Wednesday, July 26, 2017

Extractive Industries Transparency Initiative (EITI) shines light on resource sector

Myanmar's first report under the Extractive Industries Transparency Initiative (EITI) has provided levels of disclosure on companies’ activities “unthinkable” just a few years ago, NGOs and civil society organisations said. But they also see it as only a first step in pulling back the curtain on how Myanmar’s natural resources are managed.

A man works on a gold field in Myanmar. Photo: StaffA man works on a gold field in Myanmar. Photo: Staff

The product of months of data collection by an independent EITI administrator, the inaugural report lays out the revenues, taxes and licences of firms across the oil, gas and mining sectors between April 2013 and March 2014.

“It is very encouraging to see a level of public disclosure on companies’ payments and licences that four years ago would have been unthinkable,” said NGO Global Witness.

Myanmar was accepted as a candidate country with the Extractive Industries Transparency Initiative (EITI) in July 2014. Joining the initiative has been a key piece of President U Thein Sein’s reforms in the resource sector.

The new report profiles extractive companies and details legal ownership. It lists licences and the areas they apply to, and it provides basic information about the awards processes under which licences were given. But although civil society groups have high hopes for Myanmar’s engagement with the EITI, they also had hard words for the inaugural effort.

“Not all the companies active in the natural resource sector are covered in the report,” said a representative from the Myanmar Alliance Transparency Accountability Coalition (MATA), which was part of the multi-stakeholder group (MSG) involved in preparing the EITI report. “This is particularly the case in the mining sector.”

The report chose 30 jade and gem companies and 14 mining firms to be included in the report, but this left out many small-scale companies, she said.

The report covers companies that account for 100 percent of revenue from the oil and gas sectors. But this only required data from 13 companies and three government bodies. In the gems and jade sector EITI estimates its report covers 53pc of revenue from that sector, and 45pc from the mining sector.

Revenues received by the government from the extractive companies that EITI collected data for totalled K3 trillion (US$2.2 billion) – of this 85 percent came from the oil and gas sector, 13pc from gems and jade and 2pc from other minerals.

The EITI report only looked at gem and jade mining companies with revenues of at least K10 billion over the period. The cut-off for other mining firms was K250 million.

“In order to make a comprehensive reconciliation process within the time-frame you have to decide on a threshold,” said U Min Zar Mi, a senior technical policy analyst at EITI in Myanmar. The government has issued over 2000 licences in the mining sector, which has around 200 operating companies, he said. It was simply not possible to include them all in the first report, but the scope of the report would expand with every year, he added.

Click here to download the full Myanmar EITI report and appendix

Data was also lacking for the conflict-ridden jade sector, where the report had made no use of data published by other organisations, the MATA representative said. The report makes no real use of data on jade published by Global Witness or the Harvard Ash Center and Proximity Designs, said Global Witness. The NGO added that it was “bizarre” that the report did “not even reference published government statistics on jade production”.

The data published as part of any formal EITI report must be collected by the independent EITI administrator, said U Min Zar Mi. But an EITI report can make use of other data sources in a “contextual information” section. The contextual section on Myanmar mining, however, simply mentions that “Jade is produced from the Kachin State in upper Myanmar”.

Global Witness in a report published last year said the value of illegal jade in 2014 equated to almost half of Myanmar’s GDP, which the World Bank estimated at $64.33 billion. This makes the US$2.2 billion of revenues covered in the EITI report seem paltry by comparison.

The illegal jade trade is intertwined with the issue of beneficial versus legal ownership. The jade sector and its players have received very little attention, partly because a web of obscure companies and proxy owners make it difficult to work out who is making money, Juman Kubba of Global Witness told The Myanmar Times last year.

The EITI report also struggled with this issue. The global EITI standard for its reports requires legal ownership, but beneficial ownership “falls into the voluntary category”, said U Min Zar Mi.

During an MSG meeting on the Myanmar report, however, civil society groups and the independent EITI administrator had recommend including beneficial ownership in the report. The lack of a set definition for this term means it was not made a requirement, U Min Zar Mi, said.

The result is that the report offers very little information on who really owns companies or the terms of companies’ contracts, Global Witness said.

But U Min Zar Mi noted that these issues do need to be addressed and discussed in future MSG meetings. The MSG included civil society groups, government officials, private sector officials and representatives from the World Bank.

The report does, however, draw attention to state-owned enterprises’ use of “other accounts” in managing the huge proceeds from extractive industries. Of the K3 trillion in extractive revenues tracked by the report, K2.5 trillion were collected by state-owned enterprises (SOE). These SOEs actually transferred slightly more that this figure to the government, because SOEs often function as tax collectors – collecting land taxes from private companies – and have their own projects, said U Min Zar Mi.

The K1.5 trillion of SOEs’ own revenue is mostly held in what the report termed SOEs’ “other accounts”. Parliament has supervision over how the SOEs spend the money in these accounts. But the money cannot be used by government ministries in need of cash, like education or health, said U Min Zar Mi.

Budget Department data from the 2013-14 fiscal year show total “other account” receipts of K2.54 trillion, which was 44pc of total budgeted revenue, the report said. But information on how these accounts function was not provided to EITI, which meant the report could not detail the rules and practices “governing transfers of funds between the SOEs and the State, retained earnings, reinvestment and third-party financing”, the report said.

The EITI report recommends the Ministry of Finance consider whether SOE’s own revenue should be defined as normal budget revenue, and whether more information could be disclosed on “other accounts” in the budget.

Several other recommendations met with approval from Global Witness, including the introduction of an EITI law, extending the scope of coverage of the jade and gems business and using EITI to promote dialogue at the regional level. The whole process of conducting an EITI report has also left Myanmar civil society stronger.

“Civil society has learned a lot in terms of in-depth technical capacity by being involved in the EITI process,” said the MATA representative. “We as a civil society will continue to build technical capacity that will allow us to coordinate and collaborate with other international experts such as Global Witness and the Natural Resource Governance Institute and produce our own technical reports to bring to the government’s attention.”