Income from the extractive sector – in the form of taxes, royalties, production shares, fees and bonuses – makes up a significant portion of the revenues of many EITI implementing countries. Countries are considered resource dependent when the contribution from their extractive sector exceeds one-fifth of total government revenues or export earnings.
A detailed understanding of company payments and government revenues can inform public debate about the governance of the extractive industries. Making revenue information public can help identify tax administration practices that are vulnerable to abuse, inform fiscal policies and strengthen tax administration, enhancing government’s ability to collect revenues from the extractive industries. As the energy transition gathers pace, understanding resource dependency and the impact of terms of trade on extractive projects is key for addressing the economic implications of the transition.
The EITI Standard requires the comprehensive, disaggregated and reliable disclosure of company payments and government revenues from the extractive industries, as well as disclosure of the contribution of the extractive sector to the economy. Disclosures related to revenue collection and economic contribution are covered by EITI Requirements 4 and 6.3.
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Revenue data reported through the EITI is classified according to the Government Finance Statistics Manual 2014 (GFS), to ensure comparability across countries and over time. EITI multi-stakeholder groups agree which payments and revenues are material and must be disclosed.
Governments, companies, analysts and civil society groups are increasingly drawing on EITI data to conduct financial modelling. This type of analysis can be a powerful tool for projecting future revenues from the sector and can help inform data-driven decisions that are sustainable. In Ghana, analysis of revenue from a proposed special purpose vehicle, Agyapa Royalty Limited, concluded that the proposed terms of the deal undervalued future revenue streams. The government subsequently suspended finalising the deal and has since undertaken further consultation with stakeholders.
The EITI has served as a platform for dialogue on the impact of the COVID-19 crisis on Colombia’s public finances. In October 2020, EITI Colombia published a study on how extractive revenues could contribute to economic recovery. Basing its analysis on future revenue expectations, the study offered recommendations on addressing economic dependence on coal, improving policies to maintain the sector’s competitiveness and using extractive royalty transfers to promote economic recovery at the regional and local level.
Financial modelling of oil revenue data was used in Nigeria to estimate the opportunity cost of failure to review Production Sharing Contracts (PSCs) concluded by the country in 1993. The contracts provided for their review 15 years after inception. The study undertaken in 2019 showed that the loss of revenue was in the order of USD 16 billion to 28 billion. It contributed to an amendment of the PSC Act in November 2019, introducing increased royalty rates, periodic reviews and stringent penalties for non-compliance.