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Afghanistan has made meaningful progress in implementing the 2019 EITI Standard.

Outcome of the Validation of Afghanistan.

Decision number
2020-78
Decision basis
EITI Articles of Association 2019-2021, Article 12.1. ix)
28 October 2020

Board decision

The Board came to the following decision:

The EITI Board agrees that Afghanistan has fully addressed 14 of the 19 corrective actions from the country’s first Validation. Consequently, Afghanistan has made meaningful progress overall in implementing the 2019 EITI Standard.

The Board congratulates Afghanistan for addressing shortcoming identified in its first Validation through systematic disclosures of data delivered by concrete reforms in government systems. The EITI is recognised as addressing issues of national strategic importance in a volatile context. Afghanistan is congratulated for improving both the comprehensiveness and accessibility of license-level information on fiscal terms, licensing, production, non-tax payments to government and beneficial ownership, now accessible in near real time through the Ministry of Mines and Petroleum’s Transparency Portal. The publication of the statutory rules governing state-owned enterprises’ financial relations with the state and their financial statements for 2016-2017, audited for the first time by the Supreme Audit Office (SAO), is welcomed as a key step forward in supporting corporatisation plans for the two companies. The Board commends Afghanistan for using the EITI to drive tangible reforms both in its legal and regulatory environment and in implementation of key reforms, such as the ring-fencing of tax liabilities for extractive projects.

The Board acknowledges the significant support to EITI implementation provided by development partners and encourages the government to ensure implementation is sustainable over the long term. Afghanistan is encouraged to ensure that EITI implementation is institutionalised in government and company systems through the transition to systematic disclosures of data required by the EITI Standard. The Board encourages Afghanistan to address concerns over general weaknesses in the reliability of government data disclosures. The AEITI Secretariat has driven outreach and dissemination efforts on behalf of the MSG. However, the EITI’s contribution to public debate has not been commensurate with its contribution to reforms in government systems. The Board encourages each constituency to complete the renewal of their representation on the MSG, with a view to ensuring active and effective participation by MSG members in all aspects of EITI implementation, including outreach, dissemination and use of EITI data.

The Board takes note of Afghanistan’s plans to transition to systematic disclosures of EITI data through government and company systems, through its participation in the EITI’s pilot on alternative approaches to EITI reporting. The Board encourages the government and MSG to pursue efforts to ensure comprehensive transparency of transactions related to state-owned enterprises, social and environmental expenditures and quasi-fiscal expenditures. The Board encourages stakeholders to make more proactive use of EITI data as a means of translating this emerging transparency into accountability in the governance of the extractive industries.

The Board has determined that Afghanistan will have 18 months before a third Validation, i.e. until 28 April 2022, to carry out corrective actions regarding MSG oversight (Requirement 1.4), SOE transactions (Requirement 4.5), social and environmental expenditures (Requirement 6.1), quasi-fiscal expenditures (Requirement 6.2) and public debate (Requirement 7.1). Failure to achieve satisfactory progress in the third Validation will result in temporary suspension in accordance with Article 6 of the EITI Standard. In accordance with the EITI Standard, Afghanistan’s MSG may request an extension of this timeframe or request that Validation commences earlier than scheduled.

Corrective actions and strategic recommendations

The EITI Board agreed the following corrective actions to be undertaken by Afghanistan. Progress in addressing these corrective actions will be assessed in a third Validation commencing on 28 April 2022:

  1. In accordance with Requirement 1.4.a.ii, Afghanistan should ensure that the renewal of MSG members in practice follows the nominations procedures agreed by each constituency, in line with open, fair and transparent procedures. In accordance with Requirement 1.4.b.iii, MSG members should liaise with their constituency groups.
  2. In accordance with Requirement 4.5, Afghanistan should ensure that all material SOE transfers to government entities, including their transfers of a share of their net profits to the Ministry of Finance, should be comprehensively and reliably disclosed.
  3. In accordance with Requirement 6.1, Afghanistan should undertake a comprehensive review of all mandatory social expenditures and environmental payments mandated by law or contract. Afghanistan should ensure that public disclosures of mandatory social expenditures and environmental payments in future EITI Reports be disaggregated between cash and in-kind expenditures, by type of payment and beneficiary, clarifying the name and function of any non-government (third-party) beneficiaries. Afghanistan may wish to ensure that mandatory social expenditure requirements are more clearly codified in mining contracts with set timeframes to ensure more efficient monitoring and oversight.
  4. In accordance with Requirement 6.2, Afghanistan should undertake a comprehensive review of all expenditures funded by extractives revenues that are not transferred to the Treasury that could be considered quasi-fiscal, particularly related to any subsidies on the sale of coal and natural gas as well as subsidised lending by the SOEs. Afghanistan should develop a reporting process with a view to achieving a level of transparency on quasi-fiscal expenditures that is commensurate with other payments and revenue streams.
  5. In accordance with Requirement 7.1, Afghanistan should ensure that outreach events, whether organised by government, civil society or companies, are undertaken to facilitate dialogue and spur debate about the governance of extractive resources, building on EITI disclosures across the country in a socially inclusive manner.

Background

Afghanistan was admitted as an EITI Candidate in February 2010. The first Validation of Afghanistan against the EITI Standard commenced on 1 November 2017. On 19 January 2019, the EITI Board found that Afghanistan had made an inadequate progress in implementing the 2016 EITI Standard. Nineteen corrective actions were identified by the Board, pertaining to the following requirements:

  1. Government engagement (Requirement 1.1),
  2. MSG governance (Requirement 1.4),
  3. Work plan (Requirement 1.5),
  4. License allocations (Requirement 2.2),
  5. License register(s) (Requirement 2.3),
  6. State participation (Requirement 2.6),
  7. Production data (Requirement 3.2),
  8. Export data (Requirement 3.3),
  9. Data comprehensiveness (Requirement 4.1),
  10. Transportation revenues (Requirement 4.4),
  11. SOE transactions (Requirement 4.5),
  12. Data quality (Requirement 4.9),
  13. Distribution of revenues (Requirement 5.1),
  14. Social expenditures (Requirement 6.1),
  15. SOE quasi-fiscal expenditures (Requirement 6.2),
  16. Economic contribution (Requirement 6.3),
  17. Public debate (Requirement 7.1),
  18. Follow-up on recommendations (Requirement 7.3),
  19. Outcomes and impact of implementation (Requirement 7.4).

The Board asked Afghanistan to address these corrective actions to be assessed in a second Validation commencing on 18 July 2020. Upon request from the AEITI MSG, the Board brought forward the commencement date for Afghanistan’s second Validation to 1 July 2020.

Afghanistan has undertaken a number of activities to address the corrective actions:

  • The MSG met six times in 2017, six times in 2018, nine times in 2019 and two times in the first half of 2020.
  • AEITI held two one day workshops at the Ministry of Mines and Petroleum on 15 and 22 January 2019.
  • On 12 March 2019, AEITI held a workshop for journalists and civil society representatives on the new Transparency Portal at the Ministry of Mines and Petroleum (MoMP) in Kabul.
  • On 5 May 2019, AEITI held a workshop for 50 representatives from the three constituencies to agree improvements to EITI implementation, with support from GiZ-MinGov.
  • The 6th Afghanistan EITI Report, covering 1395-1396 (21 December 2015 to 20 December 2017 – 2016-17) was published on 30 June 2019.
  • On 20 July 2019, AEITI held a one-day capacity-building workshop for MSG members, supported by GiZ-MinGov.
  • On 31 October 2019, AEITI held a one-day workshop for the members of Environment and Natural Resources Commission of the Lower House of the National Assembly to raise awareness about EITI implementation.
  • Afghanistan EITI held a pre-Validation self-assessment workshop with the International Secretariat and the World Bank in Dubai, United Arab Emirates, on 4-7 November 2019.
  • On 1-2 December 2019, AEITI held an outreach workshop for 45 civil society representatives in Kabul, supported by GiZ-MinGov.
  • In January 2020, the MOMP website published the 1395-1396 (2016-17) financial statements of Afghan Gas Enterprise and North Coal Enterprise, audited by the Supreme Audit Office for the first time, as well as related documentation.
  • In February 2020, the industry and civil society constituencies agreed their respective MSG member election procedures and published them on the AEITI website.
  • Afghanistan EITI published an addendum (and appendices) to the 6th EITI Report on 19 May 2020, addressing weaknesses identified in the MSG’s November 2019 pre-Validation workshop.
  • On 14 September 2020, the MSG submitted comments on the draft assessment that highlighted the publication of new information on the licensing process in 1395-1396 (2016-2017) and on quasi-fiscal subsidised loans by SOEs and quasi-fiscal subsidies on natural gas.

Afghanistan’s second Validation commenced on 1 July 2020. The EITI International Secretariat has assessed the progress made in addressing the 19 corrective actions established by the EITI Board following Afghanistan’s first Validation in 2018. Progress in implementing Requirement 2.5 on beneficial ownership, as well as new Requirements 6.4 and 7.2 of the 2019 EITI Standard were also assessed. The International Secretariat’s assessment is that Afghanistan has fully addressed 14 of the 19 corrective actions and has made “meaningful progress” with considerable improvements in addressing the remaining five corrective actions.

The draft assessment was sent to the Afghanistan EITI MSG on 21 August 2020. Following comments from the MSG submitted on 14 September 2020, the assessment was finalised for consideration by the EITI Board. 

Scorecard for Afghanistan: 2020

Assessment of EITI requirements

  • Not met
  • Partly met
  • Mostly met
  • Fully met
  • Exceeded
Scorecard by requirement View more Assessment View more

Overall Progress

MSG oversight

1.1Government engagement

The government continues to make high-level commitment to EITI and provides effective operational oversight of EITI implementation. Government representation in EITI implementation has become more balanced. Officials have been effectively engaged in all aspects of implementation in the 2018-2020 period.

1.2Industry engagement

Industry representatives are actively engaged in the EITI process. There are clear legal provisions requiring EITI reporting for all license-holders, contractors and relevant government agencies, that enable the largest extractive taxpayers to report. Low capacity remains a challenge.

1.3Civil society engagement

Despite the security situation, civil society is actively and effectively engaged in implementing, monitoring and evaluating the EITI process. Civil society participated in high-level policy discussion on the development of the sector, influenced reform agendas and participated in round-tables discussions with senior government officials.

1.4MSG governance

While the statutory procedures for civil society and industry nominations to the MSG agreed in 2020 appear to ensure that the nominations processes would be open and transparent, delays in the two constituencies’ election procedures have meant that these nominations procedures have yet to be implemented in practice. Nonetheless, civil society members of the MSG appear to have been operationally and in policy terms independent from government and companies in the period under review. Information on nominations procedures is publicly available. The MSG’s ToR addresses all aspects of Requirement 1.4.b, including with regards to gender diversity, and stakeholders have not highlighted any significant deviations from the ToR in practice. Meetings are convened with sufficient advance warning and MSG members generally appear to have sufficient time to review documents ahead of meetings. Attendance of most MSG members appears to have been broadly consistent in the 2018-2020 period. However, outreach to the respective constituencies and EITI dissemination activities appear to have been driven primarily by the AEITI Secretariat during the period under review.

1.5Work plan

Afghanistan’s 2020 EITI work plan is publicly accessible, produced in a timely manner and updated annually, with objectives aligned with national priorities. The work plan includes measurable and time-bound activities that are fully costed with associated funding sources. It comprises specific activities to follow up on recommendations from EITI reporting and Validation and to extend the scope of EITI implementation, including with regards to systematic disclosures. It includes activities related to gender-disaggregated data and gender considerations in stakeholder engagement, outreach and dissemination. The three constituencies appear to have consulted their broader constituencies in preparing annual work plan.

Licenses and contracts

2.1Legal framework

The 2014-2015 Afghanistan EITI Report provides information regarding the legal and fiscal framework governing the extractive sector, including recent reforms to the minerals law.

2.2Contract and license allocations

Since the first Validation, Afghanistan has launched an online cadastral management system (MCAS), which now handles license award and transfer applications and provides a public user interface. The 6th AEITI Report addendum published in May 2020 provided the accurate figure of 120 small-scale mining license awards for construction materials. Public documents confirm the lack of new oil and gas license awards and of mining, oil and gas license transfers in 2016-17. The EITI Report and its addendum provide an overview of the process for awarding and transferring licenses in the mining, oil and gas sectors. The 2019 Mining Regulations and 2017 Hydrocarbons Law effectively define the technical and financial criteria assessed for mining, oil and gas license awards and mining license transfers. The report provides an overview of the identity of companies receiving and its addendum confirms the lack of non-trivial deviations in these awards, based on a risk-based performance audit of a sample of the mining license awards in 2016-17. The addendum confirms the lack of license awards through competitive bidding in this period. The MOMP published a note subsequent to the start of Validation providing the list of documents that applicants had to submit under the 2014 Minerals Law, and confirmed that technical and financial criteria were now clearly described in the 2018 Minerals Law and the 2019 Mining Regulations.

2.3Register of licenses

The MOMP Transparency Portal, launched in November 2018, provides all information listed under Requirement 2.3.b for all mining, oil and gas licenses, including both active and non-active licenses. Afghanistan has made efforts to go beyond the minimum required by focusing on the accessibility of license and associated information, including in on a per-license basis information on license data, beneficial ownership information, fiscal terms, production volumes and non-tax payments to MOMP.

2.4Contracts

2.5Beneficial ownership

This assessment was under Phase 1 of the beneficial ownership Validation framework. AEITI has agreed appropriate definitions for the terms “beneficial owner” and “politically exposed person” (PEP), even if there are inconsistencies across different national legislation, and requested data from extractive companies making material payments in 2016-17 as well as of all companies applying or bidding for mining licenses since January 2020. The 2018 Minerals Law sets a threshold of 5% ownership for reporting beneficial ownership. The MSG also agreed assurances that reporting companies were requested to provide. As of May 2020, a total of 127 mining companies had published details of their beneficial ownership information. The MSG has undertaken a review and cursory assessment of the beneficial ownership disclosures to date. Information on legal owners of extractive companies is publicly accessible through the Transparency Portal.

2.6State participation

Both EITI reporting and reports published on the MOMP website’s SOE transparency section demonstrate the materiality of AFE and NCE and provide comprehensive information on the rules and practices related to the financial relations between the two SOEs and the government. EITI implementation led to the first-ever audit of the two SOEs’ financial statements by the SAO and their publication on the MOMP website. The EITI Report provides evidence of NCE’s outstanding loans to AGE and several domestic cement producers. The report provides the repayments and outstanding value of the loans in each year, with confirmation that the interest rate is zero. While the maturity and repayment modalities for NCE’s loans are not provided in AEITI reporting, stakeholders explained that it was not customary to set maturities and repayment modalities for such loans. Afghanistan has also made efforts to disclose information on the two SOEs’ corporate governance and corporatisation plans.

Monitoring production

3.1Exploration data

The 2014-2015 EITI Report provides an overview of the extractive industries, including significant exploration and informal activities.

3.2Production data

Both the MOMP website and the Transparency Portal provide production volumes and values for each extractive commodity produced in 2016-17, as well as more recent data up to 2020, disaggregated by company and license/contract. This production data is thus disaggregated by location. There are significant stakeholder concerns (from all constituencies) over the reliability of official extractives production data, while the official government statistics cover formalised mining activity under licensed areas.

3.3Export data

Afghanistan’s Customs Department now systematically discloses export volumes and values for each mineral commodity exported for the 2016-2019 period. While confirming the lack of oil and gas exports in 2016-17, Afghanistan’s most recent EITI reporting has also provided more granular information on mineral exports for companies in the scope of the EITI Report, providing information on export destinations and relevant customs offices. Stakeholders from all constituencies have expressed concerns over the reliability of official mineral export data.

Revenue collection

4.1Comprehensiveness

The 2016-17 EITI Report includes a definition of the materiality thresholds for payments and companies to be included in reconciliation, including a justification for why the thresholds were set at the agreed levels. The MSG was involved in setting the materiality threshold for payments and for companies. All material companies and government entities reported comprehensively all material payments and revenues in the 2016-17 EITI Report and full unilateral government disclosure of extractive revenues was provided. The EITI Report includes the IA’s assessment that reconciled financial data is comprehensive. The two extractive SOEs published their audited financial statements for the first time, although other extractive companies have not.

4.2In-kind revenues

Not applicable

This requirement is not applicable in Afghanistan.

4.3Infrastructure provisions and barter arrangements

4.4Transportation revenues

Not applicable

The 2016-17 EITI Report and its addendum confirm the lack of government revenues from the transportation of extractive commodities.

4.5SOE transactions

The 2016-17 EITI Report and the two extractive SOEs’ financial statements published online demonstrate the materiality of the two SOEs, Afghan Gas Enterprise and North Coal Enterprise. While the report confirms the lack of company payments to the two SOEs and the lack of AGE dividend payments to government, the significant dividend payments from NCE to the Ministry of Finance are only unilaterally disclosed by the MoF, not reconciled with NCE disclosures. There is no evidence of any other ad hoc payments from the SOEs to government, nor of government transfers to the two SOEs in the period under review.

4.6Subnational payments

4.7Level of disaggregation

4.8Data timeliness

The 2014-15 EITI Report was published within extended deadline agreed by the EITI Board.

4.9Data quality and assurance

The reconciliation of payments and revenues has been undertaken by an IA, appointed by the MSG, and applying international professional standards. The MSG agreed ToR for the production of the 2016-17 EITI Report consistent with the standard ToR and agreed upon procedures issued by the EITI Board, and applied these ToR and procedures in practice. The approach to data reliability is focused on more robust assurances from government than from companies. The final report provides a clear statement from the IA on the comprehensiveness and reliability of the reconciled financial data, alongside an informative summary of the work performed by the IA, the limitations of the assessment provided, and the final reconciliation coverage.

Revenue allocation

5.1Distribution of revenues

Afghanistan’s EITI reporting has confirmed that all extractive revenues are transferred to the single Treasury account. There is some publicly-available budget information on government websites (Directorate General of Budget and Supreme Audit Office). However, review of NCE’s financial statements reveal a large discrepancy in the value of its dividend (net profit to the MoF) compared to figures reported by the MoF in the EITI Report.

5.2Subnational transfers

Not applicable

The 2014-15 EITI Report describes the statutory provisions for subnational transfers of mining revenues and explains the MSG’s assessment that the requirement was not applicable given the lack of implementation of the legal provisions to date.

5.3Revenue management and expenditures

Not assessed

The MSG made modest efforts to include some information on the government accounting process.

Socio-economic contribution

6.1Social and environmental expenditures

Afghanistan’s 2016-17 EITI Report describes mandatory social expenditures in both mining and oil and gas and discloses them for three of the material companies. However, the MOMP published a review of material companies’ mandatory social expenditures in early 2020, which provides a comprehensive review of contractual social expenditure requirements in material companies’ operating contracts and discloses their mandatory social expenditures based on reports to MOMP provincial offices. The information provided includes disaggregation between cash and in-kind, deemed value and the identity of non-government beneficiaries for some, but not all, mandatory social expenditures. The report describes environmental payments to government, although the MSG’s approach to materiality means that these were not included in the scope of disclosures.

6.2SOE quasi-fiscal expenditures

While the MSG has agreed a definition of quasi-fiscal expenditures and considered some forms of quasi-fiscal expenditures, it has not yet undertaken a comprehensive review of all possible types of quasi-fiscal expenditures. The 2016-17 EITI Report and addendum describe the MSG’s definition of quasi-fiscal expenditures. While the report and its addendum provide some coverage of SOEs’ quasi-fiscal expenditures in 2016-17, they do not provide disclosures to levels of disaggregation commensurate with other payments and revenues. After the start of Validation the MSG published a note with calculations of the value of quasi-fiscal expenditures for two of the three types of activities it considered quasi-fiscal in 1395-1396.

6.3Contribution of the extractive sector to the economy

The 2016-17 EITI Report and its addendum provide, in absolute and relative terms, the extractives industries’ contribution to GDP, government revenues, exports and employment, albeit not disaggregated by gender. The MOMP provides granular information on extractives licenses in a map-based user interface. Gender-disaggregated employment data does not appear to be publicly available for the extractive industries. Nonetheless, the MSG has included plans to publish gender-disaggregated data in line with the AEITI’s 2020 work plan and gender policy. The MOMP has published some information on estimates of illegal mining on its website, alongside the government’s strategy for formalisation of artisanal and small-scale mining.

6.4Environmental impact

Not assessed

Implementing countries are not required to address environmental impact and progress with this requirement does not have any implications for a country’s EITI status. It is encouraging that Afghanistan has made efforts to disclose aspects of environmental laws, regulations and procedures.

Outcomes and impact

7.1Public debate

EITI data is accessible in a range of both digital and paper-based communications materials have been produced and disseminated. The AEITI Secretariat has led many outreach and dissemination events in the capital city and key mining regions, within broader security and logistical constraints. The relative disengagement of MSG members from outreach and dissemination activities has however led to limitations in the impact of the EITI to date. Stakeholders from different constituencies expressed concern at the lack of translation of some systematic disclosure, such as the Transparency Portal, into local languages.

7.2Data accessibility and open data

Afghanistan has agreed an Open Data Policy in accordance with Requirement 7.2.a and has made data available in an open data format online, publicising its availability. Government agencies have started publishing some data in an open format, even if company systematic disclosures lag behind. Summary data files have been prepared for each fiscal year covered by the EITI in accordance with the template approved by the EITI Board.

7.3Follow up on recommendations

Afghanistan has made progress in implementing recommendations made in EITI Reports, even if there remains concern from some civil society stakeholders over the repetition of similar recommendations in successive EITI Reports. There is clear evidence of consistent follow-up on recommendations particularly since the publication of the latest EITI Report in June 2019. The MSG has taken steps to act upon lessons learned and monitoring progress with the implementation of recommendations from EITI reporting and Validation. Together with the IA and through a dedicated technical working group, efforts have been made to identify, investigate and address the causes of discrepancies in EITI reporting.

7.4Review of outcomes and impact of implementation

The 2019 annual progress report, combined with the 6th AEITI Report addendum, provide coverage of all aspects of Requirement 7.4 including reviewing outcomes and impacts of EITI implementation to date. Adequate opportunities appear to have been provided for different stakeholders to provide input. Both the annual progress report and the addendum provide an anecdotal review of the impact of EITI implementation.