Role of state-owned enterprises

In 2012, the IMF reported that “some 80 percent of world petroleum reserves are controlled by state companies and 15 of the 20 largest oil companies are state-owned”. State-owned enterprises (SOEs) are less common or dominant in the mining sector but may still play an important role in some countries.

SOEs may own and operate projects, either outright or in joint ventures. State equity is used by many countries to secure additional government take (beyond tax revenue) from extractive projects. This is sometimes motivated by non-fiscal concerns such as: a desire for direct government ownership, a “seat at the table,” or to facilitate the transfer of knowledge. 

In many resource-rich countries, the state receives a share of oil, gas and minerals that are being produced. These physical revenues can occur because the state or a state-owned enterprise (SOE) operates or owns shares in a producing license, through the existence of production-sharing contracts, or when companies make payments such as royalties with physical commodities rather than money.

The state or the SOE then sells these physical resources, often to trading companies. In some countries, the management of the state’s share of oil and gas is often an area of perceived corruption and limited accountability. Lack of transparency about how much the state receives from the sale of its oil and gas also creates a distorted picture of government revenues from the extractive sector.

The EITI therefore requires detailed reporting on the role of SOE in the extractive industries, where this is applicable.

What the EITI requires of its member countries

Requirement 2.6 covers what the EITI Standard requires from member countries: 

Where state participation in the extractive industries gives rise to material revenue payments, implementing countries must disclose:

a) 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. 

For the purpose of EITI reporting, a SOE is a wholly or majority government- owned company that is engaged in extractive activities on behalf of the government. Based on this, the multi-stakeholder group is encouraged to discuss and document its definition of SOEs taking into account national laws and government structures.

b) Disclosures from the government and SOE(s) of their level of ownership in mining, oil and gas companies operating within the country’s oil, gas and mining sector, including those held by SOE subsidiaries and joint ventures, and any changes in the level of ownership during the reporting period. 

This information should include details regarding the terms attached to their equity stake, including their level of responsibility to cover expenses at various phases of the project cycle, e.g., full-paid equity, free equity, carried interest. Where there have been changes in the level of government and SOE(s) ownership during the EITI reporting period, the government and SOE(s) are expected to disclose the terms of the transaction, including details regarding valuation and revenues. Where the government and SOE(s) have provided loans or loan guarantees to mining, oil and gas companies operating within the country, details on these transactions should be disclosed.