Infrastructure provisions and barter arrangements

The MSG should agree a definition of infrastructure provisions and barter arrangements that is in line with the minimum required by the EITI Standard. Requirement 4.3 defines infrastructure provisions and barter arrangements as “any agreements, or sets of agreements involving the provision of goods and services (including loans, grants and infrastructure works), in full or partial exchange for oil, gas or mining exploration or production concessions or physical delivery of such commodities.”

The definition should clearly distinguish between arrangements involving the provision goods and services in full or partial exchange for oil, gas or mining exploration or production concessions or physical delivery of such commodities, on the one hand, and those that do not feature such an exchange, on the other.

Types of infrastructure provisions and barter arrangements covered by the definition in Requirement 4.3 include, but are not limited to:

• Agreements providing infrastructure in exchange for mining, oil or gas licenses, whereby an investor pledges the development of infrastructure works in exchange for the granting of prospection, exploration or production licenses or contracts in the mining, oil and gas sectors. This includes cases where extractives licenses or contracts have been awarded contingent on the development of infrastructure in lieu of financial payments to government (e.g. signature bonus). A key test is to consider whether the extractives license would have been awarded in the absence of the provision related to the development of infrastructure for third-party access. 
• Agreements providing infrastructure in exchange for future delivery of mineral, oil or gas commodities, whereby an investor pledges the development of infrastructure works in exchange for the future delivery of mineral, oil and gas commodities, e.g. an oil and gas company funds, develops and transfers a power plant to the government in exchange for deliveries of crude oil in kind. Such agreements are different from infrastructure works undertaken by the company as part of its own operations – even if the company agrees that the infrastructure can be used for other purposes, (e.g. roads, a port or energy plant – see examples below of agreements that are not considered within the scope of Requirement 4.3).
• Agreements providing loans in exchange for future delivery of minerals, oil and gas commoditiesHideThe World Bank defines resource-financed infrastructure, a type of barter-type arrangement, as follows: “Under a resource-financed infrastructure arrangement, a loan for current infrastructure construction is securitized against the net present value of a future revenue stream from oil or mineral extraction, adjusted for risk. Loan disbursements for infrastructure construction usually start shortly after a joint infrastructure-resource extraction contract is signed, and are paid directly to the construction company to cover construction costs. The revenues for paying down the loan, which are disbursed directly from the oil and mining company to the financing institutions, often begin a decade or more later, after initial capital investments for the extractive project have been recovered. The grace period for the infrastructure loan thus depends on how long it takes to build the mine or develop the oil field, on the size of the initial investment, and on its rate of return.” World Bank (2014), Resource financed infrastructure: a discussion on a new form of infrastructure financing, p. 4., whereby an investor provides loans to a government in exchange for future delivery of mineral, oil or gas commodities. This loan is to be spent on investments external to the concession, meaning that they do not contribute to project finance or carried equity. An example of this is a commodity trader that provides sovereign loans (including pre-financing agreements and resource-backed loans) in exchange for future delivery of crude oil at set terms and for a set period. 
• Agreements involving the exchange of mineral, oil and gas commodities, whereby the state’s in-kind revenues of mineral, oil and gas commodities are exchanged for other types of commodities. These include swaps, refined product exchange agreements and offshore processing agreements. 

The following types of arrangements are typically not considered infrastructure provisions and barter arrangements:

• Amortisation of infrastructure investments over future tax liabilities. Common in many countries, these types of arrangements consist of tax incentives for companies undertaking infrastructure investment. For instance, a company could deduct the cost of its infrastructure investments (up to a set level) from its tax liabilities to government. However, the granting of those companies’ mining, oil and gas licenses is not contingent on the companies availing themselves of the tax offset for their infrastructure investments. Several EITI implementing countries have nonetheless included disclosure of these tax credits in the scope of their EITI reporting as MSGs may decide that such information is of public interest.

• Cost recovery of infrastructure investments. These types of arrangements, common in many petroleum producing countries in particular, consist of companies recovering the cost of their infrastructure investments from government under ”cost recovery” provisions of their production-sharing contracts.

In establishing the scope of EITI reporting, the MSG needs to determine whether the government or government-related entities (including SOEs) have entered into any agreements which meet the agreed definition of infrastructure provisions and barter agreements. 

The MSG might task a technical working group, the national secretariat or an external consultant to examine whether any such deals are in force or have been discussed, through a review of publicly-available sources and consultations with government, industry and civil society actors. The findings from this work should be documented (e.g. in MSG minutes or a scoping report). The MSG may also wish to consider whether the disclosure of agreements related to the exploitation of oil, gas and minerals (Requirement 2.4) is relevant in the context of any infrastructure provision or barter arrangements.

The following examples constitute infrastructure provisions and barter arrangements in accordance with Requirement 4.3: 

The following are examples of agreements that are not considered infrastructure provisions and barter arrangements in accordance with Requirement 4.3, but where MSGs have decided to disclose pertinent information about the agreement:

Where the MSG has established that infrastructure provisions and barter arrangements are material, additional consideration is needed to gain a full understanding of these agreements. Findings from this work should be documented through EITI reporting.

For each agreement or sets of agreements, the MSG needs to clarify:

• The terms of the relevant agreements and contracts

The MSG should gain access to and publicly disclose the key terms of such agreements. The key terms could include the timeframe for the agreement, the resources pledged by the state, the value of the balancing benefit stream (e.g. infrastructure works), the interest rate and reimbursement modalities of relevant loans (where applicable).

Where contracts are not available, the MSG should ensure that the government and relevant parties to the agreement provides a summary of the key terms of all mining, oil and gas contracts related to infrastructure provisions or barter arrangements.

• The parties involved

The MSG should map the relevant actors to the signature, implementation and monitoring of the agreement. These may include: joint-ventures arising from the contracts and the respective partners; SOEs contracting on behalf of the government; government agencies monitoring the implementation of the agreement; financial institutions providing loans for infrastructure development; and companies building the infrastructure.

• The resources which have been pledged by the government

Such resources can include exploration and production licenses issued by the state, tax exemptions, loan repayment programs and loan guarantees.

• The commitments made by the counter-party, whether a government or one or more extractive company(ies) and their affiliates over the life of the project

Such commitments can include infrastructure projects, investments, signature bonuses and other applicable benefit streams.

• What mechanisms have been put in place to track, on a continuing basis, the value transfers that are taking place, and the value of the balancing benefit stream

Where infrastructure provisions and barter arrangements are material, the MSG is required to develop a reporting process with a view to achieving a level of transparency at least commensurate with other payments and revenue streams. The MSG might wish to refer to Requirement 4.1.b) of the EITI Standard with regard to the approach to materiality.

In designing reporting templates, the MSG can consider the following information and data points:

• A list of mining, oil or gas projects where mineral or hydrocarbon extraction is contingent on public infrastructure provision, or other barter-type arrangements; and/or a list of agreements where loans, grants or the provision of mining, oil or gas commodities is contingent on deliveries of mining, oil or gas commodities;
• A list of the parties involved in each agreementHideFor bilateral financings, the the Institute of International Finance (IFF)’s Voluntary Principles for Debt Transparency encourages disclosures of the lender at signing for bilateral financings. For syndicated financings, the principles recommend disclosures of the mandated lead arrangers and the facility agent, as well as any applicable agent/trustee/transaction intermediary. ;
• A description of the key termsHideThe IIF’s Voluntary Principles for Debt Transparency recommends disclosures of the amount which can be borrowed/raised and details of disbursement period; applicable currency or currencies; repayment or maturity profile (including any puts or calls where applicable); and interest rate (or commercial equivalent)., including the resources pledged by the government and companies;
• An overview of the status of implementation of each agreement, including whether they have been renegotiated and how renegotiations have modified the termsHideThe IIF’s Voluntary Principles for Debt Transparency recommends that where the amount which can be borrowed, the interest rate or the repayment profile of a financial transaction is amended or varied, the amendments or variations should be disclosed.; 
• A declaration from the relevant companies regarding the value involved in, transferred and outstanding under these projects during the reporting period;
• A declaration from the relevant government agencies regarding the value involved in, transferred and outstanding under these projects during the reporting period;
• Any other information as agreed by the MSG regarding the implementation of these projects; and, where available,
• Valuations provided by independent persons of the value involved in, transferred and outstanding under specific clauses of the agreement(s). 

The MSG should ensure that an assessment of the comprehensiveness and reliability of information related infrastructure provisions and barter arrangements is disclosed in accordance with Requirement 4.9.

The MSG could also consider agreeing recommendations on opportunities to further enhance transparency in the governance of these agreements.

The MSG should consider the underlying audit and assurance practices related to the sources of information on these agreements. Where comprehensive and reliable information is not available, the MSG should agree an approach for ensuring the reliability of information on these agreements in its EITI reporting, which could include reconciliation of reporting by the different parties to the transaction(s) and/or reference to audited financial statements related to these transactions.