Zambia 2017 Validation

Introduction

Zambia's Validation commenced on 1 January 2017.

On 25 October 2017, Zambia 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 25 October 2017, the EITI Board came to the following decision on Zambia’s status: 

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

The Board congratulates the Government of Zambia and national EITI stakeholders on the progress made in improving transparency and accountability in the extractive industries by providing timely and reliable information to the public, including civil society, media and affected communities. EITI has provided valuable information along the value chain, identified gaps and opportunities for strengthening monitoring of production, and improved the public understanding of the revenues generated from oil, gas and mining activities. This work is critical to tackling corruption and addressing tax evasion. The Board encourages the Government of Zambia to increase its leadership of the EITI as a tool to help identify gaps in the way the sector is managed and help identify solutions together with industry and civil society. This can help strengthen the links between Zambia EITI and ongoing government reforms.

After eight years of producing reconciliation reports, Zambia EITI is starting to move from focusing on the production of reconciliation reports to informing and shaping the policy dialogue in Zambia's mining sector. Consultations with stakeholders during Validation have demonstrated that there is a need to focus beyond production of EITI Reports to become a more active proponent of transparency and improved sector governance. This can be done by facilitating the use and analysis of available extractive sector data and coordinating policy discussions between the relevant stakeholders in government, industry and civil society.

The Board takes note of recent efforts by Zambia EITI to place beneficial ownership transparency on the government’s agenda, by participating in the beneficial ownership pilot and seeking to understand how to include provisions related to beneficial ownership disclosure in ongoing reforms.

The Board recognises Zambia’s achievement of satisfactory progress on requirements of the EITI Standard regarding the engagement of government, industry and civil society (1.1, 1.2 and 1.3), MSG governance (1.4), the EITI work plan (1.5), legal and fiscal framework (2.1), license register (2.3), exploration and export data (3.1 and 3.3), comprehensive disclosure of revenues (4.1), direct subnational payments (4.6), disaggregation, timeliness and quality of data (4.7, 4.8 and 4.9), public debate (7.1) and documenting outcomes and impact of implementation (7.4).

In an increasingly challenging environment for minerals-dependent countries like Zambia, Validation has helped highlight further opportunities for Zambia EITI to contribute to more informed policy and public debate, for example, on issues such as tax evasion and transfer pricing and oversight of the artisanal and small-scale mining sector. The Board notes that continuous and sustained engagement by stakeholders, and particularly high-level support by the government, is essential going forward.

Validation has further highlighted opportunities to make information on licensing more accessible. The Board encourages Zambia to progress their efforts to ensure that information on the licensing system is disclosed in a comprehensive and regular manner, building on ongoing work in the mining cadastre.

Through the regular engagement with the key stakeholders providing, collecting and verifying extractives data, Zambia EITI has the potential to support the government and industry in moving towards routine disclosures of the data currently provided in EITI Reports. This would help ‘mainstream’ extractives transparency and EITI reporting.

The Board has determined that Zambia will have 18 months to carry out corrective actions regarding the requirements relating to license allocations (2.2), clarity on the government policy on contract disclosure (2.4), production data (3.2), and follow-up on recommendations (7.3). The Board is encouraged by the progress that has been made to date, and urges the Government of Zambia to continue using the EITI process to build trust among stakeholders and ensure that there is reliable information available to help inform public debate and policy discussions related to the extractive sector.

Zambia's progress by requirement

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Recommendations

The EITI Board agreed the following corrective actions to be undertaken by Zambia. Progress in addressing these corrective actions will be assessed in a second Validation commencing on 25 April 2019.

  1. In accordance with requirement 2.2, Zambia should ensure annual disclosure of which mining, oil, and gas licenses were awarded and transferred during the year under review, highlighting the processes for transferring licenses, technical and financial requirements and any non-trivial deviations from the applicable legal and regulatory framework governing license awards and transfers. This could include the most recent information on the latest licensing rounds to improve the timeliness of the information on license allocations. The ZEC might consider ensuring that EITI reporting includes commentary on any deviations from the license allocation process and on the efficiency of the licensing process.
     
  2. In accordance with requirement 2.4 on contract disclosures, the ZEC should make sure that the description of the government’s policy regarding contract and license transparency in the next EITI Report is up to date and reflects the MMDA 2015. It should also clarify whether there are any laws or contractual provisions that affect disclosure of contracts in the petroleum sector. Further, the ZEC may wish to consider whether to include any descriptions regarding what information related to individual licenses is publicly available, such as work programmes and environmental impact assessments, and provide links to further information where applicable.
     
  3. In order to meet requirement 3.2 on production data, the government should ensure disclosure of production data for the fiscal year covered by EITI reporting, including total production volumes and the value of production by commodity. The ZEC should ensure that EITI reporting includes information on the progress made by the government in obtaining reliable production figures, and to refer to the existing information provided by the MDD, ZRA and Chamber of Mines.
     
  4. In accordance with requirement 7.3, the ZEC should consider a more systematic follow-up of the recommendations, for instance by developing a dedicated plan for following up on findings and recommendations from Zambia EITI Reports, outlining actions to address the recommendations that can address the issue raised. The ZEC could further consider ensuring that recommendations from Zambia EITI reporting to a larger extent address key challenges related to extractive sector governance. Such recommendations could take into account feedback recorded from stakeholders as part of Zambia EITI’s dissemination and outreach activities.

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

Next Validation date

A second Validation will commence on 25 April 2019.

Impact of the EITI in Zambia

Based on the key documentation made available by ZEITI and on the stakeholder consultations, the following impacts seem to be most significant:

Influencing policy: Several industry representatives explained that information from ZEITI Reports had been useful in lobbying for changes to the tax regime. The Chamber of Mines and company representatives made a presentation to the Ministry of Finance following the 2013 amendment to the fiscal regime. This was based on data from 2008-2012 ZEITI reports to demonstrate that increasing the royalty rates would not necessarily lead to more revenue and that incentivising increased production would be more efficient. The ZEITI data indicated that the increase in revenue was tied to increase in production and copper prices and not to raised royalty rates. From 2010-2011, revenue had increased while the royalty rates had been stable, while from 2011-2012, the royalty rates were doubled while the revenue collected remained the same. The Chamber of Mines made a public presentation to MOF which was followed by the decision to stabilise the mineral royalty regime. An industry representative noted that this would have difficult without an independent source of information such as ZEITI.

Building trust: ZEITI can be credited with building trust in the extractive sector between government, companies, and civil society that is conducive to constructive exchanges within and outside of the ZEC. Several stakeholders highlighted the value of ZEITI in trust-building amongst the three stakeholder groups, as well as the credibility resulting from the tripartite cooperation. For instance, a government representative noted how ZEITI was an important channel of communication between the government and the artisanal and small-scale mining sector, as ZEITI could initiate conversations related to reporting on production and revenues with small-scale miners in the way that the ZRA would not be able to. An industry representative also stated that the dissemination and outreach events in communities were much more credible when civil society representatives were present, which significantly facilitated discussions between industry and community members.

According to journalists there were many benefits of implementing EITI, including more willingness to share information and disclose payments and less tension in the affected communities. Previously, communities were more suspicious but EITI Reports have enabled communities to understand better tax revenues. Journalists themselves have used the reports to write articles, or use some of the data in TV and radio programmes.

Improving industry engagement: Stakeholders noted a shift in engagement with industry and investors, which have become more open and transparent through ZEITI participation. This had resulted from more interaction with companies both at the MSG level and through the reporting process. The ZEITI reporting process has encouraged publication of data by companies, and the Chamber of Mines now regularly publishes relevant information including on CSR, production and employment. One industry representative noted that the EITI had been a catalyst for companies to fulfil their CSR obligations.

Raising awareness in affected areas: Using EITI data as a basis, Solwesi community members successfully lobbied local authorities to pass a by-law ensuring that 10% of revenues go to social services. Communities in Solwesi used the information from EITI Reports which disclosed what mining companies were paying directly to the local authorities to advocate for the passing of a by-law to share 10% of the direct payments from mining companies with local communities, to be spent on social services. This has also spilled-over and initiated discussions in other regions on revenue sharing from mining, such as Mufulira.

Strengthening monitoring of production: Discrepancies related to production figures revealed in EITI reporting have led to strengthening the monitoring of the minerals industry in Zambia. EITI Reports have identified several gaps related to the available production data and the discrepancies among the figures provided by government agencies. As a result, the government with support from partners has initiated various projects related to monitoring and verifying information along the production value chain with the aims of fighting corporate tax evasion by improving monitoring systems and of tracking mineral resources throughout the value chain, from extraction to exportation. The capacity of the Ministry of Mines and Mineral Development has been further strengthened to effectively monitor mining activities and mineral production, and to share the information with relevant agencies in order to facilitate the mobilisation of the appropriate levels of domestic revenue.

Providing information to help identify risks of corruption and anti-money laundering: The FIC explained that they use EITI Reports in their work to combat money laundering and other serious offences in order to ensure integrity and transparency in the financial system. By checking the payments in the EITI Reports against recorded transactions, the FIC can identify discrepancies and analyse suspicious transactions. Government representatives also highlighted the convening role ZEITI had played so far in raising awareness on beneficial ownership, which had led to much progress with regards to establishing an enabling legal framework for disclosure. It was highlighted that beyond raising awareness on this among key government agencies, mining companies and civil society, ZEITI could also contribute to inform wider stakeholders working with companies such as lawyers, auditors and company secretaries and administrative staff who have access to beneficial ownership information. It was noted that ZEITI’s credibility would make them more suitable than other actors to play this convening role.