A Norway-based non-profit organization that advocates greater transparency of payments from oil, gas and mineral resource production has temporarily suspended the Democratic Republic of the Congo (DRC) for failing to comply with its global financial reporting benchmark.
“The DRC still receives shockingly little for its mineral resources," Clare Short, former Labour Party member of the U.K. Parliament and chair of the Extractive Industries Transparency Initiative (EITI) board, said in a written statement. Short and other EITI board members voted to suspend DRC April 18.
"It is not surprising that there are great challenges for the DRC to produce reliable and comprehensive EITI reports, but it is making progress and generating important debate," continued Short. "As the data becomes more reliable and more comprehensive and the debate more widespread, the EITI will help identify areas for improvement in the government and company systems and create momentum for reform. Alongside government efforts on contract and license transparency and other reforms, the EITI in the DRC could be a powerful tool for a better governed sector.”
Supported by various companies, governments and civil society groups, EITI applies what it calls a "global standard" for reporting natural resources revenues. In order to meet this standard, companies disclose payments to governments and governments disclose the receipt of these payments. A published EITI report independently verifies and reconciles these tax and royalty payments. The organization's board voted to suspend DRC after reviewing the West African country's latest validation report. In order for DRC to achieve compliance with EITI's transparency criteria, the government and natural resources companies in the country must implement a series of corrective actions within the next 12 months.
The actions necessary to lift the suspension focus on better EITI reporting, Anders Tunold Kråkenes, EITI Secretariat spokesman, told Rigzone. Kråkenes applauded government tax agencies in DRC and companies operating there for making "significant progress" in advancing transparency.
In fact, the board recognized that the DRC government and other stakeholders have demonstrated their commitment to EITI's Principles and Criteria. Nevertheless, the vote signifies the board's recognition that the release of relevant data to date fails to meet EITI's reporting norms. If the suspension remains in effect beyond April 17, 2014, the EITI will consider delisting DRC. In that event, DRC would lose its status as an EITI candidate country and would no longer hold the designation of an EITI implementing country.
"[M]ore must be done to ensure that both companies and the state tax agencies fully participate in the disclosure of mutually agreed fiscal data, and to prove that the figures they publish are both complete and reliable," Kråkenes explained. "While the government is responsible for implementing the EITI, the onus is on both sides to make the EITI work. The next occasion to contribute will be the upcoming 2011 EITI report."
"The EITI is a standard for reliably measuring the level of transparency and accountability of a country’s fiscal management," Kråkenes said. "The board is sending the message that DRC has to improve the quality of EITI reporting to fully meet the requirements of the standard. The board also welcomes that the EITI is a key part of the DRC government’s current efforts to reform the oil, gas and mining sectors. EITI stakeholders have made meaningful progress in a challenging and complex environment."
DRC became an EITI candidate country in 2008 and has since completed the organization's validation process twice. Three EITI reports disclose revenue figures from DRC's extractives sector.
Kråkenes acknowledged the temporary suspension will have no near-term practical effect on oil and gas companies operating in DRC.
"Nothing will change," he said. "DRC remains an EITI implementing country and is already preparing for its next EITI report covering the fiscal year 2011. Oil, gas and mining companies and governments will soon again be asked to publish what they pay and receive in taxes, fees and royalties. In fact, only with an improved next EITI report can DRC aspire to finally become EITI-compliant, so cooperation by all reporting parties is more essential than ever."
Kråkenes added, however, that operating in a country that has earned EITI's imprimatur is a clear benefit for resources companies.
"Without an EITI process, oil and gas companies would miss out on an important tool that gives them more certainty about their fiscal obligations and the stability of their investments," Kråkenes said. "Oil and gas companies have formed an interest group to actively participate in deciding the direction of the EITI process in DRC. They contribute financially to the implementation in the DRC."
In addition to DRC, other countries under suspension by EITI include Central African Republic, Madagascar, Mauritania, Sierra Leone and Yemen.
(EDITOR'S NOTE: To learn more about the state of transparency in the oil and gas industry, check out this August 2012 article in Rigzone.)
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