“Promoting Good Governance in the Extractive Industry Sector in

Asia Pacific: A Value Chain Approach”

Chandra KiranaAsia Pacific Regional Coordinator

October, 2009

“Two things are infinite: The universe and human

stupidity; AND I'm not sure about the universe.”

Extraction Benefits - Mitigating Risks

• Oil, gas, minerals and metals are FINITE• Extracting these resources entail RISKS:

– Environmental Risks– Social Risks– Human Rights Violations

• Extracting these resources can bring VALUABLE BENEFITS development.

• GOOD GOVERNANCE can help ensure that benefits outweigh the negative impacts.

Environmental Risks

Social Risks and Human Rights

Is the Revenue Used Wisely?

Characteristics of Good Governace According to the UN - Economic and Social Commission for Asia Pacific

Participatory

Consensus Oriented

Accountable

Transparent

Responsive

Effective & Efficient

Equitablee and Inclusive

Follows Rule of Law

GOOD GOVERNANCE

The Extractive Industries Value ChainDecision to extract/not to extract

Awarding of contracts/licenses

Fiscal Terms

Extraction prosess

Trading of commodities

Tax and revenue collection

Development project/policies

Revenue Mngt and allocation

Good Governance needs to be Comprehensive Throughout the Value Chain

Governance can only be as strong as the weakest link in the Value Chain

• Do the laws and regulations of a country address all the issues relating to the Extractive Industry equally?

• Is there civil society participation and oversight throughout the entire Extractive Industry value chain?

• Is the governmnet able to enforce GOOD GOVERNANCE of the Extractive Industry sector?

• Do companies operate in a responsible and accountable wasy throughout the Extractive Industry value chain?

Concentration of NGO Work Along the EI Value Chain in 10 Asia Pacific Countries

Decision to extract/not to extract

Awarding of contracts/licenses

Fiscal Terms

Extraction prosess

Trading of commodities

Tax and revenue collection

Development project/policies

Revenue Mngt and allocation

I87%

II43%

III18%

IV56%

V12%

VI56%

VII56%

VIII56%

The Need Work Together Constructively

• Individually organizations/stakeholders are strong in certain parts of the EI value chain.

• Together all organizations/stakeholders could potentially be strong throughout the entire value chain – and could push Good Governance in the sector in a powerful way.

In Summary• The Extractive Industries Sector can provide

valuable benefits for development• The Extractive Industries involve serious risks• Safeguards for responsible and accountable

Extractive Industries must be comprehensive.• GOOD GOVERNANCE must be established

throughout the Extractive Industry value chain.

SOME EXAMPLES• THE RESOURCE CHARTER – an example of

overarching values and principles to achieve responsible extraction for sustainable development.

• THE Extractive Industries Transparency Initiative (EITI) – an examples of a tool to establish and implement good governance.

THANK YOU

Decision to extract/not to extractHere it is important that local communities (in many cases Indinegous People) are also included in the decision making process and are facilitated to be able to make prior informed decisions. Is a Prior Informed Consent proccess being honored? In this decision making process the government and the companies involved need to be transparent about the environmental and social costs such a project will entail. And explain how these will be dealt with.

Awarding of contracts/licenses

Is this process trasparent, are the responsible government officials ensuring that through their actions, the public are getting the best deal, or is the handing out of contracts shrouded by opacity? Is there an open tender process, with clear criteria of selections that are communicated openly and publicly?

Fiscal terms

Does the government have the ability to negotiate the best fiscal terms for the public good? Is it reflected in the agreed conract between the company and the government?

Extraction process

Are environmental and social costs being externalized onto the local communities and environment? Does the company regularly inform the local government and local communities about it’s environmental and social safety standards, does it have implementation mechanisms in place, does the community know what it must do in case of an accident? Does the company inform the community of what it will be responsible for? Etc.

Trading of commodities

In many cases, for example like in Oil ans Gas contracts, the government receives shares of the production, this product (oil, gas) is then sold by a government agency on the market to gain revenues. Is the government agency responsible for the trading of government shares of commodities doing it in a transparent and accountable way?

Tax and revenue collection

Are taxes and reveues collected by the government being accounted for in a trasparent manner? Is the country implementing EITI, where CS, through the Multi Stakeholder Working Group, has oversight power together with other stakeholders on how government revenue receipts, and company payments to governments are publicly reported?

Revenue management and allocation

How is the government managing it’s revenues to address the various challenges related to EI revenues? Is it able to save prudently in times of great windfalls? Does it go on a spending spree on projects that do not contribute to sustainable development? And most importantly is the government regularly reporting to the public how it is managing it’s EI revenue funds?

Development projects/policies

Is the government carying out development in consideration of the fact that EI resources are finite/ Is it strengthening other sectors of its economy? How is spending on health, infrastructure and education?