Timor-Leste 2016 Validation

Timor-Leste's Validation commenced on 01 July 2016.

On January 11 2017, the EITI Board found that Timor-Leste has made meaningful progress in implementing the 2016 EITI 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 11 January 2017, the EITI Board came to the following decision on Timor-Leste's status: 

The Board agreed that Timor-Leste has made meaningful progress overall in implementing the 2016 EITI Standard. In taking this decision the EITI Board noted the strong commitment by the Government of Timor-Leste to EITI implementation and the effective oversight provided by the Timor-Leste Multi-Stakeholder Working Group (MSWG). The EITI Board highlighted that the EITI has provided a positive platform for discussion and debates about oil sector management, involving all stakeholders and the wider public. The EITI Board was encouraged by the government’s efforts to make government systems transparent and urged the MSWG to work towards further mainstreaming EITI disclosures.

The Board’s determination of Timor-Leste’ progress with the EITI’s requirements is outlined in the assessment card, below. The EITI Board agreed that Timor-Leste had not made satisfactory progress on requirements 1.2, 1.3, 1.4, 4.8, 4.9, 6.1 and 7.4. The major areas of concern relate to company engagement (#1.2), civil society engagement (#1.3), including capacity of civil society to carry out their duties (#1.4), disaggregation (#4.7), data quality (#4.9), social expenditures (#6.1) and documentation of impact (#7.4). The EITI Board disagreed with the validator on the following requirements: license registers (#2.3) and comprehensiveness (#4.1).

Accordingly, the EITI Board agreed that Timor-Leste will need to take corrective actions outlined below. Progress with the corrective actions will be assessed in a second Validation commencing on 11 January 2018. 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, the Timor-Leste Multi-Stakeholder Group 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. Timor-Leste’s Multi-Stakeholder Working Group were invited to comment throughout the process. The Multi-Stakeholder Working Group’s comments on the Report were taken into consideration. The final decision was taken by the EITI Board.

Timor-Leste's progress by requirement

The EITI Board agreed the following assessment card:

scorecard-timor-leste-2017.png

Scorecard legend short

Corrective actions

The EITI Board agreed the following corrective actions to be undertaken by Timor-Leste. Progress in addressing these corrective actions will be assessed in a second Validation commencing on 11 January 2018:

  1. In accordance with requirement 1.2, companies should demonstrate that they are fully, actively and effectively engaged in the EITI process. In accordance with requirement 8.3.c.i, the company constituency is requested to develop and disclose an action plan for addressing the deficiencies in company engagement documented in the initial assessment and validator’s report within three months of the Board’s decision, i.e. by <date>. The government should also ensure that there is an enabling environment for company participation with regards to relevant laws, regulations and administrative rules.
     
  2. In accordance with requirement 1.3.a, civil society should demonstrate that they are able fully, actively and effectively engaged in the EITI process. Specifically, civil society should ensure that they are able to fully contribute and provide input to the EITI process and that they have adequate capacity to participate in the EITI.  In accordance with requirement 8.3.c.i, the civil society constituency is requested to develop and disclose an action plan for addressing the deficiencies in company engagement documented in the initial assessment and validator’s report within three months of the Board’s decision, i.e. by 11 April 2017.
     
  3. In accordance with requirement 1.4.i, civil society members of the multi-stakeholder group should ensure that they have the capacity to carry out their duties.
     
  4. In accordance with requirement 4.7, the MSWG should ensure that the financial data disclosed is disaggregated by individual company, individual government entity and individual revenue stream. to the levels required by the EITI Standard.
     
  5. In accordance with requirement 4.9.c, the MSWG and the Independent Administrator should ensure that future EITI Reports are produced in accordance with the ‘agreed upon procedure for EITI reports’ as outlined in the standard Terms of Reference for EITI Reports developed by the EITI Board. Specifically, the MSWG should ensure that:
  1. The procedure for safeguarding confidential information do not disadvantage any stakeholders or create obstacles and delays to EITI Reporting;
     
  2. Future reporting templates are developed in consultation with the Independent Administrator and that there is no deviation from the templates approved by the MSG; and
     
  3. A review of prevailing auditing and assurance practices is undertaken and that assurances are agreed upon prior to commencing data collection.
     
  4. The Independent Administrator is viewed by all MSG members as credible, trustworthy, and technically competent.
  1. In accordance with requirement 6.1, the MSWG should ensure that mandatory social expenditures are disclosed, and where possible, reconciled. Specifically, with regards to local content commitments provided in-kind, the MSWG should ensure that the nature and the deemed value of each in-kind commitment is disclosed.
     
  2. In accordance with requirement 7.4.a.iv and v, the MSWG should ensure that future annual progress reports include an assessment of progress with achieving the objectives set out in its work plan, including the impact and outcomes of the stated objectives. The annual progress report should also include a narrative account of efforts to strengthen the impact of EITI implementation.  

The MSWG is 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.

Next Validation date

A second Validation will commence on 11 January 2018.

Impact of the EITI in Timor-Leste

Section 7.5 of the initial assessment (see Validation documentation).

  1. The impact of the EITI process in-country to date

The objectives for EITI implementation as agreed by the MSG are twofold: (1) to increase investment in the extractive sector; and (2) to increase public awareness and participation in decision-making related to the extractive sector.

Despite limited experience with implementation, stakeholders pointed to a number of perceived impacts.  Government officials highlighted four main impacts of the EITI, notably (1) the role of the EITI in attracting foreign direct investment. EITI was considered an opportunity for attracting large companies that can invest and generate resources that are needed for government reforms. There was no capacity among Tajik companies to develop the existing natural resources; (2) the contribution of the EITI in making company activities and payments transparent, maximising opportunities for tax collection; (3) increased understanding of whether the current tax regime is fit for purpose or whether there are gaps in the system. For example, there were ongoing debates related to whether the current signature bonus rates were fit for purpose; and (4) enabling dialogue about other challenges in the sector such as licensing. Some companies had faced challenges obtaining their licenses and the EITI was facilitating a dialogue on this issue. Government representatives also highlighted that it was the first time in the history of the country that a comprehensive report on the extractive sector had been produced, showing who is involved, the legal framework, explaining taxation etc. This was of tremendous value and helped ensure that people were not accusing the government of mismanagement of the sector. Finally, it was noted that last year the State Committee on Investment analysed the dynamics of the investment in the country and concluded that investment had increased since 2013. However, it was probably premature to attribute this positive trend to EITI implementation.

Companies said that EITI is a good opportunity for companies to share experience and get to know each other, not least given the lack of sector specific industry association and limited opportunities for companies to meet.  It was also highlighted that a positive result of the EITI was the publication of the EITI report which contained useful and informative data. Furthermore it was noteworthy that the production of the report had been a consolidated effort of three parties.

Civil society noted that it was too early to talk about impact. However, MPs were increasingly expressing interest in the EITI and civil society was now focusing on working closely with the parliament to engage them in the EITI process and work with them on improving the legal framework governing the mining sector.

  1. Opportunities for increasing the impact of the EITI

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

  • A company representative noted that there was no culture of sharing information in Tajikistan and it could be difficult for companies to obtain information such as data on which companies are involved in the extractive sector. When approaching the relevant authorities, the response was often that the information was not available to the public. The EITI could contribute to change this.
  • A civil society representative commented that although it was widely known that Tajikistan was rich in mineral resources, the EITI had not yet touched upon transparency in geological data. This could be considered for the future.

A government representative suggested that in the future, the EITI could focus more on how the money from the extractive sector is being spent. This was supported by civil society.

  • Another government official also commented that 80% of investment is in the mining sector and the implementation of the EITI would allow for a more transparent and efficient work of the companies investing in the country. The awareness raising of the EITI among local communities and local extractive companies could help building trust and explaining how the industry works.
  • Stakeholders also suggested that the EITI could be expanded to other sectors to cover construction or hydropower. Another opportunity could be to focus on public procurement in the extractive sector.
  • Civil society said that EITI had not really started to look at the environmental impacts of mining, and this was one area that communities were keen to explore.
  • A government official said that a major discussion at the moment was around signature bonuses, including how much it would be appropriate to charge, whether it should be a fixed bonus or dependent on the deposit, and whether it should be a one off payment or a staged payment. It was noted that the EITI could help by providing analysis on international standards and best practice, as well as examples of how this worked in other EITI countries.  
  • A government official said that in the future, there is a need for better analysis of the discrepancies in order to enable the government to understand and address the root causes of discrepancies.
  • A government official noted that it would be desirable with more networking and peer learning activities in order to increase impact. Others noted that in order for the EITI to have an impact there needed to be greater public awareness raising and more engagement with decision-makers in the government.