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The Board agreed that the Kyrgyz Republic has made inadequate progress overall in implementing the 2016 EITI Standard.

Outcome of the Validation of the Kyrgyz Republic.

Decision number
2017-09
Decision basis
2016 EITI Standard, Requirement 8.3 EITI Validation deadlines and consequences
8 March 2017

Board decision

The Board came to the following decision regarding the Kyrgyz Republic's status:

The Board agrees that the Kyrgyz Republic has made inadequate progress overall in implementing the 2016 EITI Standard. In taking this decision the EITI Board noted the revival of the commitment by the Government of the Kyrgyz Republic and the important contributions by civil society and industry to the process. The Board highlighted that although there is a need for improvement in terms of disclosure of information related to the extractive sector, the EITI reporting process has underscored opportunities for reform. The Board was encouraged by the efforts of the government, industry and the civil society in the last couple of months and the Supervisory Board to act on the recommendations from EITI institutional setup study to strengthen EITI implementation. The Board was also encouraged by the efforts of the Supervisory Board to ensure disclosure of beneficial ownership and mandatory EITI reporting, amount of information disclosed under the EITI Standard available on government portals on monthly basis as well as increase of reporting companies and level of disaggregation.

The Board’s determination of Kyrgyz Republic’s progress with the EITI’s requirements is outlined in the assessment card, below. The EITI Board agreed that the Kyrgyz Republic had not made satisfactory progress on requirements 1.1, 1.4, 2.2, 2.3, 2.4, 2.6, 3.2, 3.3, 4.3, 4.4, 4.5, 4.6, 4.9, 5.2, 6.1.a, 6.2, 6.3, 7.1, 7.3 and 7.4. The major areas of concern relate to state participation (#2.6), export data (#3.3), barter agreements (#4.3), transportation revenues (#4.4), SOE transactions (#4.5), direct subnational payments (#4.6), data quality (#4.9), subnational transfers (#5.2), mandatory social expenditures (#6.1.a) SOE quasi-fiscal expenditures (#6.2) and follow up on recommendations (#7.3). The EITI Board disagreed with the validator on the following requirements: industry engagement (#1.2), work plan (#1.5), policy on contract disclosure (#2.4), production data (#3.2), comprehensiveness (#4.1), disaggregation (#4.7).

In accordance with requirement 8.3.c.iii, the EITI Board agreed that the Kyrgyz Republic will be suspended and will need to take corrective actions outlined below. Progress with the corrective actions will be assessed in a second Validation commencing on 8 September 2018. Failure to achieve meaningful progress with considerable improvements across several individual requirements in the second Validation will result in delisting in accordance with the EITI Standard. In accordance with the EITI Standard, the Kyrgyz Republic’s Supervisory Board may request an extension of this timeframe, or request that Validation commences earlier than scheduled.

The Board’s decision followed a Validation that commenced on 1 July 2016. In accordance with the 2016 EITI Standard, an initial assessment was undertaken by the International Secretariat. The findings were reviewed an Independent Validator, who submitted a Validation Report to the EITI Board. Kyrgyz Republic’s Supervisory Board were invited to comment throughout the process. The Supervisory Board’s comments on the report were taken into consideration. The final decision was taken by the EITI Board.

Corrective actions and strategic recommendations

The EITI Board agreed the following corrective actions. Progress in addressing these corrective actions will be assessed in the next Validation commencing on 8 September 2018:

  1. In accordance with requirement 1.1.c, the government must be fully, actively and effectively engaged in the EITI process. In accordance with requirement 8.3.c, the Supervisory Board is required to disclose a time-bound action plan for addressing the deficiencies in government engagement documented in the initial assessment and the Validator’s Report within three months of Board’s decision, i.e. by 8 June 2017.
     
  2. In accordance with requirement 1.4.b.vi, Supervisory Board should agree and publish its procedures for nominating and changing multi-stakeholder group representatives. This should include ensuring that there is a process for changing group members that respects the principles set out in Requirement 1.4.a.  Supervisory Board should undertake effective outreach activities with civil society groups and companies, including through communication such as media, website and letters, informing stakeholders of the government’s commitment to implement the EITI, and the central role of companies and civil society (requirement 1.4.b.ii).
     
  3. In accordance with requirement 2.2.a.iv, Kyrgyz Republic is required to disclose any non-trivial deviations from the applicable legal and regulatory framework governing license transfers and awards.
     
  4. In accordance with requirement 2.3.b, Kyrgyz Republic is required to maintain a publically available register or cadastre system(s)  that among other requirements include the  coordinates of the license area and the date of the application (requirement 2.3.b.ii-iii). Where coordinates are not collated, the government is required to ensure that the size and location of the license area are disclosed in the license register and that the coordinates are publically available from the relevant government agency without unreasonable fees and restrictions. Where registers or cadastres are incomplete the EITI Report should include the information set out in 2.3.b (requirement 2.3.c).
     
  5. In accordance with requirement 2.4.b, the next EITI Report should document the government’s policy on disclosure of license agreements that govern the exploration and exploitation of minerals. This should include actual disclosure practices and any reforms that are planned or underway.
     
  6. In accordance with requirement 2.6.a, Kyrgyz Republic must disclose an explanation of the prevailing rules and practices regarding the financial relationship between the government and state-owned enterprises (SOEs), e.g., the rules and practices governing transfers of funds between the SOE(s) and the state, retained earnings, reinvestment and third-party financing. It should also disclose their level of ownership in mining companies operating within the countries mining sector, including those held by SOE subsidiaries and joint ventures, and any changes in the level of ownership during the reporting period. Any loans or loan guarantees provided by the government or SOE(s) to oil, gas and mining companies operating within the country should be disclosed. (requirement 2.6.b).
     
  7. In accordance with requirement 3.2, Kyrgyz Republic must disclose production data for the fiscal year covered by the EITI Report, including the value of production by commodity, and by region where relevant.
     
  8. In accordance with requirement 3.3, Kyrgyz Republic must disclose export data for the fiscal year covered by the EITI Report, including total export volumes and the value of exports by commodity, and, when relevant, by state/region of origin.
     
  9. In accordance with requirement 4.3, the Supervisory Board and the Independent Administrator are required to consider whether there are any agreements, or sets of agreements involving the provision of goods and services (including loans, grants and infrastructure works), in full or partial exchange for oil, gas or mining exploration or production concessions or physical delivery of such commodities. Where the Supervisory Board concludes that these agreements are material, the Supervisory Board and the Independent Administrator are required to ensure that the EITI Report addresses these agreements, providing a level of detail and transparency commensurate with the disclosure and reconciliation of other payments and revenues streams. Where reconciliation of key transactions is not feasible, Supervisory Board should agree an approach for unilateral disclosure by the parties to the agreement(s) to be included in the EITI Report.
     
  10. In accordance with requirement 4.4, where revenues from the transportation of oil, gas and minerals are material, the government and state-owned enterprises (SOEs) are expected to disclose the revenues received. The Supervisory Board should evaluate the materiality of any transportation revenues collected by the government, and if applicable, endure an adequate disclosure process.
     
  11. In accordance with requirement 4.5, Supervisory Board must ensure that the reporting process comprehensively addresses the role of SOEs, including material payments to SOEs from oil, gas and mining companies, and transfers between SOEs and other government agencies.
     
  12. In accordance with requirement 4.6, it is required that the Supervisory Board establish whether direct payments, within the scope of the agreed benefit streams, from companies to subnational government entities are material. Where material, the multi-stakeholder group is required to ensure that direct company payments to subnational government entities and the receipt of these payments are disclosed and reconciled in the EITI Report.
     
  13. In accordance with requirement 4.9.b.iii, the Supervisory Board and the Independent Administrator are required to agree a Terms of Reference for the EITI Report based on the standard Terms of Reference and the ‘agreed upon procedure for EITI Reports’ endorsed by the EITI Board. Where the multi-stakeholder group concludes that there is routine disclosure of data required by the EITI Standard (e.g. Open Budget Portal) and is subject to credible audit, the MSG may seek approval from the EITI Board to mainstream EITI implementation in accordance with the ‘Agreed upon procedure for mainstreamed disclosures’ (Requirement 4.9.c).

In accordance with requirement 8.3.c.i, the Supervisory Board is required to disclose a time-bound action plan for addressing the weaknesses in data reliability documented in the initial assessment and the Validator’s Report within three months of Board’s decision, i.e. by 8 June 2017.

  1. In accordance with requirement 5.2.a, Kyrgyz Republic should disclose the revenue sharing formula, if any, as well as any discrepancies between the transfer amount calculated in accordance with the relevant revenue sharing formula and the actual amount that was transferred between the central government and each relevant subnational entity.
     
  2. In accordance with requirement 6.1.a, where material social expenditures by companies are mandated by law or the contract with the government that governs the extractive investment, Kyrgyz Republic must disclose and, where possible, reconcile these transactions. The Supervisory Board should establish the existence and materiality of mandatory and discretionary social expenditures and ensure that any material expenditures are disclosed in accordance with requirement 6.1.
     
  3. In accordance with requirement 6.2, Kyrgyz Republic must include disclosures from SOE(s) on their quasi-fiscal expenditures. The Supervisory Board is required to establish the materiality of any quasi-fiscal expenditures and develop a reporting process with a view to achieving a level of transparency commensurate with other payments and revenue streams, and should include SOE subsidiaries and joint ventures.
     
  4. In accordance with requirement 6.3, implementing countries must disclose information about the contribution of the extractive industries to the economy for the fiscal year covered by the EITI Report, including the size of the extractive industries in absolute terms and an estimate of informal sector activity (requirement 6.3.a). Total government revenues generated by the extractive industries (including taxes, royalties, bonuses, fees, and other payments) in absolute terms should also be disclosed in the next EITI Report (requirement 6.3.b).
     
  5. In accordance with requirement 7.1, Supervisory Board must ensure that the EITI Report is comprehensible, actively promoted, publicly accessible and contributes to public debate. Key audiences should include government, parliamentarians, civil society, companies and the media. The Supervisory Board should ensure that outreach events, whether organised by government, civil society or companies, are undertaken to spread awareness of and facilitate dialogue about the EITI Report across the country (requirement 7.1.e).
     
  6. In accordance with requirement 7.3, the Supervisory Board is required to take steps to act upon lessons learnt; to identify, investigate and address the causes of any discrepancies; and to consider the recommendations resulting from EITI reporting.
     
  7. In accordance with requirement 7.4, the Supervisory Board is required to review the outcomes and impact of EITI implementation on natural resource governance. The Supervisory Board is required to list each recommendation and corresponding activities that have been undertaken to address the recommendations and the level of progress in implementing each recommendation through the annual activity reports (APRs) (requirement 7.3.a.iii). The APR should also include a narrative account of efforts to strengthen the impact of EITI implementation on natural resource governance, including any actions to extend the detail and scope of EITI reporting or to increase engagement with stakeholders (requirement 7.3.a.v).

The Supervisory Board is encouraged to consider the other recommendations in the Validator’s Report and the International Secretariat’s initial assessment, and to document the SB’s responses to these recommendations in the next annual progress report.

Background

The government of Kyrgyz Republic committed to implement the EITI in January 2004. A multi-stakeholder group, the Supervisory Board (SB) was formed in December 2010. The Kyrgyz Republic has subsequently published five EITI Reports covering eleven fiscal years (2004-2014).

The Validation process commenced on 1 July 2016. In accordance with the Validation procedures, an initial assessment was prepared by the International Secretariat. The MSG were invited to comment. Comments were received and shared with the Validator. The assessment was then reviewed by the Independent Validator, who prepared the Validation Report. The MSG were invited to comment on the Report. Again, comments were received from the MSG, the MSG Vice Chair, the industry constituency and the Independent Administrator.

The Validation Committee reviewed the case on 15 February 2017. Based on the findings above, the Validation Committee agreed to recommend the assessment card and corrective actions outlined below. As per Requirement 8.3.c. this includes a requirement that the MSG agrees and discloses a time-bound action plans for addressing weaknesses in government engagement and data quality and assurance within 3 months.

The Committee also agreed to recommend an overall assessment of “inadequate progress” in implementing the 2016 EITI Standard. Requirement 8.3.c. of the EITI Standard states that:

ii.    Overall assessments. Pursuant to the Validation Process, the EITI Board will make an assessment of overall compliance with all requirements in the EITI Standard.

iii (c) Inadequate progress. The country will be suspended and requested to undertake corrective actions until the second Validation. For the suspension to be lifted, the country must in its second Validation demonstrate at least meaningful progress.

The Validation Committee agreed to recommend a period of 18 months to undertake the corrective actions.

Scorecard for Kyrgyz Republic: 2016

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 was actively engaged in the EITI implementation at the early stages, and has recently taken more ownership and resumed a more active role. However, in the period 2012-2015, government engagement was low and this significantly affected progress with implementation.

1.2Industry engagement

Although there is significant scepticism and to some extent active lobbying against the EITI within parts of the company constituency, some companies have been actively engaged through participation in MSG meetings. Many companies, including all large tax payers, participate in EITI reporting. The renewed industry engagement is welcome.

1.3Civil society engagement

There is an enabling environment for civil society to operate in the Kyrgyz Republic, and no concerns about civil society’s ability to participate in the EITI process.

1.4MSG governance

The EITI national multi-stakeholder group (Supervisory Board) comprises relevant actors and all stakeholders feel adequately represented. However, stakeholder consultations raised concerns as to whether the recent civil society nomination to the MSG was open and transparent. A recently updated Memorandum of Understanding, including a Terms of Reference, for the MSG addresses the requirements of the EITI Standard, although it is too early to assess implementation of the Memorandum of Understanding.

1.5Work plan

The MSG has agreed an up to date work plan for 2016, with objectives for EITI implementation that are linked to national priorities for the extractive sector, as well as costed and time bound work plan activities and actions. Future work plans need to be clearer about the link between the work plan activities and the work plan objectives, and include more specific deadlines for each activity. It is also recommended that the Supervisory Board urgently agrees a fund raising strategy including plans for partial government funding in the future.

Licenses and contracts

2.1Legal framework

The 2013-14 EITI Report contains a comprehensive description of the legal framework including a detailed overview of the fiscal regime, changes to the legal framework, and reforms underway. Responsibilities of government entities involved in the management of the extractive sector are described. The fiscal system is centralised, with local governments only collecting property tax and land tax.

2.2License allocations

The 2013-2014 EITI Report includes an overview of licensing activity in 2014, and an explanation of the process for allocating licenses. This includes the technical and financial criteria used for tenders, auctions and direct negotiations. Procedures for transferring, suspending and revoking of licenses are described. Although the report provides significant information on the 14 tenders, it lacks full disclosure of whether all license allocations in 2014 followed the stipulated licensing procedures and standard technical and financial criteria. The 2013-2014 EITI Report includes extensive information on challenges in the licensing system as well as government plans for improving the licensing system.

2.3License register

Although the 2013-2014 EITI Report states that Kyrgyz Republic does not have a mining cadastre, the State Agency for Geology and Mineral Resources (SAGMR) has an online register of mining licenses that includes the name of the deposit, the name and contact details of the license holder, the location and size of the license area, the type of mineral for which the license is valid for, and the award and expiry dates of the license (p.116). It does not include coordinates or the date of application for the licenses. This information is maintained by SAGMR, but not available to the public.

2.4Policy on contract disclosure

The 2013-2014 EITI Report does not describe the government’s policy or reforms underway with regards to contract transparency. It notes that in practice, details on the obligations contained in the license agreement are not public.

2.5Beneficial ownership

Not assessed

The Kyrgyz Republic took part in the beneficial ownership pilot, but only four companies disclosed their ultimate beneficial owners. The 2013-2014 EITI Report confirms that as of 2014, companies must disclose their beneficial owners when applying for a license and notify the government in case of changes in beneficial ownership. Failure to do so constitute grounds for revoking the license in accordance with the Subsurface Law.

2.6State participation

The 2013-2014 EITI Report notes that the State has interests in 11 state-owned companies engaged in the extractive sector. Only one of these companies – KyrgyzAltyn OJSC – is described in some detail. There is no information about the rules and practices governing the financial relationship between the State and the companies in which the State has an interest, nor does the report disclose the level of ownership of the State in the 11 companies and their subsidiaries (if any). It is unclear if there are any changes in government ownership in SoEs or mining projects in 2014. There is also no information on loan or loan guarantees provided by the State or by SoEs to other oil, gas and mining companies.

Monitoring production

3.1Exploration data

The EITI Report provides a comprehensive overview of mineral resources and deposits, including “attractive” extractive projects, most of which are significant exploration projects.

3.2Production data

The 2013-14 EITI Report provides production volumes by commodity. The data is not disaggregated by state or region. Production values are not disclosed.

3.3Export data

Kyrgyzstan exports gold and coal, and some other minerals. Only limited export statistics are available in the report. Comprehensive disclosure of export volumes and values per commodity are not provided.

Revenue collection

4.1Comprehensiveness

In accordance with requirement 4.1, the Supervisory Board has agreed a list of material revenue streams, agreed reporting thresholds for companies, and identified the reporting entities. Although the Independent Administrator was not consulted on the templates, neither the Independent Administrator nor other stakeholders have expressed any concern about the revenues covered in the template. Some government entities and companies did not report, nor has the government disclosed total government revenues. However, per consultations with the Independent Administrator, the omissions appear to be immaterial and payments by companies can be accessed online from the portal www.budget.okmot.kg. Stakeholder consultations during the initial assessment reveal a need for modernising the reporting format currently in use, moving away from hard copy format to an electronic system.

4.2In-kind revenues

Not applicable

The 2013-14 EITI Report does not provide information on whether the government collects revenues in-kind. Government officials confirmed that in-kind revenues are not practiced.

4.3Barter agreements

The 2013-14 EITI Report does not provide information on infrastructure and barter transactions, nor does the MSG appear to have discussed the issue.

4.4Transportation revenues

The 2013-14 EITI Report does not provide information on revenues from transportation of oil, gas or minerals material. There were conversations with the Independent Administrator and the National Statistics Committee about disclosing this information, however the data was not available.

4.5SOE transactions

It has not been possible to ascertain whether there are other transactions between the government and SoEs beyond regular payments by the company to the government.

4.6Direct subnational payments

It has been difficult to ascertain what type of payments, if any, are collected by local governments and the materiality of such payments. It does not appear that the MSG has adopted a systematic approach to defining payment flows from companies to subnational governments nor identified a workable approach to EITI reporting.

4.7Disaggregation

Data is disaggregated by individual payment, individual company and individual government entity. The data is not presented by project.

4.8Data timeliness

The draft 2013-2014 EITI Report was published online on 31 December 2015. The final 2013-2014 EITI Report was published and distributed among stakeholders on 16 February 2016.

4.9Data quality

The MSG has significantly deviated from the “agreed upon procedures” with regards to the inception phase and data collection phase. The MSG did not consult the Independent Administrator on the reporting templates in accordance with requirement 5.2(a). There is no evidence that a review of audit and assurance practices were undertaken prior to data collection in accordance with requirement 5.2(b) and the Independents Administrator was not involved in any discussion about data assurances in accordance with requirement 5.2(c). Furthermore, there has been limited discussion about potential conflicts of interest in having the national secretariat and SAGMR responsible for collecting data from companies and government entities.

Revenue allocation

5.1Distribution of revenues

The 2013-14 EITI Report provides a list of revenues recorded in the national and local budgets. Stakeholders confirmed that all revenues are allocated in the budget.

5.2Subnational transfers

The 2013-14 EITI Report notes the creation of statutory regional development funds and transfer mechanisms between national and subnational governments. Although it is unlikely that any transfers took place in FY 2013-14, there is limited transparency and understanding of how the current transfer mechanisms work.

5.3Revenue management and expenditures

Not assessed

The 2013-14 EITI Report provides a description of the budget process, and auditing practices for state finances. The 2013-14 EITI Report also provides an overview on establishment of regional development funds - oblast and district levels that were introduced in November 2014 and that will receive a share of extractive related non-tax payments.

Socio-economic contribution

6.1Mandatory social expenditures

The 2013-14 EITI Report explains that the amendments to the subsoil use law in 2014 introduced social expenditures (“social package”) by extractive companies. The report gives no detail on how these programmes are developed, nor any details on expenditure apart from related to the Kumtor project. The report does not disclose details regarding the value and beneficiaries of the social expenditures in 2014. Some social expenditures are also voluntary, and the report does not clearly delineate between voluntary and mandatory social expenditures.

6.2Quasi-fiscal expenditures

The 2013-14 EITI Report does not address quasi-fiscal expenditures of state-owned enterprises, nor is there any evidence that the MSG has discussed this. Stakeholder consultations reveal that quasi-fiscal expenditures exist.

6.3Economic contribution

The 2013-14 EITI Report provides an overview of the contribution of extractive industries, including share of the extractive industries in GDP, share in total revenues, share of exports, employment in absolute terms and percentage in total employment, as well as main region of production. The report does not address the size of extractive industries in absolute terms; an estimate of informal sector; and total government revenues generated by the extractive industries in absolute terms.

Outcomes and impact

7.1Public debate

The MSG has taken limited steps to ensure that the EITI Report is actively promoted within public. Incompleteness of planned dissemination activities is due to the lack of funds.

7.2Data accessibility

Not assessed

Kyrgyz Republic’s EITI does not yet provide EITI data in easily accessible format. The MSG held a discussion to address this encouraged requirement, no actions were taken.

7.3Follow up on recommendations

There is little evidence about the discussion of the Independent Administrator’s recommendations by the members of the MSG following the publication of the Report.

7.4Outcomes and impact of implementation

The MSG has produced an account of activities undertaken in 2015 through their Annual Progress Report (APR). The APR notes the strengths and weaknesses of the EITI process in the Kyrgyz Republic and notes that the process was stalled in 2016 due to the changes within the institutional setup. The APR lacks an impact assessment.

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Kyrgyz Republic