Many countries badly mismanage oil, mining resources

Published by MAC on 2013-05-21
Source: IPS, Reuters, statement, Irrawaddy

Burma does it worst

Resource Management Central to Equitable Development

By Carey L. Biron

IPS News

16 May 2013

WASHINGTON - Trillions of dollars a year are being produced through extractive industries, but just a tiny percentage of this money is impacting on the lives of poor communities in developing countries, according to a first-of-its-kind study released Wednesday.

The revenues being produced by exploiting natural resources in developing countries already massively outweigh development-focused foreign aid flows. But according to new research from the Revenue Watch Institute, a global watchdog group, there is a startling correlation between economic dependency on natural resources and low human development indicators.

"The 58 countries [studied] produce 85 percent of the world's petroleum, 90 percent of diamonds and 80 percent of copper. Profits from their extractive sector totaled more than $2.6 trillion in 2010," according to Revenue Watch's new Resource Governance Index, unveiled here Wednesday.

"Revenues from natural resources dwarf international aid: In 2011, oil revenues for Nigeria alone were 60 percent higher than total international aid to all of sub-Saharan Africa. The future of these countries depends on how well they manage their oil, gas and minerals."

Of those 58 countries, more than 80 percent have reportedly failed to put in place satisfactory standards for openness in these sectors - and half haven't even taken basic steps in this regard.

Revenue Watch analysts say the findings constitute a "striking governance deficit". While such problems have been widely known on an anecdotal basis, this is the first time these issues have been systematically disaggregated and compared.

"The index is a real wake-up call about how far we still have to go in managing public resources effectively and for the betterment of poor populations around the world," Warren Krafchik, director of the International Budget Partnership, a Washington-based project that works to strengthen civil society involvement in public budgeting, told IPS.

"Particularly now after the global financial crisis, this data shines a big spotlight on how, while resources can still be transferred from the Global North to the South, the fact is that the South is sitting on really substantial resources of its own. The challenge is how to use those effectively."

The new data highlight a real opportunity to do something "fundamental" about global poverty, Krafchik notes.

"It's really not the amount of public resources that's available that's the primary obstacle to overcoming extreme poverty," he says. "The issue is how those resources are managed and distributed."

Similarly, several analysts are suggesting the data could influence discussion on the new international development agenda following the expiration of the Millennium Development Goals (MDGs) in 2015.

"We're talking about real money here - foreign aid can be used as leverage, but the domestic resources issue is absolutely key," Daniel Kaufmann, president of the Revenue Watch Institute, told a Washington audience Wednesday.

"Clearly, 2.6 trillion dollars has major transformative potential in terms of translating these natural resources riches into human capital. Further, oil-rich states are three times less likely to democratise than are the non-oil-rich, so this matters from a political standpoint, too. This is the development challenge of the decade."

No resource curse

In terms of extractives governance, particular problems appear to be concentrated in northern and southern Africa and the Middle East. Latin America, on the other hand, is seen as generally doing better, with Brazil, Mexico, Chile, Colombia and Trinidad & Tobago all ranked in the top 10.

The index is topped by developed countries, with Norway, the United States (though only regarding its extractives work in the Gulf of Mexico) and the United Kingdom the only countries rated satisfactory on all indicators. Australia and Canada (though only its sector in Alberta) are also in the top 10.

However, the governance findings are more complex, and more interesting, than a simple breakdown of poor versus rich countries. Kaufman says the data rejects "the tired notion of the deterministic ‘resource curse'".

"The silver lining here is that there's variation - a number of countries have satisfactory performance, and those are in diverse contexts, including in emerging economies," he notes.

"Among those that perform poorly are some very rich countries, particularly in the Gulf. Just being rich isn't necessarily an indication that a country is performing well, and being a developing country isn't a rationale for doing poorly."

While many are suggesting that the new index will provide an important tool for identifying country-level problems, debate remains over how to rectify these issues. While political will in affected countries will clearly be a paramount factor, potential roles for the international community are less clear.

According to numbers offered at a panel discussion here on Wednesday, foreign assistance won't necessarily offer significant leverage towards greater compliance.

"Of the 46 countries with below satisfactory levels on this index, just six have external assistance levels greater than five percent of gross domestic product, and only three are higher than 15 percent," George Ingram, a senior fellow at the Brooking Institution, a think tank here, said, suggesting this route of influence is a "dead end".

"However, that money can be used to enhance the performance of government capability ... For instance, on taxation, there is a new movement of acknowledging that we need to help developing countries develop their capacity to develop their own revenues."

Over the past decade, international discussion on natural resources governance has coalesced around a set of standards known as the Extractive Industries Transparency Initiative (EITI). According to the EITI website, 21 countries are currently considered compliant with the initiative, while another 16 are pending candidates.

Yet EITI is still codifying its standards, and several EITI-compliant countries fared poorly on the new Governance Index. Advocates are particularly calling for the inclusion of contracts in the EITI transparency requirements, and several such major reforms will be discussed next week at an EITI board meeting in Australia.

Revenue Watch and others say the most potent role in ensuring government accountability in this regard will fall to national-level civil society.

"Control over resources traditionally meant power, and the incentives for politicians to give that up are really low," Carlos Pascual, a U.S. State Department official, said Wednesday.

"You have to create different incentive structures, and changing that equation will have to strengthen the role of civil society and the political processes by which pressures can be brought on politicians to link their ability to stay in government with how they manage the resource base. We're at the very beginning right now on thinking about what the best models may be ... but at least we're starting to have that discussion."

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Many countries badly mismanage oil, mining resources: study

By Valerie Volcovici

Reuters

15 May 2013

WASHINGTON - More than 80 percent of the world's major oil and gas-producing and mining countries fail to meet "satisfactory standards" for managing their natural resources, according to a report tracking global resource mismanagement and corruption.

New York-based Revenue Watch Institute released its first Resource Governance Index on Wednesday, which scores and ranks 58 countries according to the level of transparency and accountability in their oil, gas and mining sectors.

The index, which is to be released annually from this year, is designed to help commodity-rich countries avoid the so-called "resource curse," when their promising economies grow only slowly because of poor institutional oversight.

"The lives of over a billion citizens could be transformed if their governments managed their oil, gas and minerals in a more open, accountable manner," Revenue Watch said.

The index scores countries on a scale of 1 to 100, with Norway ranking as the top performer on governance with 98, followed by the United States at 92. Myanmar was lowest with a score of 4, just below Turkmenistan.

Countries are judged on four factors: legal framework, transparency levels, government checks and balances, and governance. Only 11 of the 58 countries scored above the "satisfactory" score of 70, according to the group.

"More than half the sample, 32 countries, do not meet even basic standards of resource governance, performing weakly or even failing," the report said.

The worst performing countries on the index also rely almost exclusively on natural resources as their main source of income, according to Revenue Watch, adding that if their governments improved the way they manage these resources, it would make a significant difference in their economic development.

The index cited as an example Nigeria, whose oil revenues were 60 percent higher than total international aid to sub-Saharan Africa in 2011.

Revenue Watch also highlights Saudi Arabia and Afghanistan, placing them 48th and 49th in the rankings.

Even highly-ranked countries did not escape criticism.

"Countries like Canada, the U.S. and Australia also need to ensure their multinational companies do not facilitate the opacity found in many countries where they operate," said Daniel Kaufmann, president of Revenue Watch.

Kaufmann said in an interview said that measures in these and other countries to ensure transparency in contracts will be crucial for improving resource governance in resource-rich countries.

He pointed to a section of the 2010 U.S. Dodd-Frank Act that requires companies registered with regulators to publicly report how much they pay governments for access to oil, gas and minerals. That enables investors to assess risk.

A federal court last month declined to hear a challenge by the U.S. trade groups to the measure and referred the case to a lower court.

Kaufmann said the impact of the U.S. provision will be global.

"It will affect all the multinational companies listed in the U.S.," he said, and while will not result in immediate full transparency abroad, in three to five years it might turn out to be a "game changer."

(Reporting by Valerie Volcovici; Editing by Richard Pullin and Steve Orlofsky)

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Myanmar Lowest Ranking Nation in Resource Governance

Revenue Watch Institute

16 May 2013

CHIANG MAI, THAILAND - Myanmar was given the lowest resource governance ranking in the world according to a new index, released by the Revenue Watch Institute. The Shwe Gas Movement, which monitors Burmese natural resources, stated the result shows it is premature to invest in the resource rich country before structures are in place to manage large funds transparently and sustainably.

Revenue Watch's Resource Governance Index measures the quality of governance in the oil, gas and mining sector of 58 countries worldwide. Together these nations produce 85 percent of the world's oil, 90 percent of diamonds and 80 percent of copper, generating trillions of dollars annually. Each country, from Norway to Myanmar, is ranked according to four criteria:

-Institutional and Legal Setting: Laws and systems that facilitate open, accountable government

-Reporting Practices: The information governments actually share with the public

-Safeguards and Quality Controls: The checks and balances in place to follow the money

-Enabling Environment: The broader policies and practices that support democracy, transparency, accountability and rule of law

Myanmar received a failing score on every criteria, consistently ranking either 57 or 58. The Index attributes this failure to the overall lack of coherent legislation and the government's unwill ingness to disclose information about state-owned enterprises. The report further states:

Almost no information is available on the management of the extractive sector. Myanmar has no freedom of information law, and environmental and social impact assessments are not required... It is unclear which authority receives payments from extractive companies. It is widely assumed that corruption is rampant in the sector.

The threat of the resource curse in resource rich countries is widely recognized. Although Myanmar needs revenue to fight poverty and promote sustainable development, the index highlights weak institutions, corruption and a lack of transparency and accountability, which could undermine sustainable development and democratization.

The majority of Myanmar's natural resources are located in ethnic regions where civil war has raged for decades. Currently the central government and some ethnic armed groups have begun formal talks to seek political solutions. "There are neither structures in place to manage funds transparently nor political reforms to ensure regional benefits and controls for the resource producing states," said Wong Aung of the Shwe Gas Movement and continued, "The sale of natural resources before comprehensive political agreements is threatening to derail fragile peace negotiations."

"The Index research reveals a governance deficit in how transparent and accountable countries are with their natural resources," said Daniel Kaufmann, president of Revenue Watch. "The Index analysis not only shows where we are now, but points out ways forward for countries, companies and global initiatives, and this matters because improved governance in natural resources is arguably the development challenge of this decade," Kaufmann said.

The Index offers recommendations for both highly ranked countries like Brazil and low-ranking countries like Myanmar .

From disclosing contracts to passing a freedom of information act to improving state-owned company oversight, there are many ways for governments of resource-rich countries to become more effective and accountable to their citizens.

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Burma's Natural Resources Sector Ranked Least Transparent in Global Study

By Seamus Martov

The Irrawaddy

16 May 2013

A just-released study examining transparency in the global natural resources sector has found that Burma holds the worst record for disclosure and accountability out of 58 nations examined.

The survey, conducted by the Revenue Watch Institute (RWI), ranked Burma's transparency levels lower than Turkmenistan, Equatorial Guinea and Zimbabwe, all of which are infamous for their blatantly corrupt extractive sectors.

RWI's study looked at a list of indicators including the level of information that governments share with the general public about natural resource projects, from the amount of revenues raised to the process by which projects are approved and regulated. Burma consistently ran ked at the very bottom of every criterion measured and received an overall failing grade in every category.

RWI is a nonprofit policy institute headquartered in the United States with offices in Africa and Europe. Its aim is to promote "the effective, transparent and accountable management of oil, gas and mineral resources for the public good."

RWI attributed Burma's poor showing on the annual index to the government's consistent refusal to disclose even basic information about large scale resources projects, and a failure to follow international standards and guidelines.

According to RWI, in Burma "almost no information is available on the management of the extractive sector. Myanmar has no freedom of information law, and environmental and social impact assessments are not required."

At present, billions of dollars in revenue are flowing into Burmese government coffers from the Yadana and Yetagun natural gas pipelines, which send gas to Thailand. Acc ording to the study, however, "It is unclear which authority receives payments from extractive companies. It is widely assumed that corruption is rampant in the sector."

Burma's government has acknowledged that from 2006 to present it received more than US$19 billion from the sale of natural gas to Thailand. How this money was spent and where it ended up remains shrouded in mystery.

In 2009, the US-based legal rights NGO, EarthRights International (ERI), accused the Singapore-based Oversea-Chinese Banking Corporation (OCBC) of assisting Gen Than Shwe's military regime in hiding the billions of dollars in revenue it received from the lucrative Yadana pipeline, which continues to be operated by France's Total, the US firm Chevron and Thailand's state-owned oil firm.

While President Thein Sein's government has embarked on a series of reforms since coming to power two years ago, the poor showing on the RWI index supports activists' claims that corruption remain s widespread in Burma's lucrative energy sector. At a press conference in the northern Thai city of Chiang Mai on Thursday, Wong Aung of the Shwe Gas Movement called the current level of governance and accountability in Burma's natural resources sector "completely unacceptable."

Wong Aung, whose advocacy organization provided some research for the RWI report, said his group is very concerned with what the government will do with the vast revenues it will receive from the Shwe oil and gas pipeline project, which will send fuel from Burma's Arakan State coast to China's Yunnan province.

The controversial project, led by China's state-owned China National Petroleum Corporation (CNPC) with partners including South Korea's Daewoo and a Burmese state-owned firm, is supposed to be ready soon. The project, which will cost more $3 billion, has been marked by a lack of disclosure and transparency from the very beginning, Wong Aung said.

"The projects are backed by mi litary cronies so when we try to push for disclosure of revenue information we face a very hard time," Wong Aung explained.

The recent lifting of most Western sanctions against Burma over the past 12 months has created a situation where there is a great deal of interest from foreign firms seeking to invest in Burma. According to Wong Aung, however, little has actually changed under President Thein Sein's nominally civilian government with regard to the way it handles accountability issues in the natural resource sector.

"There are still a lot of problems with mining as well as oil and gas projects in different parts of the country that affect local people who are losing their livelihoods," he said.

While Burma's nominally civilian government has indicated a willingness to commit itself to the Extractive Industries Transparency Initiative (EITI)-a voluntary framework that sets minimum standards on financial disclosure for nations that sign on-doubts remain a s to whether Burma will actually follow through.

Paul Donowitz, campaign director for ERI, a group that has focused on Burma's extractive sector for more than 15 years, believes significant policy changes need to be made by the government before Burma achieves a level of disclosure consistent with the EITI.

Donowitz wants Myanmar Oil and Gas Enterprise (MOGE), the state-owned entity that oversees much of Burma's energy sector, to change the way it operates in accordance with international standards. "Some of the things that MOGE could do immediately, for example, would be around disclosure. They could require in the new contracts, any company that wants to bid has to agree to disclose payments, contracts, assessments."

Whether Burma's government chooses to implement policies that promote transparency remains to be seen. Critics point out that such change is possible. Brazil, a resource-rich nation that was also once run by generals, has scored very well on recent RWI surveys, largely because of transparency rules implemented over the last decade.