Kyrgyz Republic 2016 Validation

The Kyrgyz Republic's Validation commenced on 01 July 2016.

On 8 March 2017, Kyrgyz Republic was validated against the 2016 Standard

Validation is the EITI's quality assurance mechanism and measures the progress countries have made in meeting the requirements of the EITI Standard. For more information about the country, visit the country page on eiti.org.

The Board's decision

On 8 March 2017, the EITI Board came to the following decision on the Kyrgyz’s 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.

The Kyrgyz Republic's progress by requirement

The EITI Board agreed the following assessment card:

Corrective actions

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.
     
  14. 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.
     
  15. 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.
     
  16. 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.
     
  17. 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).
     
  18. 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).
     
  19. 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.
     
  20. 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.

Next Validation date

A second Validation will commence on 8 September 2018.

Impact of the EITI in the Kyrgyz Republic

Taken from section 3 (p. 83) of the initial data collection.

Despite having implemented the EITI for several years, there does not seem to be any tangible impacts of implementation. The Institutional set up study notes that “The conducted survey shows that each third respondent has noted a very slow progress in the EITI implementation in Kyrgyzstan. In addition, most of the respondents worried about lack of understanding at all levels, isolated and not interrelated actions of all structures involved in the EITI and low public awareness to promote the EITI” (p.9). During the initial information gathering, the International Secretariat came across different views on the impact of the EITI in Kyrgyz Republic. Although most of respondents agreed that the EITI was considered a positive development for the country, stakeholders found it hard to identify concrete impact examples.

The renewed SB members revisited the 2016 work plan only in June 2016, identifying the following objectives for EITI implementation: (1) improvement of natural resource governance; (2) transparency and accountability of the government in managing the extractive sector and (3) attraction of foreign investment. Given a short time period it is early to assess whether the objectives were met. However, it is highly unlikely that the SB developed indicators to evaluate progress on achieving these objectives, neither secured sufficient funding to conduct planned activities to lead to desired outcomes. Besides funding constraints, there does not seem to be enough government engagement to boost the EITI process. The SB members should work on an achievable work plan for 2017 and develop a fundraising policy to secure sufficient funding. The government should consider to contribute financially to ensure sustainable implementation of the EITI. This implies ensuring efficient functioning of the national EITI secretariat and annual reporting.

The dissemination activities carried out in 2016 targeted limited stakeholder groups consisting mostly of the SB members, conference participants, diplomatic missions and a few public receptions in extractive regions. These efforts have not generated nation-wide debate, neither measurable impact.

Government representatives acknowledge added value and opportunities behind the EITI implementation. Little work has been done to enable full, active and effective engagement of companies. Industry representatives admitted they had no understanding of the EITI and considered the EITI as yet another reporting burden. There is no evidence that the EITI has in any way influenced the investment climate in Kyrgyz Republic or attracted investors to the mining sector.

Civil society representatives highlighted transparency of Regional Development Funds and social package as potential areas where the EITI process could bring impact.  Local civil society said that benefited from the EITI. In particular, the EITI that gives access to information, helps communities understand to understand their rights and act in compliance with laws, empowers local communities to participate in decision-making and is used a conflict prevention tool.

Opportunities for increasing the impact of the EITI

Stakeholder consultations revealed a number of opportunities for increasing the impact of implementation:

Government:

  • Transparency of “social package”. The Law on Amendments and Additions to the KR Law on Subsurface No. 77 dated 24 May 2014 introduced social expenditures through the concept of a “social package”.  There still does not seem to be clear rules on these payments and how they can be applied to all companies. A government representative identified two areas where transparency is needed:
    • Defining the size of payments related to social package.
    • Monitoring the accountability of local authorities in disbursing  the social package to eliminate disputes related to conflicts of interest.
       
  • Beneficial ownership. Currently the Parliament revisits the Law on Subsoil that contains a provision to disclose beneficial owners. Even though the government supports beneficial ownership transparency, some members of the Parliament and industry see this as a burdensome and unattractive move. The EITI can be a tool for backing a strong legal framework on beneficial ownership and enable public access to BO information.
     
  • Mainstreaming.  All stakeholders acknowledged opportunities for integrating transparency in government systems. This would remove some of the reporting burden from companies, strengthen management of extractive industries, increase accountability of government and companies and ensure public access to data.

Civil society:

  • Ensure transparency in the Regional Development Funds. To date there are 46 newly-established Regional Development Funds that have already received payments from extractive companies and have no policy on use of money, accountability and assessment of how the money is spent. Transparency mechanisms for these funds are highly desired by the broader public.
  • Promote open data. Although SAGMR hosts an interactive map of mining licenses, this needs to be updated and there is a need to ensure capacity and financing for maintaining the website. It was noted that the online minerals map was out of date and should be upgraded. The data provided in the EITI reports was not in open data format disabling quality analysis and use of data.
  • License agreements were not yet disclosed. The EITI could facilitate contract and license transparency.

Industry:

  • Impact assessment. A company representative suggested to conduct an impact assessment to understand the value of EITI implementation. Having visible impact examples could ensure more active engagement of companies and their support.
  • Making data more understandable. Industry suggested that technical EITI reports ought to be translated into infographics and other more comprehensible communication materials targeted at local communities.