Papua New Guinea Extractive Industries Transparency Initiative (PNGEITI)

20 September 2018

EITI – An Essential Lubricant In PNG’S Resource Dependent Economy

The power of transparency cannot be undermined because transparency is a barometer for change that serves the interest of the majority as opposed to a tiny minority. In the words of the 7th United Nations Secretary General Kofi Annan, transparency is a powerful tool that can get Africa out of poverty. “By using transparency, suddenly everyone wakes up, the companies and the countries,” Kofi Annan recently quoted in the Süddeutsche Zeitungdiscussing ways on how resource rich Africa can one day no longer need development aid.

The above sentiments in some ways hold true for the extractive industry dependent Papua New Guinea economy. We can follow a different path to that of Africa but the overall aim of making sure that everyone has a fair shake in the country’s mineral and petroleum wealth must be the ultimate aim of the government, development partners, corporations in the mining and petroleum space.

And the Government of Papua New Guinea is not naïve in this regard.

An ambitious National Executive Decision (NEC) in 2013 set the wheels on motion for Papua New Guinea to commit to the Extractive Industries Transparency Initiative (EITI), a global initiative implemented by more than fifty resource rich countries like Papua New Guinea, to promote transparency and accountability around the mining and petroleum value chain.

Implementing countries strive to meet EITI global standards by way of undertaking a number activities- the main one being the publication of an annual EITI country report with recommendations to improve further improvements in successive reports.

The EITI report shows information on how much proceeds along the mining and petroleum value chain, end up where. For example, in accordance with EITI International Standards, a report is expected to record various revenue streams and show how much of the proceeds end up in the government coffers and subsequently boils down to socio economic development. Other contextual information are also reported. For example, an update on the Sovereign Wealth Fund, (SFW) can be found in the PNGEITI 2016 Report and the information on the governments UBS loan can be found in the 2014 Report.

So what does EITI really mean for Papua New Guinea, when specifically looking at the economic benefits that this global standard that promotes transparency and accountability, in the mining and petroleum sectors? The answer is very obvious in that EITI, though without immediate punitive powers, acts as a diagnostics tool to measure the benefits of mining and petroleum activities- in strict compliance with the EITI standards that collectively hold the notion that the “wealth from a country’s natural resources should benefit all its citizens and this requires high standards of transparency and accountability,”.

Papua New Guinea has published four reports covering the fiscal years 2013, 2014, 2015 and 2016 and those reports have recommendations to improve EITI reporting. For example, the first EITI report, called for the Department of Petroleum and Energy to modernize its paper ledger license registry to an electronic registry to avoidimminent possibilities of data loss in the case of a fire. One other example, is that the Department of Finance has been directed to review trust accounts operated by mining and petroleum interest entities. These recommendations (2013) had been endorsed by the NEC in 2017 for respective government agencies to implement. Affected government departments and agencies include the Department of Treasury, Finance, National Planning and Monitoring, the Mineral Resource Authority, the Department of Petroleum and Energy, the Kumul SoEs, the Mineral Resource Development Company and the Department of Mineral Policy and Geohazards Management. Progress in implementing these recommendations are at various stages at the time of writing.

Head of PNG-EITI National Secretariat Mr Lucas Alkan, the man at the focal point of EITI coordination and implementation, says considerable progress is being made to advance EITI activities but he looks at both sides to the coin. He says work to advance EITI in this country is still big relative to the considerable progress made.

“We have made progress but we need to make more” Mr Alkan says.

Mr Alkan says his major task in 2018, with direction and help from the Multi Stakeholder Group, the EITI overseeing body, is to make sure that PNG undergoes the “validation” process by an independent validator to determine whether PNG had made meaningful progress in meeting the global best practice in managing its natural wealth to be admitted as a compliant EITI country.

“Validation is an essential feature of the EITI process. It is intended to provide all stakeholders with an impartial assessment of whether EITI implementation in a country is consistent with the requirements of the EITI Standard,” Mr Alkan says.

The EITI International Board confirmed at its meeting in October 2016 that PNG would undergo Validation under the EITI Standard beginning on 1 April 2018. This work will include a visit to PNG by EITI International based in Oslo, Norway. The visit is tentatively scheduled for April-May 2018.

PNG’s Validation report will, in addition, address the impact of the EITI, the implementation of activities encouraged by the EITI Standard, lessons learned in the EITI implementation, as well as any concerns stakeholders have expressed and recommendations for future implementation of the EITI.

This work will include initial consultations with stakeholders, who will be invited to submit any other documentation they consider relevant.

Without prejudice to the ability of the Board to exercise their discretion to consider all available evidence, the Secretariat should not take into account actions undertaken after the commencement of Validation.

Based on these consultations, the International Secretariat will prepare a report making an initial assessment of progress against requirements in accordance with the Validation Guide. The report will not include an overall assessment of compliance.

The EITI International Board will appoint an Independent Validator through an open, competitive tendering process. The Validator will report to the Board via the Validation Committee. The Validator would then assesses whether the

Secretariat’s initial assessment had been carried out in accordance with the Validation Guide. This will include: a detailed desk review of the relevant documentation for each requirement and the Secretariat’s initial assessment of each requirement, a risk-based approach for spot checks, and further consultations with stakeholders.

The final stage in the process is the review by the EITI Board. The Validation Committee will review the Final Validation Report and the supporting documentation (including the MSG’s comments). The Validation Committee will make a recommendation to the EITI Board on the country’s compliance with the EITI Requirements and, where applicable, any corrective actions required. The EITI Board will make the final determination of whether the requirements were met or not met, and on the country’s overall compliance in accordance with the requirements of the EITI Standard. The initial assessment, Validation Report and associated MSG comments are considered confidential until the Board has reached a decision.

“It’s all systems go-we look forward to that assessment and I am positive that PNG will be given a reasonable ranking” Mr Alkan says.

Reports, Recommendations, Reforms: How The EITI Is Improving PNG’s Natural Resource Management

Before Papua New Guinea signed up to implement the Extractive Industries Transparency Initiative EITI Standard in 2013, there was no framework in place for disclosure of revenue streams from the country’s mining and petroleum sectors. Nor was information on how much proceeds end up in the government budget or spending for socio-economic development readily available.

EITI is a global organisation established in 2002 with a goal of increasing industry transparency and accountability in the mining and petroleum value chain. Countries participate by issuing annual reports reconciling payments from the extractive industries to receipts by governments, in accordance with the EITI Standard.

Through participation in EITI, Papua New Guinea (PNG) is seeking to improve public understanding of the management of the extractive industries, increase the accountability of both government and industry, and improve the attractiveness of PNG as a destination for foreign investment.

Since 2013, government support for extractive sector transparency, both in terms of policy decisions and resource allocation, has been relentless culminating in the publication of four EITI reports covering fiscal years 2013-2016. These reports contain recommendations for improving extractive sector governance in Papua New Guinea, formulated by the multi-stakeholder group (MSG). To ensure that the recommendations would be implemented, PNGEITI brought the recommendations to the attention of the National Executive Council (NEC), Papua New Guinea’s highest inter-ministerial policymaking body. In 2017, the NEC issued a decision directing relevant government entities to implement the recommendations.

Eight recommendations out of a total of eleven recommendations have been fully implemented.

The first recommendation was that the State-Owned Enterprises (SOEs) should participate in the work of the MSG. The Mineral Resource Development Company (MRDC) was the final of several SOE to join the MSG in 2016.  Not only has this improved the level of transparency of SOE operations, but it has also resulted in opportunities to discuss how to better govern these SOEs.

Secondly, the Department of Petroleum and Energy has committed to improve its paper ledger licence registry into an electronic registry as recommended by the MSG. This reform is underway.

Another important achievement was the amendment proposed in the 2018 PNG National Budget to remove the secrecy provision of the Papua New Guinea Income Tax Act. Following this change in law, PNGEITI is now authorised to collect company tax information from the Internal Revenue Commission.

Several of the recommendations were related to revenue management. As a result, the establishment of an electronic payment system is underway within the Department of Finance, which will make it easier for the national government to monitor the timeliness and accuracy of collection of revenues from extractive companies. The Department of Finance has been further directed to monitor the opaque trust accounts including those holding and managing mining and petroleum revenue accounts.

Other directives stemming from the NEC Decision that are currently underway include the drafting of an EITI policy and legislative framework and a scoping study for the inclusion of subnational payments and transfers in the EITI Reporting. The draft legislation and policy framework are expected to be ready for the PNG government’s vetting towards the end of 2018. Subnational payments will also be explored through a scoping study commissioned by the MSG.

As Papua New Guinea is set to undergo EITI validation in April 2018, to determine where PNG has made meaningful progress in promoting accountability and transparency in the mining and petroleum sectors, there is an air of optimism that the levers are working harmoniously to prepare well for this assessment. The consensus is that the EITI helps deliver tangible reforms.