessons derived from Oil Boom II that I had not previously learnt from Oil Boom I.
The main explanation for it might be very difficult for anyone who has not lived under the oil curse to really understand it.
Though it is great having transparency, like that promoted by EITI, whose efforts I fully support , the real oil curse is not about the lack of transparency; the real oil curse is about a nation of citizens sitting down and expecting their government to sow the oil revenues and harvest something good for them, without given the slightest thought about taking that responsibility upon themselves; the real oil-curse is the citizens handing over through elections the check book containing their own oil revenues to the chief in turn just in order to fight among themselves the next years for a larger share of these or to have to bow to the chief to get something of those net revenues back.
As I see it the only way we citizens have to escape the oil curse is by avoiding centralizing the net oil revenues in the hands of the government, at least during an oil boom. The way I, an oil cursed citizen, would start visualizing a solution, is in terms of having any net oil revenues that represents more than a percentage of GDP and that is distributed, being paid out in cash, directly to the citizens instead of to the government.
Friends, we oil cursed citizens have had enough with our government finding itself to be independently wealthy during an oil boom and therefore having no fiscal income incentive to even keep up the appearances of a responsible behavior.
May I therefore respectfully ask the Natural Resource Charter not to start tackling this issue as if the oil revenues were given to the States by God and instead try to side with the citizens. Frankly our politicians do not deserve having more policymakers endorsing their populist promises.
There is no such thing as an oil-cursed politicians, oil-cursed governments or oil cursed policymakers, on the contrary they are all most often shining examples of oil blessings... there are only oil-cursed citizens.
Please!
Per Kurowski
And today reading Paul Collier’s “The plundered planet” I see that:
“Three political giants from resource-rich countries agreed to constitute the board that would take responsibility for the charter. Ernesto Zedillo, the former president of Mexico who is now a professor at Yale agreed to chair the group. He was joined by Chukwuma Soludo, who during his tenure as Governor of the Central Bank of Nigeria won the international accolade of Central Bank Governor of the Year. The third member of the trio was Yegor Gaidar, the Prime Minister who had led the economic reforms in Russia.”
I do not want to refer to the deceased Yegor Gaidar, who indeed might have acted like a citizen, but, the two first, they might be giants or not, but they sure seem to belong to the oil blessed oiligarchic technocracy and that could have a vested interest in selling us the illusion that with better governance, and the Natural Resource Charter’s advice, we oil cursed citizens can rest assure that things will improve.
Miracles are indeed possible, and pigs might fly... but neither of them is a sustainable event.