Upload
anthony-kimuli
View
6
Download
0
Embed Size (px)
Citation preview
Extractive industries value chain and SAI’s response to facilitate sustainable growth
Risk identification along the value
chainKimuli Anthony - OAGU
Illicit Financial Flows (IFFs) from Developing Countries
10-year period (2004-2013), DCs lost US$7.8 tn
Source: GFI -2015
Other statistics• IFFs have exceeded FDI & ODA—
combined—for 7 of the 10 years of this study.
• for every dollar of ODA that entered the developing world in 2012, ten dollars flowed out illicitly
• of the USD 1.1tn IFFs leaving DCs annually 83.5% is caused by Misinvoicing
(Import Over-Invoicing Export + Under-Invoicing)
EI Value Chain - Risks
• Non Existing Laws & Regulations
• Un-updated and alignment laws,
regulations & contracts (40 yrs)
• Unclear and conflicting roles &
Responsibilities – NOC, SAI, GA,
IOC
Legal Framework
EI Value Chain Risks•Acquisition, processing and storage
of data not controlled by government
•Update of data
•Sale of data not transparent
•EIAs not developed, comprehensive
risks identified, constantly updated
and reported on regularly
•Surveys may not be carried out in an
efficient manner – (cost benefit)
Seismic Surveys &
Data Management
EI Value Chain - Risks• Tenders or contracts awarded through Non
competitive processes, biddable terms not
clear,
• Awarding of license to unsuitable bidder/s
speculation.
• Poorly negotiated agreements- progressive
vs regressive, non transparent regimes,
incentives awarded not fair, unbalanced
contract terms.
• Sale or Transfer of ownership of assets – eg
Congo case, Companies reg. in tax havens?
AWARD OF CONTRACTS & LICENSES
EI Value Chain - Risks
• An open pit at the Tenke Fungurume mine. Freeport-
McMoRan Inc.
• The largest copper mine in the Democratic
Republic of Congo ( Photo by Reuters)
AWARD OF CONTRACTS & LICENSES
EI Value Chain - Risks
AWARD OF CONTRACT
S & LICENSES
Freeport McMoran
TF -Holdings
Tenke FungurumeMine
Govt
70%
80%20%
CMOCUSD2.65bn
EI Value Chain - Risks• Limited capacity of Government to monitor and
enforce compliance, duplication of roles, gaps
• Lack of International Standards of technical
procurement, accounting, environmental mgt
• Inaccurate reporting of production and export
volumes and quantities, valuation of minerals
and hydrocarbons.
• diversion of production volumes
• Health & Safety standards not applied (EIA not
followed)
• Performance bonds & Penalties not enforced
MONITORING OF
OPERATIONS
EI Value Chain - Risks• Export Under-invoicing and or import over-
invoicing. Contributes over 83% of IFF (GFI
Dec 2015)
• Cost oil & transfer pricing related risks,
underlifts/overlifts
• Tax evasion- 10 largest EI cos control over
6000 subsidiaries (Oxfam) and 1/3 were
located in tax havens and or secrecy
jurisdictions, DTA treaties
• Price controls create hoarding & stock outs
• unusual reliance on middlemen (prices differ
from market prices)
COLLECTION OF TAXES & ROYALTIES
EI Value Chain – Risks
• In the past two decades, Switzerland has
become the world’s largest commodity hub
(also secrecy jurisdiction)• Merchanting or Transit trade (receipts x15 in
10ys btn 2001-11
Collection of
Revenues (Taxes
and royalty)
Merchant
Producer BuyerGoods
Source: Estimating Illicit Flows of Capital via Trade Mispricing: A Forensic Analysis of Data on Switzerland Jan 2014
EI Value Chain - Risks
• According to an Audit report by Grant Thorton &
others (2010) a Swiss based trader on its Mopani
mine business in Zambia- doubtful inflated
expenses/costs, doubtful revenues (declared prices
are not consistent with market pricing btn unrelated
parties)
• Zambia’s production grew and the world price of
copper rose with the commodity boom of the
2000s, Switzerland came to account for more than
half of Zambia’s exports (from a base of 0).
COLLECTION OF TAXES & ROYALTIES
EI Value Chain - Risks• Lack of a separate EI Fund
• Temptation to overspend, or borrow
(mortgage future revenues) in
anticipation, MTEF not followed
• Little transparency on allocation of funds
leading to social and economic
inequalities
• Lack of investment policies
• Low capacity to absorb funds at local
communities
REVENUE MANAGEMENT & ALLOCATION
EI Value Chain - Risks
• Limited diversification of economy
• Local Content not integrated
• Gender (world bank)
• Environmental issues –
Decommissioning costs not provided for,
eg USA 161,000 abandoned mines -
waste & pollution mgt
• Limited use of renewables
Implementation of
Sustainable Developmen
t Policies And
Projects