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The Board agreed that Malawi has made meaningful progress in implementing the 2016 EITI Standard.

Outcome of the Validation of Malawi

Decision reference
2019-18 / BM-42
Decision basis
2016 EITI Standard, Requirement 8.3 EITI Validation deadlines and consequences

Board decision

Following the conclusion of Malawi’s Validation of 2018, the EITI Board concluded that Malawi has made meaningful progress overall in implementing the EITI Standard.

The Board commended the Government of Malawi and the multi-stakeholder group for their efforts to enhance transparency in the management of its extractive industries and encourages continued progress. Despite the modest size of its extractive industries, Malawi has successfully established a platform for multi-stakeholder dialogue on extractives governance to drive improvements in transparency and accountability. The Board recognised that consistent follow-up on recommendations from EITI reporting, together with the Ministry of Finance’s hosting of Malawi EITI (MWEITI), have helped drive concrete reforms. Advances in fiscal and contract transparency, as well as the launch of an online license cadastre and publication of extractives contracts, have helped create the basis for governing the sector in an inclusive and equitable manner. In taking this decision, the Board welcomed Malawi’s efforts to go beyond the requirements of the EITI Standard in disclosing extractives production data, providing an effective diagnostic of inconsistencies across various sources. The Board encouraged the government to continue work on systematic disclosures of EITI data and efforts to ensure beneficial ownership transparency as a means of strengthening effective government oversight of the extractive industries.

The Board nonetheless encouraged additional efforts to ensure that published extractives information is complete and reliable in order to further build trust and accountability. Malawi is encouraged to ensure that transparency in revenue flows in its developing petroleum sector as well as companies’ social expenditures is commensurate with the clarity achieved in mining. While noting that financial sustainability remains a significant challenge, the EITI Board commended the government’s existing support for MWEITI and encourages further institutionalisation of its support for this platform for multi-stakeholder dialogue and governance. These improvements could help support the translation of transparency into greater accountability in the management of the extractive industries and help support their development into a key driver of economic growth over the medium term.

The Board determined that Malawi will have 18 months, i.e. until 27 August 2020 to carry out corrective actions regarding requirements relating to industry engagement (1.2), work plan (1.5), license register (2.3), data comprehensiveness (4.1) and quality (4.9), distribution of revenues (5.1), mandatory social expenditures (6.1) and outcomes and impact of implementation (7.4). Failure to achieve meaningful progress with considerable improvements across several individual requirements in the second Validation will result in suspension in accordance with the EITI Standard. In accordance with the EITI Standard, Malawi 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 September 2018. In accordance with the 2016 EITI Standard, an initial assessment was undertaken by the International Secretariat. The findings were reviewed by an Independent Validator, who submitted a draft Validation report to the multi-stakeholder group for comment. The multi-stakeholder group’s comments on the report were taken into consideration by the Independent Validator in finalising the report, who also responded to the multi-stakeholder group’s comments. The final decision was taken by the EITI Board.

Corrective actions and strategic recommendations

The EITI Board agreed the following corrective actions to be undertaken by Malawi. Progress in addressing these corrective actions will be assessed in a second Validation commencing on 27 August 2020:

  1. In accordance with Requirement 1.2, the company constituency should seek to extend the membership of the Chamber of Mines or find other ways to ensure that the broader industry constituency is fully engaged and that all extractive companies have a channel to participate.

  2. In accordance with Requirement 1.5, Malawi should ensure that the work plan is based on consultations with stakeholders beyond multi-stakeholder group members, that sources of funding are identified for the activities and that the work plan is made widely available to the public. The multi-stakeholder group should use the work plan as a tool for discussing, identifying and addressing challenges and ambitions related to the scope of EITI reporting.

  3. In accordance with Requirement 2.3, Malawi should work with key stakeholders in the EITI process to ensure that the date of application, date of award and duration of the license is included for petroleum licenses in the cadastre.

  4. In accordance with Requirement 4.1, Malawi should work with the Department of Mines to ensure that all receipts from extractive companies are included more clearly in the report, including all mandatory social contributions and payments to the Petroleum Training Fund.

  5. In accordance with the overall objective of Requirement 4.9, and to improve on adherence to quality assurance procedures by industry, the MSG should review the agreed quality assurances that companies must provide for EITI reporting. They may also consider extending deadlines for data submissions and work more closely with companies to ensure that reporting templates and quality assurances are fully met. Several stakeholders highlighted benefits of data collection simultaneously to regular and annual audit procedures, which industry stakeholders clearly indicated they were in favour of. Malawi may also wish to ensure that all the submitted data is publicly accessible by publishing the data online. This would also enhance the timeliness of MWEITI data.

  6. In accordance with Requirement 5.1.a, Malawi should indicate which extractive industry revenues are not recorded in the national budget and provide amounts for these said revenue streams. Training fees included in the 2015-16 are reported as zero although all stakeholders provided statements to the contrary; stakeholders confirmed the existence of training fee payments from companies to the Department of Mines during the period under review, and that no reports nor data is available concerning the amounts nor management of these off-budget funds. The multi-stakeholder group should therefore work with the Department of Mines to ensure that a comprehensive overview is provided for the management of the Petroleum Training Fund, including incoming revenues to the fund. Such an overview could also include the precise allocations and use of the finances of the fund.

  7. In accordance with Requirement 6.1.a, Malawi should ensure that social expenditures by companies which are mandated by law or contract with the government are disclosed. Such payments should be disaggregated by whether provided in cash or in kind, and by the identity and function of non-government beneficiaries. The nature of in-kind contributions should be explained and where possible, these disclosures should be adequately reconciled. If not possible to reconcile, Malawi is encouraged to provide an explanation.

  8. In accordance with Requirement 7.4, Malawi EITI should document the impact of EITI implementation in annual progress reports and assess progress towards meeting EITI requirements with a focus on specific sub-requirements as outlined in Requirement 7.4.a.ii.

The government and the MSG are encouraged to consider the other recommendations in the Validator’s Report and the International Secretariat’s initial assessment, and to document the MSG’s responses to these recommendations in the next annual progress report.

Background

The Government of Malawi committed to implementing the EITI on 17 June 2014. On 22 October 2015 the EITI Board accepted Malawi as an implementing country. By the commencement of Validation, Malawi has published two EITI Reports. The fiscal year in Malawi runs from 1 July to 30 June. The first one covers the fiscal year 2014-2015 and was published in June 2017. The second covers fiscal year 2015-2016 and was published in June 2018. Both were produced by Moore Stephens and Malawi is developing the terms of references for their third report at the time of writing.

On 25 October 2016, the Board agreed that Malawi’s Validation under the 2016 EITI Standard would commence on 1 September 2018. In accordance with the Validation procedures, an initial assessment [English] was prepared by the International Secretariat and a draft Validation report was prepared by the Independent Validator [English | French]. Comments from the MSG were received on 28 January 2019 [English] to which the Independent Validator responded on 1 February. None of the MSG’s comments targeted specific assessment nor caused the Independent Validator to alter any of their assessments. The Independent Validator then finalised the Validation report [English | French].

The Validation Committee reviewed the case on 6 February 2019. Based on the findings above, the Validation Committee agreed to recommend the assessment card and corrective actions outlined below.

The Committee agreed to recommend an overall assessment of “meaningful 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. Meaningful progress. The country will be considered an EITI candidate and requested to undertake corrective actions until the second Validation. 

The Validation Committee agreed to recommend a period of 18 months to undertake corrective actions. This recommendation takes into account that the challenges identified are significant and seeks to align the Validation deadline with the Malawi’s reporting deadlines of 30 June annually.

Scorecard for Malawi: 2019

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 is fully engaged, and agencies are cooperating to address recommendations from reporting and EITI Requirements.

1.2Company engagement

Companies participate actively in the MSG’s work, and the Chamber of Mines and Energy effectively engages with its members on EITI issues. However, companies not members of the chamber have limited opportunities to participate, and there is a lack of adherence to data quality assurances agreed by MSG (see Requirement 4.9).

1.3Civil society engagement

Civil society is an active stakeholder in the process and can fully engage. CSOs support the EITI, use it to promote reforms and produce analysis of the sector. Networks that enable coordination have been successfully formed.

1.4MSG governance

The MSG functions in an equitable and effective manner, and the ToR is followed. Constituencies are adequately represented. The nomination process of CSO members was free and transparent.

1.5Work plan

The work plan is linked to priorities and includes relevant activities, but the level of stakeholder consultation remains unclear and funding has not been identified for most activities. The plan has not been widely available to the public.

Licenses and contracts

2.1Legal framework

MWEITI provides a description and overview of the existing legal and fiscal frameworks. This also encompasses on-going reforms and recommendations for further reforms.

2.2License allocations

License awards are covered while no transfers occurred during the reporting period. The process for awards and transfers are fully detailed in legislation and in the report. No evidence suggests any deviations from statutory procedures. Descriptions of technical and financial criteria used, though limited, is deemed sufficient.

2.3License register

The Department of Mines systematically discloses information through a license registry. Coordinates are not explicitly detailed, but contracted areas are visible on a scale of 1:5,000. The score has been downgraded due to limitations with petroleum license data.

2.4Policy on contract disclosure

The 2015-16 EITI Report describes key provisions and regulations related to contract transparency. There is no government policy preventing disclosure of contracts. The government has not published contracts themselves, but the report and MSG confirm that Malawi relies on third-party disclosures through ResourceContracts.org.

2.5Beneficial ownership

Not assessed

MWEITI has clarified the government’s policy and legislation on beneficial ownership disclosure. A beneficial ownership roadmap is published, and the report discloses beneficial owners for some companies. Legal owners of each material company are included in the report, referencing securities exchanges where several companies are listed.

2.6State participation

Not applicable

MWEITI demonstrates that the state participates through minority shares in two operations, that are not material or significant. Ideally, they should have clarified that status of the National Oil Company of Malawi (NOCMA) but publicly available data implies that NOCMA was not relevant during the period under review, according to the definition provided under Requirement 2.6.a.

Monitoring production

3.1Exploration data

The 2015-16 Report provides a current overview of the extractive industries, and lists the main type of mineral reserves, prospective projects, and a brief history of the sectors in Malawi.

3.2Production data

The report includes production volumes and values for each commodity, by company and license. MWEITI supplementing data from different sources when unavailable or unreliable. Malawi have gone beyond the minimum requirements by highlighting differences between different reports and provides recommendations for improving production statistics.

3.3Export data

The MWEITI Report covers available data for export volumes and values for all commodities, combining various sources to ensure comprehensiveness. Differences in numbers are noted, although the methodology for ensuring comparability is not identified.

Revenue collection

4.1Comprehensiveness

MWEITI succeeds in setting materiality thresholds for payments, revenue streams and for companies, adequately describe reporting entities, and identifies non-reporting companies and their payments. Omissions were not considered to influence comprehensiveness of reporting, however, the EITI Board could not guarantee that all payments were included.

4.2In-kind revenues

Not applicable

There are statutory provisions for royalties in mining, oil and gas sectors enabling in kind payments, at the discretion of the Minister of Natural Resources, Energy and Mining. However, the report and stakeholders confirm that no in-kind payments were made by either mining or petroleum companies during the period under review.

4.3Barter agreements

Not applicable

MWEITI claims there were no infrastructure nor barter arrangements. The report still describes one contract with such provisions, without stating if it is material. But, all stakeholders agreed that the contracts only cover social expenditures, not transactions of physical goods or terms in exchange for license awards; treated under Requirement 6.1.

4.4Transportation revenues

Not applicable

The report unilaterally discloses total government revenues from the mineral transportation sector. Concession fees amounted to MWK 336 715 113 in 2015-16, but since no company is partially owned by the government, nor involved in upstream extractive sector activities, the requirement is not applicable.

4.5SOE transactions

Not applicable

The International Secretariat’s initial assessment is this requirement is not applicable in Malawi. For more details please refer to requirement 2.6 on state participation and the existence of state-owned enterprises.

4.6Direct subnational payments

Not applicable

The 2015-16 MWEITI Report presents ambiguous statements of the applicability of direct sub-national payments in Malawi, but further documentation and stakeholder consultations confirm that no such fees are extractive specific nor material.

4.7Disaggregation

Reconciled financial data in the 2015-16 EITI Report is disaggregated by company, revenue stream and government entity. The report also presents recommendations for further disaggregation of data by individual project.

4.8Data timeliness

The MWEITI report was published within the two-year deadline of the EITI Standard, although online access was not as timely. Stakeholder consultations also revealed that companies are willing and able to provide more timely data, if provided with reporting templates in alongside other reporting processes.

4.9Data quality

MWEITI deviates from the standard procedures, but all are met by an expanded inception report. However, public access to the report must be ensured. The does not conclude that data is reliable, but stakeholders remain confident. However, contrary to the overall objective of #4.9, only three companies adhered to quality assurances, limiting data quality.

Revenue allocation

5.1Distribution of revenues

Extractive sector revenues are largely recorded in the single treasury account. Some revenues are retained internally in off-budget funds, such as the Petroleum Training Fund, managed by the Department of Mines. But significant information is missing or unclear, with no values reported through EITI or otherwise.

5.2Subnational transfers

Not applicable

The 2015-16 MWEITI Report presents ambiguous statements of the applicability of sub-national transfers in Malawi, but further documentation and stakeholder consultations confirm that there are no such transfers in Malawi.

5.3Revenue management and expenditures

Not assessed

MWEITI has made some attempt to including information on the budget-making process through references and documentation of the budget framework of Malawi for 2015-16. The general description of the key documents and procedures related to the budgeting process provides a clear guide for interested readers and users of the EITI Report.

Socio-economic contribution

6.1Mandatory social expenditures

The report covers mandatory social expenditures for two mining companies and all petroleum sector companies. But almost no payments are reported nor is any reason for lack of payments identified. Reported mandatory social payments are not disaggregated sufficiently. The report does describe and disclose voluntary social payments associated with one reporting oil and gas company.

6.2Quasi-fiscal expenditures

Not applicable

The International Secretariat’s initial assessment is this requirement is not applicable in Malawi. For more details please refer to requirement 2.6 on state participation.

6.3Economic contribution

Estimates are provided for the extractive sector’s contribution to gross domestic product, exports, government revenues and employment, and areas of significant operations. No estimates were provided for the informal sector’s contribution, although estimates are available for the artisanal and small-scale miners’ contributions.

Outcomes and impact

7.1Public debate

EITI Reports are comprehensible, and CSOs and the media are spreading awareness. Especially contract transparency has contributed to public debate. Data is available in open formats and its use is not restricted.

7.2Data accessibility

Not assessed

MWEITI has made efforts to make data accessible. There is further potential for systematic disclosures.

7.3Follow up on recommendations

MWEITI has produced remedial action plans, which it used to follow up on recommendations from reporting. Government agencies have collaborated to address recommendations, and the MSG has discussed progress.

7.4Outcomes and impact of implementation

The annual progress report captures activities and follow-up on recommendations but lacks a review of the impact of EITI implementation. The description of progress in meeting EITI requirements is vague.

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