How EITI is scaling up its collaboration with leading state-owned enterprises (SOEs) to champion transparency in the extractive industries.
There’s a myth that international oil and mining companies are the main players in the extractive sector today. In fact, state-owned enterprises dwarf the private sector companies in terms of reserves. There are currently over 146 SOEs in the upstream oil, gas or mineral sectors globally, controlling around 80% of the world’s oil reserves and 24% of mineral production. Many of these SOEs emerged a few decades ago as resource-rich countries increasingly wanted to get involved in the exploration, production and selling of their natural resources. They have evolved since then, sometimes taking on regulatory or other roles in the sector.
Despite, or perhaps because of, their importance and the significance of the revenues they manage, SOEs have often been associated with governance risks. A report recently published by EITI on governance risks typically associated with SOEs in the extractive sector shows that inadequate transparency and oversight is a major cause of mismanagement and large losses.
Incentivising SOEs to be ‘beacons of integrity’
Many think of the EITI as mostly being about revenue transparency, meaning disclosures of payments by private companies to the government. However, due to the role SOEs often play in managing significant revenues on behalf of the state, the EITI Standard includes requirements for public disclosures on SOEs engaged in the extractive industries. Currently 55 state-owned enterprises participate in the implementation of the EITI in 35 countries. At least 25 SOEs are represented in EITI multi-stakeholder groups. This regular engagement and reporting provide a unique basis for deepening SOE transparency and incentivising SOEs to be ‘beacons of integrity’, as Transparency International suitably coins it. The EITI also has one SOE, Equinor, represented on its Board and several among its supporting companies .
However, implementation also shows that some countries are struggling to meet the minimum requirements of the EITI Standard related to SOEs and their financial transactions. A key challenge is often that the audited financial statements are not publicly accessible. In response to this, the EITI Board recently decided to work more closely with SOEs that are leading on transparency.
SOEs often have a good case for improving transparency – it sends a strong signal to domestic stakeholders such as the government, domestic civil society and local media, as well as potential investors and business partners abroad. This can help them in their business ventures by attracting reputable partners and accessing credit. Many SOEs are already implementing innovative approaches to disclosures and public engagement. The EITI can facilitate peer learning with other SOEs that might be considering similar reforms.
Working in partnership with the SOEs and governments
Based on discussions with SOEs, the EITI will work in partnership with the companies and their governments to:
- Strengthen existing reporting frameworks to systematically disclose information required by the EITI related to SOEs. This may require working together with the SOEs, the ministry overseeing them and the supreme audit institutions.
- Develop internal disclosure frameworks and public disclosure policies. This will draw on the positive experience the EITI has had with improving disclosures on oil sales by SOEs as part of commodity trading efforts.
- Review existing disclosure rules and practices, and harmonise reporting. This could reduce duplicate and burdensome reporting. The EITI also provides a platform for analysing SOE disclosures and assessing whether statutory requirements related to SOEs are being implemented. A recent example of this is from the DRC, where an in-depth review of the financial reports of the SOEs revealed a lack of auditing, reporting and adequate transfer of funds to the treasury.
- Analyse disclosures to help address or communicate governance challenges. The EITI process can help analyse and communicate challenges raised by SOEs in implementing countries, such as why they are not receiving dividends from subsidiaries or companies in which they hold minority shares.
In working on enhancing SOE transparency, the EITI will be joining the ongoing efforts of governments, SOEs, leading organisations such as Chatham House, OECD, IMF and the World Bank, and civil society organisations such as Natural Resource Governance Institute and Transparency International.
For more information on EITI and SOE transparency, please see topics page on EITI and SOEs, and report authored by Andrew Bauer published by EITI on “Upstream Oil, Gas and Mining State-Owned Enterprises: Governance Challenges and the Role of International Reporting Standards in Improving Performance.”