• Natural Resources for Sustainable Development in Eurasia.


Transparency is not fashionable in Eurasia yet

September 30, 2016 Blog

Ingilab Ahmadov

There is no doubt that transparency is one of the key pillars of good governance and, as such, is a necessary precondition for long-term sustainable development.

Alongside accountability and civic participation, transparency plays a crucial role in the process of systemic transformation of closed, opaque societies into open ones.More transparent countries demonstrate higher levels of development and socioeconomic wellbeing. Global rankings, such as Corruption Perceptions Index, World Governance Indicators, Resource Governance Index and Open Budget Survey, as well as academic studies (e.g.Corrigan 2014) provide ample evidence for this statement, though there are other studies that hold a more skeptical view (e.g.. Sovacool and Andrews 2015, Sovacool et al).

The region of Eurasia is home to several resource-dependent countries, which have large extractive (petroleum and mining) sectors. These countries face specific challenges deriving mostly from Soviet legacies they share such as top-down governmental decision-making process, skewed state-society relationships, low levels of citizen participation in the governance process and other areas.

The most obvious example is the process of decision-making in multi-stakeholder group (MSG) initiatives, such as EITI. EITI Standard requires that decisions be made based on the consensus of three types of stakeholders: relevant government agency, business and civil society organizations (CSOs). Post-Soviet countries that are members of EITI, including Kazakhstan, Kyrgyzstan, Tajikistan, Azerbaijan and Ukraine have over the past 5 years confronted with a number of common problems, which are rooted in the common Soviet legacy. This includes the following:

  1. Governments in these countries become highly suspicious when CSOs are thoroughly seeking disclosure of any given payments, particularly quasi-fiscal transactions. Uncovering beneficial ownership of extractive companies remains another sensitive issue. The government tends to regard transparency initiatives advocated by CSOs or journalists as destructive or even provocative;
  2. Their national EITI MSGs have a strong influence from the government forcing CSOs and even companies to accept the government’s point of view. The most popular “bait” in the arsenal of the government to enforce compliance is patriotism. Unfortunately, in most cases CSOs have no other choice but to go to conciliation concede;
  3. Both the government and extractive companies represented in their country’s respective EITI MSG coalitions demonstrate solidarity against CSOs, which is not in line with conventional behavior according to EITI philosophy. As a rule, a government is expected to cooperate with CSOs in order to push on companies for transparent reporting and preventing tax evasion. Indeed, this would seem more patriotic than the practice of “appeasing” CSOs.
  4. Members of CSOs in these countries lack necessary knowledge and skills to scrutinize practices of private companies. Above all, there is also a lack of interest for gaining that capacity for assuring compatibility in discussions with business and government representatives.

It is quite difficult to develop EITI in these circumstances, as it becomes easier for the government to smooth things over (i.e. to underreport its accounts) and to manipulate data when necessary. Thus, EITI looses its most important leverage –pushing on reforms and promoting more modern, predictable and sustainable governance of extractive industries.

The new 2016 Standard can help to escape this vicious cycle. A broader agenda and more precise tool in indicative assessment give the possibility to have a real impact on extractive industry governance reforms. However, the Standard itself is not enough to make a difference in the near future without a major change in the existing approach to the work with stakeholders.

EITI mainstreaming becomes a new platform for effective work of each stakeholder in MSG. In this regard, the role of Government is essential, as EITI integrates into governance process, showing gaps not just in EI governance, but in the entire decision making process in a resource-rich country. Given this, State-Owned Enterprises (SOE) are a key element of mainstreaming, as it is the integral part of government decision-making process in EI countries. Within these circumstances CSOs gain a relatively new function of pushing a Government for accelerating reforms continuously.

It is necessary to create a differentiated scale of assessment of benefits of governments’ and companies’ engagement with the EITI implementation process. For viability of EITI standards, it is essential that companies clearly see their business benefits comply with EITI recommendations. Each stakeholder must see real benefits and due to this get more motivated and active in EITI implementation.

At the same time, it seems in the government’s interests to work closely with CSOs to spot potential cases of “cheating” of a foreign company in host countries. In this case, a government will seek partnership with CSOs instead of regarding them as “enemies”.

Finally, in order to be helpful in oversight and investigation, CSOs should gain additional technical knowledge on the essential elements of EITI reports, such as taxation, reporting practices and beneficial ownership. For this, they need more active support from international organizations and foreign and local donors.

Ingilab Ahmadov

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