The EITI reporting landscape is changing. In response to the COVID-19 pandemic, and a challenging outlook for the oil, gas and mining sectors, many EITI implementing countries are modifying their reporting practices. There are some important trends and lessons.
A brief history of EITI reporting
When the EITI was established almost twenty years ago, transparency in the oil, gas and mining sectors was the exception not the norm. The early adopters of the EITI collected data in confidence from governments agencies and companies. It was reviewed and reconciled, seeking to clarify errors and discrepancies, and only published when the national multi-stakeholder group (MSG) was satisfied with the data and findings.
This approach helped to build trust and confidence among government, industry and civil society. Early EITI Reports were often limited to aggregate data on total government revenues and published several years after the end of the financial year. Yet they were often the only source of information on the sector, and a catalyst for developing more ambitious reporting standards.
Almost two decades later, the bar has been raised. This was the result of incremental work, starting with standardisation of the data collection and reconciliation process and the introduction of a “two-year rule” to ensure more timely data. Financial data is now disaggregated by company and revenue stream, and new disclosure requirements have been added, including on project level data. With almost 500 EITI Reports now published, there is a wealth of data available to facilitate analysis and inform debate.
Towards detailed, systematic disclosure
While the ambition and scope of EITI implementation has grown, the focus on data collection and EITI reporting has shifted. Since 2016, the EITI has placed greater focus on the disclosure of data at source. The 2016 EITI Standard recognised information published through routine government and corporate reporting, including websites and annual reports. In 2018, the EITI Board agreed that systematic disclosure should be the default expectation, with reports being used to address gaps and concerns about data quality and EITI processes shifting from the collection and publication of data towards its analysis and use.
This shift is not an “all or nothing” proposition. The Board has recognised that the transition will be incremental and may take several years. Time is required to invest in new practices. Crucially, this transition helps shift responsibility for comprehensive and reliable disclosures to the reporting entities.
In 2020, recognising the challenges associated with the COVID-19 pandemic, the EITI Board agreed new measures to provide flexibility in EITI reporting. MSGs may prepare reports based on systematic disclosures by government and/or companies. The requirement for reconciliation can be waived, replaced by an assessment of gaps or weaknesses. In 2021, at least 17 countries are adopting this approach. Flexible report measures were extended at the EITI’s recent Board meeting.
From looking backwards to looking ahead
This approach shifts the focus from retrospective data collection to forward-looking analysis. Flexible reporting requires MSGs to consider information on sector developments and the outlook for 2021 and beyond, such as changes in licensing and contract terms, adjustments to fiscal regimes or fiscal incentives granted to companies. Reports can reflect changes in exploration or production, exports and employment – including the impact of movement restrictions and cross-border quarantines. At a macro level, they can highlight changes in state participation and policies for state-owned enterprises, revisions to revenue and budget projections, shifts in sector-specific borrowing and restrictions on civic space.
The purpose of such information is to stimulate sound policy decisions and informed public debate. So far, many MSGs have welcomed the opportunity to leverage the EITI platform in this way.
From reconciliation to risk
The waiver of the reconciliation requirement is a concern for some. The conventional approach to EITI reporting is predicated on the assumption that company and government data should be considered unreliable, and that reconciliation is needed to ensure data comprehensiveness and accuracy. Some MSGs do not feel well equipped to review data without independent expertise.
In early 2020 the EITI Board established a pilot to test reporting alternatives, based on collating and analysing systematically disclosed data. One such alternative is a “risk-based approach”, where an independent expert first surveys legal, regulatory, accounting, auditing and disclosure practices to identify areas that present the highest risk of misstatement or any other irregularity. Based on these findings, a scope of work is developed to focus on the areas of greatest potential concern. Once this investigation has been concluded, the independent expert provides an opinion on the comprehensiveness and reliability of data, together with recommendations for further improvement.
It is striking that, in such a challenging environment, many countries are accelerating their efforts to promote greater transparency and accountability. Three key lessons stand out:
First, there is a concern that the shift towards mainstreaming can weaken the oversight function of MSGs. The experience to date is that this work can in fact strengthen stakeholder engagement, shifting the focus from technical, retrospective data collection toward more contemporary and strategic considerations.
Second, there is still an important role for annual EITI Reports. Reporting “at source” has many advantages, but stakeholders appreciate annual reports that collate this information and highlight the most significant findings.
Finally, concerns about data quality need to be tackled head on. Reconciliation has never guaranteed data reliability. Data reliability depends on the efficacy of the underlying accounting and auditing systems, and these should be a focal point of the EITI’s work. That said, independent assessments are highly valued by stakeholders.
While a risk-based approach has enormous potential, this work needs to be underpinned by appropriate professional standards and further testing is needed to demonstrate that these approaches are cost effective and robust.