The EITI in Practice

The EITI initiative is a public private partnership or a multi-stakeholder group between state, companies and civil society. The cooperation of all stakeholder groups addressed through a multi-stakeholder platform was considered one of the most suitable ways for achieving a better and sustainable management in natural resource sector with broader positive spillover effects on the domestic level.

The EITI provides a clear schematic framework with its institutions implemented at both local and global levels. At the international level, the EITI operates through the EITI International Board, which provides checks and balances to protect against abuses at the national level. At the national level, the EITI is represented through the multi-stakeholder group (MSG), which involves states, civil societies and companies. An independent administrator supervised by the MSG reconciles and reports disclosed information (payments and revenues) made by companies and governments in the respective EITI country reports (the EITI website n.d.-b; Olcer, 2009; Locke and Henley, 2013).

Figure 1. EITI Framework

The framework below illustrates the functioning of the EITI processes:

(Table 1: adapted from Olcer, 2009)

It is voluntary for governments to enter the Initiative but all companies and agencies operating in a country implementing the initiative are required to disclose their financial transactions to the implementing country (see EITI website n.d.-b). The cornerstone of the EITI initiative are its 12 principles to increase transparency in the resource sector and its seven requirements which must be met by countries implementing the Initiative. To become a member of the EITI, i.e. to comply, a country intending to implement the EITI must undertake a number of steps which can be broadly categorised into: initiation, implementation and review phases (see EITI Source Book, 2005).

The initiation phase

To become a EITI candidate country, a country must go through four ‘sign-up’ steps and submit an application to the international EITI Board (EITI Standard, 2013). These four steps require the government to make an unequivocal public statement of its intention to implement the EITI; government’s commitment to work with civil society and companies on EITI implementation; the appointment of a senior individual to lead EITI

implementation; the publication of a work plan with measurable targets and an implementation timetable that has been agreed on by the multi-stakeholder group (EITI Standard, 2013). After the government completed these four sign-up steps, it can proceed further with the application to the international EITI Board. The application needs to demonstrate activities with evidences undertaken within the sign-up steps. Once the application satisfied the EITI Board, the country can proceed further to the implementation phase.

The Implementation Phase

The implementation phase consists of the publication of annual reports and periodic audits compiling and evaluating payment and revenue figures from extractive industries and governments. Since the 2013 EITI Conference in Sydney, published EITI reports must contain disaggregated company-by-company data with respect to each company and each revenue stream. The MSG is required to set up the level of disaggregation for the publication of data (EITI Standard, 2013). Additionally, reporting at the project level is to be consistent with US and EU rules and requirements. Under the revised version of EITI standards, state-owned companies (SOEs) are required to report their financial activities (expenditures and revenues) with other government entities. SOEs are also required to disclose their level of ownership in any extractive companies operating in the country (EITI Standard, 2013). In addition, the new provisions further mandate the disclosure of subnational transfers and payments received from transit-related activities in natural resources. Moreover, the new requirements also demand the full disclosure of expenditures for social contributions made by extractive companies (see further EITI Standard, 2013). The implementation phase as such forms a key aspect in pursuing the objective of the EITI—to provide information about the revenues and receipts for the citizens.

The Review Phase

The review phase consists of validation processes. For candidate countries, validation measures progress in their implementation, while for compliant countries, they act as a litmus test of whether or not they are compliant with EITI standards (principles and requirements). When a candidate country meets all the EITI requirements, the Board grants the country the status of EITI compliant. Under the new EITI requirements, EITI compliant countries are required to conduct validation ever three years, instead of every five year as previously (see EITI Standard, 2013; EITI Rules, 2011). In this process, the

EITI Board deserves special attention, as it holds the ultimate power to make a country an EITI candidate, to specify corrective actions or to suspend or delist a country. If the validation report indicates that a country made progress but does not meet all the EITI requirements, the country remains a candidate, or if no meaningful progress was made or where the maximum candidacy period is exceeded, the Board may revoke a country’s candidate status (see the EITI website n.d.-b). The EITI Board members have also the power to suspend or delist a country where significant aspects of the EITI principles and requirements are not met or adhered to by the implementing county (see EITI Report). Following reform (EITI, Standard 2013), the EITI established a new Board Committee and an Outreach and Candidacy Committee which is tasked to review the candidacy of applicant countries and to make amendments if required.

The organisational structure also relies on the World Bank Group and a multi-donor trust fund (MDTF) supported by bilateral and international development agencies and civil society organisations, such as the Revenue Watch Institute, to provide financial and technical assistance to countries implementing or considering implementing the Initiative. One of the key differences of the EITI compared to other transparency initiatives (e.g., the Kimberley process) is the EITI's tripartite structure with an emphasis on civil society. Under the EITI implementation framework, civil society plays an essential role in the design, monitoring and evaluation of the whole EITI process and is tasked to contribute effectively to public debates about the outcomes (see EITI Rules, 2011). In doing so, it entrusts civil society with monitoring and whistle-blowing power enabling it further to constraint the power of political and economic elites (see Carbonnier et al., 2011; Soreide and Truex, 2013). Hence, it is mandatory for governments to ensure that civil society is fully, independently, actively and effectively engaged in the process at all stages of the EITI process (see EITI rules, 2011).

In 2016, the EITI adopted a new set of standards: ‘The EITI Standard, 2016’. The new EITI standards, encourage countries to base EITI reporting on existing reporting systems rather than to duplicate the process through the EITI reporting. The new standards further ensure greater transparency and accountability in all facets of the natural resource sector now including tax transparency, commodity trading and licensing. In addition to this, the new 2016 EITI standards further strengthen validation which ensures that all EITI requirements are met. Under the new EITI, assessment within the validation process pays greater attention to the diversity of EITI members among implementing countries and additional efforts that go beyond minimum standards in EITI implementation. The

ground-breaking new aspect of the Initiative is that now it contains provisions about beneficial ownership that requires disclosure of the full identity of the oil and gas companies operating in EITI countries.

The EITI 2016 Standard state:

“By 1 January 2017, the multi-stakeholder group publishes a roadmap for disclosing beneficial ownership information” (EITI Standard, 2016, p. 20).

“As of 1 January 2020, it is required that implementing countries request, and companies disclose, beneficial ownership information for inclusion in the EITI Report. This applies to corporate entity(ies) that bid for, operate or invest in extractive assets and should include the identity(ies) of their beneficial owner(s), the level of ownership and details about how ownership or control is exerted. Any gaps or weaknesses in reporting on beneficial ownership information must be disclosed in the EITI Report, including naming any entities that failed to submit all or parts of the beneficial ownership information” (EITI Standard, 2016, p. 20).

There are currently 51 resource-rich countries affiliated with the EITI, 31 of them with the status of fully compliant. Kyrgyzstan and Kazakhstan are among the 51 resource- endowed implementing countries under the EITI umbrella. The Initiative is supported by 90 of the world’s largest mining, oil and gas companies, 17 supporting countries, 21 international organisations and 95 blue-chip institutional investors representing over $19 trillion in assets under management (EITI, 2015).

The governments of Kazakhstan and Kyrgyzstan initiated and validated the EITI process and became fully compliant countries. Kazakhstan and Kyrgyzstan are the only Central Asian countries to have implemented the Initiative. Kyrgyzstan was among the pioneering EITI countries that launched the Initiative in 2004. The two post-Soviet countries provide a good example of contemporary authoritarian regimes. They are resource-rich and suffer from weak governance institutions, corruption and poor socio-economic development. In addition to this, Communist legacies still shape both countries. Corruption in these countries is described as an ‘omnipresent phenomenon’, the adoption of the EITI was hence viewed as a progressive movement and much acclaimed both nationally and internationally. However, despite the adoption of the Initiative, none of these countries achieved significant levels of improvement. According to Transparency International, both states are the highest ranking countries in their corruption performance index (see

Transparency International, 2015a; Transparency International, 2015b). Recent studies on the EITI and wider transnational anti-corruption regimes note that the lack of improvement is caused by the important role that patronage networks play in those countries implementing measures (see Pleines and Wostheinrich, 2016). Kerem Oge (2014, p. 1496) in his study on the EITI in Azerbaijan concludes that “institutions are very resistant to change, especially in countries where power is concentrated”. Such observations provide a perspective to address the functioning of global governance initiatives in practice: How does such a form of global governance coagulate in the domestic context and whose constituencies does it serve?

Conclusion

The present chapter provided an overview of the EITI as a global governance transparency initiative. Michael Zurnand colleagues (2012, p. 7) note that dynamics of the transnational rule of law embed mechanisms, modalities and processes promoting the rule of law. As such this also includes the recipient actors (states, transnational actors and institutions), and how they react (resistance, reception or adaptation) to the promotion of the rule of law both internally and externally.

On paper, the EITI provides a very clear institutional design for its participants to follow, however how it is enforced and translated into practice remains to be explored. Further, there is a lack of evidence about the extent to which transnational standards and procedural conditions as formulated in the EITI documents affect the behaviour of recipient states? And to what extent recipient states are committed to non-binding declarations and ideals expressed under the EITI? The procedural standardisation of EITI takes place at the contextual level, however echoing Yurchak’s analysis (2006) here the meaning of an act is never determined in advanced because of the indeterminacy of the context. Hence, the EITI process and its standardisation only assume concrete meaning within the context in which it is implemented. Given the social, political and economic context of Kazakhstan and Kyrgyzstan as implementing countries, the EITI provides an excellent avenue to study empirically how its schematic and procedural provisions are transferred to and interpreted in these countries. Consequently, the enquiry further aims to answer what meaning and function standardised governance initiatives acquire in such contexts?

Therefore, there is a need to examine the institutional configuration of global governance in practice and critically analyse the relationship and role of different actors within. In

doing so, the thesis questions and reflects on the underlying logic of global governance initiatives and their functioning within authoritarian contexts. Against this backdrop, it becomes then increasingly relevant to study the functioning of the EITI as a global governance initiative to answer the central research question formulated in this thesis. The subsequent chapters (Chapter 5 and Chapter 6) focus on the functioning of the Initiative in the post-Soviet and authoritarian states of Kazakhstan and Kyrgyzstan. However, before the analysis is presented in the empirical chapters let me first introduce the research design that guides my empirical enquiry.