Harnessing Extractive Industries for Development Impact Turning commodity price windfalls into benefits for poor people

Michael Jarvis, Private Sector Specialist, WBIKathrin Frauscher, Governance Specialist, WBI

Overview of session

Introduction - the value chain approach

Governance for Extractive Industries program

Reactions and sharing of country experiences

Open discussion

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Countries which have weak institutional contexts have their weaknesses exacerbated and oil becomes a curse rather than a blessing

Political and institutional dimensions are the most important determinants of how countries with extractive industries perform

The institutional dimension of extractive industries

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Extractive Industries: not a sector but a pathology …

Conflict Corruption Damaged social contract/compact Difficult macroeconomics: volatility; excessive

borrowing; low savings rate; Dutch disease Lack of diversification/enclave effects Insufficient investment in human resources Damaged democracy and human rights All leading to low growth

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Accountability

In this world accountability, transparency, and participation assume greater importance than ever

Need to rebuild accountability

Accountability = Transparency + Participation

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Accountability institutions include:

Parliament Audit offices Political parties Civil society organizations Media Academia and think-tanks Judiciary Business and professional associations

The ‘public sphere’

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Extractive industry value chain approach

Award of Contracts and Licenses

Regulation and Monitoring of Operations

Collection of Taxes and Royalties

Revenue Management and Allocation

Implementa-tion of Projects and Policies

EITI

Non-renewable resources

Sustainable Development

No problem can be solved by the same consciousness that created it. We must

learn to see the world anew.

– Albert Einstein

All 3 dimensions relevant at all

stages

• Capable institutions

• Accountability

• Technical provisions

Negotiating the best deals for the resources

Developing the resources properly

Collecting and maximizing the

revenues

Managing and sharing the revenues

Achieving sustainable

development

Deciding to extract the resources

The value chain approach

Transparency of policies, processes, decisions and information

Effective monitoring

Participation of those affected by extractive industries

A few examples of accountability innovations

Award of contract and licenses

Regulation and monitoring of operations

Collection of taxes and royalties

Revenue management and allocation

Implementation of sustainable development policies and projects

Liberia: Contract negotiation process includes parliament, media, CSO, government, leadership. Negotiations generally seen as successful.  Parliament must ratify investment contracts after negotiation.

Tanzania: Parliamentary committee (BOMANI committee) published detailed report on overall contributions of the EI sector to Tanzania in 2008. Distributed in local language, generated much debate at government and CSO level. Included a public hearing.

Ghana: District level reporting templates for data collection that captured the receipts and utilization of the extractive wealth sent to communities affected by the mining sector.

Uganda: Participatory budgeting required by national guidelines. In Entebbe, multi-stakeholder process of budget outreach, prioritization and monitoring.

DRC: South Kivu Steering Committee for the ongoing citizen diagnostics on the quality and integrity of public services at the provincial level.

Mongolia: Local think tank is being established dedicated to mining sector issues . Public discussions and debates around EI.

Philippines: Procurement watch monitors procurement processes, provides policy analysis, technical assistance, advocacy support, as well as the conduct of information campaigns. Board with all stakeholders.

StrongAccountability

Dynamics

Improved state

Status quo

Compromised

Accountability

Dynamics

Navigating the HOW

How do you get strong accountability along the value chain?

Group of multi-stakeholder leaders with

complementary skills to

implement transparency and

accountability actions

A new partnership on the ‘how to’ of multi-stakeholder governance innovations for extractive industries

Objective:

• Improve country capacity to enhance transparency, accountability and

participation along the EI value chain through multi-stakeholder governance.

Key expected results:

• Better understanding on the ‘how to’ of EI governance innovations.

• Implementation of actions and reforms for greater transparency and accountability in EI in target

countries.

• Better locally owned processes and plans that sustain active

stakeholder participation in EI good governance monitoring.

• Increased individual and collective competency among stakeholders

in working together on EI governance.

Role of WBI:

• Facilitate and support the process of coming together and jointly

analyze, prioritize and facilitate accountability actions.

• Promote experience exchange across countries and regions.

• Together with a network of experts provide training and assistance as

needed.

• Analyze governance gaps and reform entry points

• Prioritize & develop action plans

Planning

• Stakeholders come together

• Foundation workshop

Scoping Monitoring• Evaluate and

feedback

Implementing• Undertake joint

actions• Strengthen

leadership skills• Institutionalize

solutions• Share

experiences & help each other

Action learning is at the core of the program

Country LevelRegional and global support structure

Practitioners networkOnline knowledge platform

Technical and change management support

Next steps:

• Consultation workshop in Accra in December 2009

• Launch of program in Spring/Summer 2011

• Focus on establishing ‘clubs’ to work on a few critical spots on value chain

Potential priority countries from among:

• Democratic Republic of the Congo

• Ghana• Mozambique• Burkina Faso• Zambia• Liberia

Multi-stakeholder Engagement for Improved Governance along the Value Chain

YOUR EXPERIENCES….

Questions

Does the proposed program approach address needs on the ground?

What are your experiences with and examples of multi-stakeholder innovations that go beyond EITI and aim to improve transparency and accountability in the extractive sector?

Where do you see opportunities for multi-stakeholder engagement to address governance challenges along the value chain in your countries? Which kind of support would your organization need to better tackle these challenges?

  Do you have case studies or other materials on your multi-

stakeholder experiences that you can share and which would benefit other EI practitioners?

Thank you!

Michael D. JarvisPrivate Sector Development Specialist

World Bank Institute

mjarvis@worldbank.orgTel. (202) 473-5383

Transparency of policies, processes, decisions and information

PINPOINTINGVULNERABILITIES SOLUTIONS

• Are new discoveries made public? • Is the decision to extract made in an open manner?

• Mandatory publishing of all discoveries and their size, supported by early communication between companies, government, civil society and media.

• Consultations, such public hearings, are held prior to contracting phase.

• Is there discretionary allocation of contracts and licenses to extract resources? • Stakeholders consulted in decision making process to ensure that tender/ license process are monitored publicly and that fiscal provisions of contracts are published.

• Regular publication of details of contracts / licenses awarded.

• Is there a history of corruption in the sector, e.g. In award of service contracts? • Clear rules on transparency of processes across the value chain, especially at the contracting and revenue management stages. Processes and rules to be developed with input from stakeholders.

• Government enforcement agencies work with civil society and media to expose incidences of corruption and apply anti-corruption laws and code of conducts.

• Public-private dialogues for business environment reforms to reduce red tape and potential for corruption.

• Implement transparency initiatives, such as integrity pacts.• Benchmarking of service company costs.

• Is it clear who pays what and to whom? Is there inefficient revenue collection?• Do stakeholders trust reports on who is really paying what to whom?

• Implementation of the Extractive Industries Transparency Initiative (EITI).• Extension of EITI to cover any transfers between national and sub-national

governments.• Minimize number of accounts that revenues are paid into.• Regular auditing and reconciliation of treasury and company accounts, as well

as accounts of any revenue savings / stabilization funds. This could include training of CSOs, professional or business associations, local academia and media.

• Failure to credit investors with full impact of their investments – stakeholders see only contribution to budget; contribution through local CSR projects; or flow-on benefits from investment – but rarely see combined contribution of all three.

• Implementation of EITI. Valuing and publishing detail of (i) revenues generated; (ii) total investment; and (iii) non-fiscal benefits (e.g. company CSR programs).

• Are government agencies and state-owned companies secretive about their decisions and procedures?

• Work with CSOs, private sector and other stakeholders to advocate for freedom of information laws to ensure that all major decision, documents and processes are regularly made public.

• Politicians and senior officials required to regularly declare assets and commercial interests.

PINPOINTINGVULNERABILITIES SOLUTIONS

• Does government lack the capacity or incentives to (i) negotiate a fair contract, (ii) identify and attract high quality investors and (iii) maximize development impact using EI revenues?

• Involve stakeholder in contract negotiation process as monitors, particular local communities.

• Legislative oversight of sector, e.g. approval of major concessions.

• Defer development until capacity has been developed and comprehensive investment framework is defined.

• Work with donors to improve internal capacity to attract high quality investors.

• Implement social accountability measures, such as citizen report cards, third/peer monitoring, to improve oversight of service delivery.

• Are institutions overdesigned, leading to:(i) overlapping regulatory mandates or gaps; (ii) institutional turf wars; (iii) weak oversight; (iv) opportunities for mismanagement and corruption;(v) laws don’t match institutions?

• Establish unified accountability institutions i.e. that have responsibility for all agencies involved in oversight.

• Work with parliament and other stakeholders to design and implement sector laws that clearly define the role of individual institutions.

• Initiate advocacy campaigns to establish unified accountability institutions – i.e. that have responsibility for all agencies involved in oversight of oil / mining. One potential tool would be multi-stakeholder committees.

• Ensure that the design of the institutional system matches the availability of sustainable capacity and resources.

• Do civil society groups lack the capacity to understand legal, regulatory, financial, technical issues affecting extractive industry projects which can lead to manipulation of civil society groups? Are CSOs being diverted by minor issues and proving unable to exercise accountability over government agencies and companies?

• Technical capacity building programs for civil society groups, including media, trade unions, faith groups on social accountability tools, and the financial and technical intricacies of EI.

• Develop regional partnership between CSOs for peer learning.

Ensuring effective monitoring

PINPOINTINGVULNERABILITIES SOLUTIONS

• Are there mechanisms that enable stakeholders to engage in decision making and monitoring along the EI chain?

• Government and stakeholders from parliament, the private sector, media, CSOs, academia and faith groups design and implement measures, such as citizen diagnostics, participatory budgeting, third party monitoring, public-private dialogue mechanisms, good neighbour agreements, community complaints mechanisms, citizen report and community score cards.

• Parliament forms EI committee and organizes public hearings and question periods, reviews and enacts EI bills and legislation.

• Are local communities involved in EI decisions and do they receive adequate benefits from EI operations?

• Clear consultation with community during licensing process.• Regulations define local consultation requirements of

investors, and clearly establish system for sharing benefits of EI developments with local communities.

• Community monitoring programs focusing on social and environmental impacts and community complaints mechanisms, if necessary with third party involvement.

• Ensuring companies are responsible for addressing any costs borne by local communities.

• Do EI developments fail to use local labor, goods, and services, leading to tensions amongst local communities?

• Clear local content policy that realistically matches available skills and goods to company needs.

• Work with local insitutions to develop skills and enterprise development programs.

Participation of those affected by extractive industries