This paper is a stocktake of commodity trading transparency in select EITI implementing countries, aiming to shed light on the extent to which the level of transparency about the first sales have improved as a result of the EITI's increased focus on commodity trading transparency.
One of the key objectives of the EITI is to shed light on the return that a country gets in exchange for its oil, gas and minerals.
In many resource-rich countries, payments by companies to the government for rights to extract resources happen in-kind, through physical transfers of oil, gas and minerals, rather than transfers of money. Physical revenues can also occur because the state or a state-owned enterprise (SOE) owns shares in a producing license.
The state or the SOE then sells these physical resources, often to trading companies or domestic refineries. In order for governments implementing the EITI to fully account for all revenues received from natural resources, it is therefore necessary to know how much revenue the state or SOE gets from the sales of these resources as well as whether these sale proceeds are transferred to the budget.
EITI Requirement 4.2 aims to ensure transparency in how governments are selling oil, gas and minerals:
“Where the sale of the state’s share of production or other revenues collected in-kind is material, the government, including state owned enterprises, are required to disclose the volumes sold and revenues received.”
According to this requirement, an SOE or other government agency in charge of marketing the state’s oil, gas and minerals must fully disclose the revenues that it collects from sales of such resources. This includes exports sales as well as sales to domestic buyers and refineries, and any other actors. This typically means that SOEs will disclose the volumes of commodities sold and the revenues received, broken down by buyer. In some countries, like Iraq, the buyers of the oil from the government also disclose how much they pay to the government, allowing for reconciliation of these figures.
EITI Requirement 4.2 also suggests further disclosures, notably “the type of product, price, market and sale volume”.
Implementation of this requirement has been particularly challenging for many EITI member countries. In June 2016, the EITI Board agreed to a targeted effort to increase transparency in commodity trading.
The objective is to assist implementing countries with significant commodity trading activities in identify and consider innovative mechanisms to increase transparency in revenues received from the commodity sales. This includes both implementation of EITI Requirement 4.2 as well as information on the allocations of rights to buy/trade in-kind revenues, sales contracts and revenue management.
Several EITI countries are part of the targeted effort to further transparency in commodity trade:
A working group has been established to support the targeted effort, consisting of international trading companies, NGOs, and SOE representatives.
In May 2017, the working group issued guidance on “first trade” reporting of crude oil sales. The guidance has three intended audiences: first, the EITI MSGs in implementing countries that will determine their respective country’s approach to reporting in this area; second the governments and SOEs that sell commodities, which can opt to directly disclose further information about these transactions; and third, buying companies who can use the guidance to inform their own reporting, or draw on it to achieve compliance with EITI MSG set reporting requirements in EITI implementing countries where they execute sales.