Strengthening the data-driven fight against corruption with the new EITI Standard

The mining, oil and gas sector is prone to corruption for a number of reasons. The profitability of the sector, the complex financial and technical expertise required to run extractive projects, and discretionary decision-making in awarding licenses are just a few of the factors that contribute to the prevalence of governance risks in the sector, and which underpin the EITI’s mission of improving natural resource governance through disclosure and dialogue.

Despite the potential for EITI reporting to shed light on vulnerable aspects of the oil, gas and mineral value chains, transparency alone doesn't guarantee accountability.

Many EITI implementing countries have previously shied away from tackling corruption issues directly, often due to uncertainty about the role the EITI could play in fighting corruption, perceived limitations on its mandate, or reluctance to address corruption issues where this is considered a sensitive topic.

Yet recent corruption scandals in the sector underscore the need to define the EITI’s role in mitigating corruption. Recognising this imperative, some countries like Armenia, Gabon, Indonesia, Mongolia, the Philippines, Togo and various Latin America nations have started using the EITI to identify corruption risks in their extractive sectors. Furthermore, countries like Ghana, Nigeria and Zambia are leveraging beneficial ownership data to address corruption risks through their participation in the Opening Extractives programme. Malawi EITI has also facilitated discussions aimed at addressing corruption allegations in the renewal of a mining license.

An evolving risk landscape

As countries transition to clean energy, corruption risks in the extractive sector could intensify. In the oil and gas sector, this shift may involve reputable companies divesting interests in favour of smaller or new players who lack the experience and resources to implement the necessary safeguards. The heightened demand for minerals needed for renewable energy technologies, such as cobalt, copper, nickel, lithium and rare earths, may fuel corrupt speculation on reserves and attract illegitimate investments in mining projects. Regulators might expedite license approvals and circumvent legal frameworks to meet production demands.

Notably, 40% of the world’s resources of transition minerals are situated in countries with poor governance, while about one fifth of bauxite, cobalt, chromium, tin and nickel reserves are concentrated in EITI countries. With demand for transition minerals expected to quadruple by 2050, this presents a watershed moment for the EITI to contribute to a robust framework for extractive sector governance.

The 2023 EITI Standard: What’s new?

The current global context of energy transition underpins some of the key changes to the EITI Standard. For the first time, the EITI Standard explicitly references addressing corruption as a core objective for certain data disclosures, including legal frameworks, licensing, contracts, beneficial ownership, production, exports, state participation, revenue collection and social expenditures.

Legal framework, licensing and beneficial ownership

The 2023 EITI Standard now requires countries to disclose anti-corruption laws related to the extractive sector, empowering citizens to evaluate sector governance through an anti-corruption lens. Countries must also report if licensing and contracting practices deviate from the law, and are encouraged to explain why certain methods for awarding licenses are used, especially in cases of fast-tracked approvals. This requirement seeks to address risks accompanying the growing trend of regulators signalling willingness to fast-track mining approvals for transition minerals projects.

Additionally, the EITI Standard emphasises the importance of linking license information with beneficial ownership data to detect potential conflicts of interest in the award of licenses. To prevent loopholes in beneficial ownership disclosure, such as instances where companies deliberately split their shares to ensure these fall below the percentage of ownership covered by the reporting requirement, countries are encouraged to report the identities of beneficial owners holding stakes of 10% or lower in extractive companies.

Countries are also required to request full disclosure of the ownership interests of politically exposed persons (PEPs), regardless of their level of ownership, as well as disclosure of company structures. Such disclosures can help prevent PEPs from taking undue advantage of their positions to profit from mining projects. Recognising that many corruption cases involving state-owned enterprises (SOEs) are carried out through third parties, the EITI Standard encourages SOEs to disclose the beneficial owners of their agents or intermediaries.   

Contracts

The 2023 EITI Standard places heightened emphasis on contract transparency. In addition to disclosing main contracts and annexes, countries are now encouraged to disclose significant exploration contracts, agreements detailing the terms of the sale of the state’s share of production or other in-kind revenues, and contracts outlining infrastructure and barter provisions, including resource-backed loan agreements.

Moreover, countries are expected to disclose contracts mandating social and environmental payments. Such disclosures provide citizens with a more comprehensive understanding of whether companies fulfil their contractual obligations beyond the stipulations in the main contracts.

Exploration, production and revenue

To mitigate corruption risks associated with reserves speculation and potential revenue leakages, the 2023 EITI Standard encourages the disclosure of proven economic oil, gas or mineral reserves, verification methods for production data accuracy, estimates of production and export from artisanal mining, and project costs. These disclosures shed light on how governments manage the risk of revenue loss from corruption.

Strengthened roles of MSGs and companies  

The EITI Standard reinforces the mandate of multi-stakeholder groups (MSGs) to engage in anti-corruption efforts in their countries. MSGs are now required to incorporate objectives related to national priorities, including corruption issues, into their work plans and pursue related activities. Furthermore, the EITI Standard highlights the importance of addressing corruption issues through public debate.

Companies and SOEs are now expected to publish their anti-corruption policies, detail how they manage corruption risks and explain how they use beneficial ownership data. Companies and SOEs are further encouraged to engage in rigorous due diligence processes. These provisions empower MSGs to address corruption issues and actively involve companies and SOEs in these efforts .   

Linking with national policies

Beyond strengthening disclosures, the new requirements aim to inform national policies that are more effective in countering corruption. But this can only happen if countries leverage their EITI process to engage in corruption mitigation measures through data use and multi-stakeholder oversight.

Various country examples show how EITI reporting can complement national reforms. For instance, an analysis of license data in Mali illustrates how license awards have become more efficient over time. In Papua New Guinea, an examination of revenue data sheds light on how much extractive revenue is recorded in the national budget, highlighting opportunities to improve government systems. In the Republic of the Congo, contractual terms were analysed to forecast potential future oil revenues. And in Ghana, plans are underway to use beneficial ownership data to screen mining license applications.  

The new provisions of the 2023 EITI Standard give countries fresh impetus to harness data and dialogue to support their national anti-corruption policies. By strengthening their role in mitigating corruption, MSGs can ensure greater transparency and accountability in their resource governance efforts.

Watch this space for trainings, guidance, briefs and blogs on the new requirements of the 2023 EITI Standard.