The EITI Board agreed that Madagascar has made meaningful progress in implementing the 2016 EITI Standard.

The International Secretariat understands that the government has not been fully, actively and effectively engaged in the EITI process between 2014 and 2017 and notes concerns from various stakeholders that the more recent engagement might not be sustained in the long-term. However, the commitment reflected in the months leading to Validation, coupled with the institutionalization of EITI Madagascar through the August 2017 Decree, more sustainable funding and mechanisms to ensure more consistent government participation in EITI activities, are strong signs that the government has renewed its commitment to the EITI. The extent to which the government sustains this commitment to use the EITI as an instrument to drive reforms will be key to the prospects of EITI implementation.

Companies are fully, actively and effectively engaged in the EITI process, both as providers of information and in the design, implementation, monitoring and evaluation of the EITI process. The government has ensured that there is an enabling environment for company participation. Despite constraints imposed by confidentiality provisions of the tax code, the waiver system designed by the MFB has provided a means of facilitating company reporting. In the International Secretariat’s view, the industry constituency has made efforts to go beyond the minimum requirement in the quality, consistency and proactive nature of its engagement in all aspects of EITI implementation. Amidst weakening engagement from the other two constituencies, such engagement has been key to ensuring the sustainability of EITI implementation.

There is no evidence of legal, regulatory or practical barriers to civil society’s ability to engage in EITI nor to their ability to freely operate, communicate and cooperate with the broader constituency. Minutes of MSG meetings and stakeholder consultations showed no constraints on civil society’s rights or ability to be actively engaged in the EITI. However, civil society’s engagement in EITI implementation has declined markedly since 2015 and several civil society stakeholders engaged in extractives issues but not represented on the MSG expressed frustration at the lack of adequate constituency coordination and representation in EITI implementation. While technical and financial capacity constraints and the fragmented nature of Malagasy civil society help explain this declining engagement, lack of coordination between CSOs directly involved in EITI and their constituents has meant that key EITI documents such as the annual work plan and ToR of the IA do not appear to reflect the priorities of the broader civil society constituency (see Requirements 1.5 and 4.9).

The MSG includes appropriate representation of each constituency and the process by which each stakeholder group nominated their representatives is clear. All civil society representatives on the MSG are independent, operationally and in policy terms, from government. The MSG’s ToR outlines the roles and responsibilities of MSG members and meeting records show that MSG members who attend meetings carry out their duties and responsibilities. However, there have been significant deviations from the MSG’s ToR in practice in the 2015-2017 period, including inadequate planning and execution of MSG meetings, inconsistent MSG attendance by government and civil society and frequently inquorate MSG meetings. While the MSG has always respected its clear statutory decision-making rules in practice, the lack of quorum at most MSG meetings has weakened MSG members’ buy-in to key decisions related to designing, implementing, monitoring and evaluation of EITI implementation. This is particularly reflected in decisions related to the scope of EITI reporting (see Requirement 4.1), quality assurance (see Requirement 4.9) and annual progress reporting (see Requirement 7.4). The MSG does not have a practice of per diems. While MSG members generally have the capacity to carry out their duties, funding constraints have had a strong impact on the MSG’s capacity, given constrained secretarial support. However, the institutionalisation of EITI Madagascar through the August 2017 Decree and the renewal of MSG members in late 2017 are encouraging trends.

The work plan reflects MSG priorities for EITI implementation, is updated annually and is the product of consultations with key stakeholders. It includes time-bound, measurable and costed activities, taking into consideration funding and capacity constraints. The work plan includes specific activities to follow up on recommendations from EITI reporting. Delays in work plan implementation appear reasonable given funding constraints.

EITI Madagascar has ensured disclosure of the process for awarding licenses and contracts pertaining to companies in the scope of the 2014 EITI Report. The latter comments on general non-trivial deviations from the 2011 moratorium and the efficiency of licensing procedures. However, the 2014 EITI Report does not clarify the nature of different license movements, leaving the process for transfer of license rights unclear, lacks clarity on the existence of technical and financial criteria and does not comment on the award of seven licenses in 2014. While there is a case for considering that the objective of transparency in license allocation and transfer is far from met, the prevailing lack of clarity related to the enforcement of the licensing freeze helps highlight the important impact of EITI reporting and the EITI- mandated studies as genuine diagnostic tools supporting debate over regulatory reform.

Madagascar disclosed the mandated information under Requirement 2.3 for oil and gas licenses in 2014 and commented on the existence of publicly available registers at the end of 2016. Gaps in information on mining licenses in the 2014 EITI Report were offset by the BCMM’s new online cadastre or accessibility upon request from BCMM.

While the 2014 EITI Report comments on the practice of contract disclosure, it does not clarify government policy, which remains unclear to stakeholders consulted.

Madagascar has disclosed information on the legal framework and fiscal regimes governing the extractive industries, including a comprehensive description of the three co-existing mining legal frameworks and the degree of fiscal devolution. Tje 2014 EITI Report includes information on the roles and responsibilities of some government agencies, and information on the roles and responsibilities of relevant government entities is accessible through the EITI Madagascar website. The report also describes ongoing reforms.

The 2014 EITI Report does not clarify the government’s policy on beneficial ownership disclosure in the extractives sector. While it provides information on the legal owners of roughly half of the material companies, the identity of shareholders of companies incorporated in Madagascar are available from the Registry for Trade and Companies (RCS) website, albeit only for registered members at a fee.

The 2014 EITI Report provides a list of state interests in the mining sector, although there is a lack of clarity amongst stakeholders over the comprehensiveness of the list provided. The Report does not describe the terms associated with state equity in extractives companies, nor any changes in state participation in the extractives sector in 2014. While the report provides a succinct description of financial relations between SOEs in practice in 2014, it does not describe the statutory financial relations between SOEs and the government. The report does confirm that there were no loans or guarantees provided to extractives companies in 2014.

The 2014 EITI Report provides an overview of the extractive sector, including exploration activities. In the International Secretariat’s view, Madagascar has also gone beyond the minimum requirements by providing additional information on ASM including on the value chain, license award and two detailed cases studies, as encouraged by the Standard and of high value to stakeholders.

The 2014 EITI Report provides data on production volumes and values for most minerals, disaggregated by commodity and producing region. Missing figures for Kraoma’s production can be calculated based on export data (see Requirement 3.3). Although data is incomplete for dolomite, calcite and kaolin production, it is not material in the International Secretariat’s view. These minerals are destined for quarrying activities, which have been assessed as outside of the scope of the EITI in other instances by the EITI Board. The report confirms the lack of commercial oil production in 2014.

The 2014 EITI Report provides export volumes and values for each commodity exported and producing region. While the export value of one company’s quartzite export is missing, the latter is a quarrying material and therefore not considered substantial in the International Secretariat’s view (see Requirement 3.2). This is also offset by extensive information provided on the country’s illicit exports of gold and precious stones. Madagascar has made remarkable efforts to compare existing data and highlight the loss in fiscal revenues.

The 2014 EITI Report demonstrates that there were no barters or infrastructure provisions in force in 2014.

The 2014 EITI Report describes direct subnational payments, with one revenue stream specific to extractives activities. The lack of clarity around the beneficiaries of ristournes payments means that there is insufficient information in the report to assess the comprehensiveness of the reconciliation. There was consensus amongst stakeholders consulted that the reconciliation of direct subnational payments was not comprehensive. The lack of description of the unpaid Ambatovy ristournes in the 2014 EITI Report is also a concern given the value of these arrears and their importance for relevant subnational governments.

Reconciled financial data in the 2014 EITI Report is disaggregated by company and government entity, not by individual revenue stream. While this appears to have been an oversight, the lack of sufficiently disaggregated reconciled data has a material impact on assessments of the comprehensiveness of reporting (see Requirement 4.1).

The MSG has approved the selection of the IA for the 2014 EITI Report. The IA appears to have reviewed material entities’ statutory audit procedures prior to agreeing quality assurance procedures for ensuring the reliability of reconciled data in the 2014 EITI Report, and actual audit practices over the course of reporting. The 2014 EITI Report does not assess the materiality of payments from entities that did not comply with the agreed quality assurance procedures, although the IA’s assurances regarding the comprehensiveness and reliability of reconciled data are welcome. The IA has prepared summary tables of data in Madagascar’s 2014 EITI Report and added suggestions to its assessment of follow-up on past EITI recommendations.

The 2014 EITI Report includes the MSG’s rationale and definition of materiality thresholds for companies to be included in reconciliation based on payments to government. There is no evidence of the MSG having considered the materiality of revenue streams included in the scope of reconciliation, although the MSG appears to have consistently adopted a de-facto materiality threshold of zero for selecting material revenue streams. In addition, the 2014 EITI Report’s description of the approach to materiality for selecting companies is not sufficiently clear to ensure its accessibility to the average reader. The companies that did not report are named and the value of their payments to government is provided relative to government-reported revenues in aggregate, although not by non-reporting company. The share of non-reporting companies is deemed insignificant by the IA. While material government entities appear to have reported all revenues from 71 of the largest extractives companies, the lack of data on the remaining 70 companies and the lack of any data disaggregated by revenue stream is a concern. The report includes commentary from the IA on the comprehensiveness of the EITI Report.

The 2014 EITI Report clearly states that the government did not collect any revenues in-kind in 2014.

There is insufficient information to assess whether the government collects any revenues from the transportation of minerals, and no evidence of MSG discussion of the materiality of transportation revenues. While two port management companies were included in the scope of reporting as government entities, there is no explanation of their legal status nor the management of port-related fees they collect.

The 2014 EITI Report states that there were no financial transactions between extractives SOEs and the state and there is no evidence of dividend payments from QMM to OMNIS and from MCM to NASSCO. Stakeholder consultations confirmed the lack of payments from extractives companies to government entities and from KRAOMA to the government.

The 2014 EITI Report was published within two years of the end of the fiscal period under review, in December 2016, and the MSG agreed the reporting period.

The 2014 EITI Report states that Madagascar operates a single Treasury account where all extractives revenues are recorded, but there was consensus amongst stakeholders consulted that this was not the case. The lack of clarity on whether or not revenues collected by government entities are recorded in the national budget is a particular concern given public controversy over the role and status of Public Administrative Companies and the lack of publicly-available information on these entities’ finances.

EITI Madagascar has included all transfers in the scope of its EITI reporting (see Requirement 4.1). The 2014 EITI Report describes the general revenue sharing formula for FAM, but there is insufficient information to identify discrepancies between budgeted and executed subnational transfers, disaggregated by LGU. Madagascar has disclosed the transfers of 2014 FAM executed in 2016. EITI Reports have been proven an effective diagnostic mechanism for delays in FAM transfers.

It is encouraging that Madagascar provided additional information on revenue management and expenditures.

The 2014 EITI Report presents information on companies’ mandatory social expenditures disaggregated by project and beneficiary. While the results are not presented disaggregated between cash and in-kind, the IA confirmed that all mandatory social expenditures are paid in-kind. Madagascar has also made efforts to go beyond the minimum requirements by providing additional information on discretionary social expenditures.

While the 2014 EITI Report refers to the need to clarify the existence of quasi-fiscal expenditures linked to extractives revenues, there is no evidence that the MSG has undertaken efforts to clarify the existence of such expenditures in the year under review (2014). There is no evidence that the IA or MSG discussed this issue with relevant government entities and there is insufficient information in the public domain regarding this issue.

EITI reporting provides data on the extractive industries’ contribution to GDP, government revenues and employment, as well as an overview of extractives activities. While it only provides official estimates of exports in absolute terms, it is possible to calculate the relative share of total exports based on data provided.

Madagascar’s EITI data was not publicly-available in machine readable format at the start of Validation, although EITI Madagascar had prepared draft summary data tables in line with Board guidance prior to September 2017. EITI Madagascar has published summaries of EITI Reports and made EITI information available in local languages.

The 2016 annual progress report reflects efforts to strengthen EITI implementation and provides information on progress in implementing EITI Requirements and work plan objectives. However, the report does not provide an assessment of the impact of the implementation of these objectives. There are also concerns that the annual progress report does not reflect the views of most stakeholders.

Madagascar has ensured that the EITI Report is comprehensible, actively promoted, publicly accessible and contributes to public debate. While there is little evidence of outreach and dissemination to communities in mining regions in the 2015-2017 period, the assessment of Requirement 7.1 must be taken in the context of broader funding challenges (see Requirement 1.5) and uneven engagement across different constituencies (see Requirement 1.4).

Despite limited resources, the MSG has taken steps to act upon lessons learnt, including on causes of discrepancies, and consider recommendations resulting from EITI reporting. Despite the lack of institutionalised framework for follow-up on EITI recommendations, tangible government reforms have been enacted following for the latter.