The Extractive Industries Value Chain

Dr. Ingilab AhmadovWorld Bank Annual Conference for

ParliamentariansBaku, May 23, 2013

Outline

What is Extractive Industries (EI) Value Chain? Why value chain approach? EITI in value chain Who are the actors and how they can be

engaged in EI development? What could be the role of MPs in value chain?

What is EI Value Chain?

EI value chain

Getting a good deal

Ensuring revenue transparency

Managing Volatile resources

Deciding to extract

Investing in sustainable development

Advantages of Value Chain Approach

- diagnostic tool for governments and civil society to assess policy options and trade-offs for managing their natural resources

- advocacy tool to pin-point the challenges and prioritize places for engagement.

Non-renewable resources

Non-renewable resources

Sustainable developmentSustainable development

History In 2007, in his book The Bottom Billion, Paul

Collier told about Value Chain approach to

stress the key steps in ensuring that natural

resource wealth transforms into citizen

wellbeing.

This framework has since been used as a

reference for other organizations working on

natural resource governance, such as Revenue

Watch Institute, the World Bank, and EITI.

Components of EI Value Chain

Deciding to extract

Getting a good deal

Ensuring revenue transparency

Managing volatile resources

Investing for sustainable development

Decision to extract

•Making correct decision whether to extract or not

•Being transparent on possible environmental and social impacts

•Explaining how the project will work

Getting a good deal

• Open tender process

• Getting the best deal

• Being transparent and responsible for present and future of contracts

• Ultimate result – signing the contract providing maximum benefit for country and society

Ensuring revenue transparency

• Transparency of payments from EI companies to the Government

• • EITI fully covers this stage through disclosure of

systematic, regular and qualitative reports of companies and government

• An independent administrator (reconciler) checks the payments by companies with receiving of Governments, to make sure the credibility of this process

Managing volatile resources

• Oil & gas and mining revenues are volatile by nature

• Solution of volatility problem; mitigate a fluctuations and ensure more or less smooth public expenditures

• Deciding on optimal proportion between saving and spending - What is fiscal regime?

• Sovereign Wealth Fund and its role in public finance structure

Investing for sustainable development

• Taking into account the fact that natural resources are non – renewable

• From subsoil resources to sustainable development and prosperity

• Diversification of economy

• Identifying priorities of national economy beyond the extractive industry?

• Achieving sustainable development in resource rich countries

Key actors at Value Chain

+Local and international civil societyInternational organizations

Governments Companies

Citizens Investors

Endnote

• The EI value chain is not a theory, but practical tool to improve EI management

• The success of each EI value chain component cannot guaranty a desirable sustainable development

• The overall performance through Value Chain is measured by the level of its worst implemented component.

Parliaments and Extractive Industry

• Parliamentarians as a law makers

• Parliamentarians as an Oversight Body over Oil & Gas and Mineral extraction

• Paying attention to specifics of Extractive Industries: finite, generate rent, huge & volatile revenues

• Opportunity: How can oil & gas mining sustain national development?

The Sequence of Government Decisions

Get a good deal

Collect the

revenues

Spend the

revenues

correctly

Licensing Fiscal regimes

EITI Natural Resource Funds

Legislation

Contracts

How to oversee?Access to contracts for exercising duties effectivelyRatification by ParliamentPossible influence to contract terms

Participation at EITIPushing for broader EITIQuestioning the government on how findingsand recommendations are being addressedPassing an EITI law

Passing good revenue management lawMonitoring use of oil revenuesWatching the Natural Resource Funds

Budget process; selecting correct prioritiesWatching budget execution effectiveness of budget spending

Getting a good deal

Ensuring revenue transparency

Managing Volatile resources

Investing in sustainable development

Thank you!