EITI Counsels Nigeria, Others on Extractive Sector Revenue

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Chineme Okafor in Abuja

The Extractive Industries Transparency Initiative (EITI) has offered countries such as Nigeria which are rich in mineral resources an advisory on how to protect their extractive sector revenue with the outbreak of the COVID-19.

Speaking in a Sussex Development Lecture he delivered, EITI’s Executive Director, Mark Robinson, stated that transparency in contracts, commodity trading and revenue allocations were key to safeguarding the extractive incomes of Nigeria and others.

Nigeria is a member country of the EITI and expresses its commitment to extractive sector transparency through the Nigeria Extractive Industries Transparency Initiative (NEITI) which undertakes and publishes audit reports of activities in the sectors amongst others.

Robinson, however, said for resource-rich countries, the COVID-19 pandemic posed a triple crisis of placing a huge strain on public health systems as countries struggle to cope with the virus, oil price crash which makes oil production significantly less profitable with massive fall in investment and exploration and the slowdown of the global economy which also affects demand for oil, gas and other minerals.

“All these factors are having a major effect on public finance, with revenues declining rapidly while demands on public expenditure increase sharply,” Robinson explained.

“There are also fears of increased corruption risk, with the weakening of oversight institutions and prospect of shady deals. And there are fears about diminishing transparency, with the possibility of reduced commitment to openness and the publication of data as other priorities take precedence,” he added.

Robinson, reiterated that the EITI would continue to foster improved transparency in the oil, gas and mining sectors through improved reporting standards amongst its 53 member countries, but feared that gains recorded in this regards are potentially at risk as governments and companies get heavily pressured to recover investments rapidly in the face of economic downturns.

To forestall such potential decline in extractive sector’s revenue accountability, Robinson said that countries have to dedicate to reading between the lines to ensure contract transparency.

“Governments and companies who commit to publishing contracts in accordance with the EITI Standard offer stakeholders the information to understand and monitor compliance with the terms, obligations and payments arising from extractives projects in their countries. When contracts are disclosed, they can more easily be compared, scrutinised and enforced,” he stated.

According to him: “By committing to contract disclosure, for example through membership of the EITI’s Contract Transparency Network, governments can help protect the interests of citizens and create a level playing field for investment that will benefit resource-rich countries over the long term.”

He also noted that the current economic crisis, constraints on investment capital and the fear of budget shortfalls may lead governments to conclude extractives agreements with less favourable or inconsistent provisions.

“A virtuous cycle – where contract disclosure fuels public scrutiny, promotes better oversight and strengthens enforcement – may be forfeited by weaker contract negotiations and tapering commitment to contract disclosure. This could undermine the transformative potential of this new requirement and emerging good practice,” he added.

He further urged countries to ensure transparency in commodity trading, stating that over half of the $2.7 trillion revenues disclosed by EITI countries come from the sale of the state’s oil, gas or minerals to trading companies but with commodity prices under pressure, deals between traders and state-owned enterprises (SOEs) present a potential opportunity for corruption.

Commodity trading transparency, he explained, “is particularly relevant in the turbulent commodity markets that we have witnessed in recent months.”
“The oil price shock and upsurge of storage costs may drive countries to enter into hasty short-term deals which could jeopardise long-term national interests. This risk is most evident with SOEs whose activities are not always open to public scrutiny and where politically exposed persons have an opportunity to make short-term gains to the detriment of public benefit,” Robinson pointed out.

He stated that countries opening up their revenue allocations for public scrutiny was also necessary to ensure that significant transfers between national and subnational government entities follow the mandated processes by a national constitution or other revenue sharing mechanisms.

“A reduction in resource revenues due to the triple crisis may have an adverse impact on subnational transfers, leaving communities more impoverished or vulnerable.

“Subnational transfers could also be affected by the diversion of resources to meet urgent national priorities, such as the response to the health pandemic.
“Local communities may suffer from reduced expenditures as a result. It is therefore imperative that this matter remains current and transparent, so as to record variations in transfers and keep the dialogue open with civil society and communities,” Robinson stated.