Extractives contracts for minerals and oil are significant sources of government revenue and can play a major role in development. Moderator Michael Jarvis and three contract transparency experts invite you to discuss innovations that companies, governments, and citizens can use to turn these contracts into tools for building a more prosperous and equitable future. Explore their approaches and join in the conversation about how citzens can get a better deal.
How can visibility into large government contracts help citizens in resource-rich countries to improve the quality of life for everyone? How can community oversight positively influence the outcomes of resource agreements? And with thick legal contracts, how can those at the grassroots level even hope to understand where money goes and how their community can gain greater benefits from oil and mineral investments in their country? What is the role of government and industry in building such understanding and ensuring "win-win" deals?
Oil, gas and mining production alone can account for more than 80% of exports and 50% of government revenues in some countries. Yet, for many reasons, this concentration of minerals and oil wealth has also led to what some term as "the resource curse" – or "the paradox of plenty," because of a phenomenon whereby "some countries that are rich in natural resources such as oil, gas, or minerals end up poorer and more unequal than countries without them," according to watchdog organization Global Witness.
In an effort to address this issue, Dr. J. Chris Anderson, Rio Tinto, shares industry innovation in developing a "social contract" with communities; Daniel Kaufmann, Revenue Watch Institute, lets us in on new training and tools for governments; and Marinke van Riet, Publish What You Pay, describes innovative advocacy approaches with NGOs to improve community capacity and awareness.
From industry to NGOs to governments, our guest innovators are showing new ways to engage citizens in improving transparency, preventing corruption, and ensuring that communities providing resources to the world see real benefits.
For those who consider the extractives to be an "old" and "antiquated" industry, it may come as a surprise that some mining companies are in the forefront of comprehensive and transparent citizen engagement. This is not merely an ethical stance. It is simply because there is no other way for us to do business now. If a business person wishes to build a car factory and the local neighbors are not happy, he or she can merely pick up and move the project somewhere else. This is not possible with mining: the ore bodies are where they are. If it happens that there are 200,000 people living on top of a mineral deposit, this is not a group that can be ignored.
Engagement in such situations is not easy. For my company, Rio Tinto, and other of the responsible majors, the ultimate aim of the process is free, prior and informed consent of impacted citizens. This in itself is an innovation and one not used or accepted by most other commercial entities or projects in either the developing or developed world. However, the real innovation is represented by the nature of engagement needed to arrive at consent.
Building a knowledge base of the local communities, including local social and political structures and processes; developing forums for ongoing joint discussion, listening, sharing information, building awareness; setting up complaint management mechanisms; and finally, building capacity on both sides for representative negotiation on the terms of a comprehensive and binding agreement – these are the difficult, time-consuming, but ultimately necessary steps in order to achieve a mining project that minimizes negative impacts and maximizes both local citizenry involvement in decision-making and sustainable benefits for themselves and the company. These processes and the resulting agreements, like the investment contracts that companies make with host governments, need to be wholly and utterly transparent for it all to work.
I realize that what I have said here may be controversial for some people (see the Community Consent Index). However, I am happy during the course of this conversation to provide examples and references to allow participants to judge for themselves.
From a development perspective, the field of extractives is so much more than "a sector." It is arguably the critical development and governance challenge for scores of countries – a truly make-or-break issue in terms of their overall prospects. Revenue Watch, working closely with many partners, focuses on helping petroleum- and mineral-rich countries translate natural resources into sustainable development. Efforts to improve contract terms and processes are at the core of our work, through a combination of technical, policy advocacy and action-oriented initiatives. These are multi-stakeholder, working with governments, civil society, the private sector, and parliamentarians.
Technical assistance to governments is one key component of our action-oriented policy advisory approach, providing experts to help negotiate better deals with multinationals and adapting international practice to inform domestic legislation that promotes accountable licensing. In this work, contract transparency is a major focus, and our government counterparts in places like Guinea, Niger, and Sierra Leone have adopted laws requiring publication of contracts.
We also train civil society to help enhance skills to analyze and monitor complex contracts. In Latin America, we advise organizations such as Ecuador's Grupo Faro, providing international perspective to inform their analyses of mining contracts and citizen guides to monitoring. In Africa, RWI and WBI organized intensive training on contract monitoring for activists from Burkina Faso, Cameroon, DRC, Guinea, and Niger. Contract analysis and monitoring also feature in our "core courses" at regional knowledge hubs in Peru, Ghana, Azerbaijan, and Cameroon.
Underpinning these efforts, there is also an innovation in the research and data realm, namely the Revenue Watch Index. A revamped and updated Index will be launched in early 2013, assessing nearly 60 oil- and mineral-rich countries on multiple transparency and accountability dimensions in natural resources, including specialized indicators on licensing and contracts. As part of investing in analysis on these issues, we have also examined the legal obstacles to contract disclosure (Contracts Confidential) and strategies for governments and CSOs to promote effective monitoring (Enforcing the Rules).
Over 10 years, in response to the Publish What You Pay campaign, we have seen the birth of the EITI, the Dodd-Frank law that requires all US-listed companies to publish their payments to governments, and a similar draft law in the EU context. The new PWYP strategy Vision 20/20 includes a Chain for Change, the value chain that has been created from the point of view of (and for) civil society.
As a coalition committed to transparency, we used voting machine technology to help endorse the Vision 20/20, to respond to some critical questions, and to provide input into the future directions of our movement. One of these directions is Publish Why You Pay and How You Extract, covering the areas of the value chain before company payments are made, that determine whether citizens are getting a fair deal for their resources. It includes themes such as the decision to extract, extraction rights, and the monitoring of the terms and conditions of deals and contracts signed between governments and extractive industry companies.
If contracts are not open and then monitored, how do we know that citizens, and especially communities living near extractive sites, are getting a fair deal for the exploitation? A public contract is an accountable contract – there are very strong incentives to obtain the best deal possible for the most stakeholders possible, and not just satisfy a few individuals. Countries like Niger, DRC, and Guinea have legislated contract transparency, and we have seen positive developments elsewhere, including the potential to have contract transparency as part of a new EITI standard.
But in honour of Frank Zappa's quote, "Without deviations from the norm, progress isn't possible," PWYP wants to go further than simply having open contracts: we want open contracting so that communities can have a seat at the table during negotiation processes and influence the contractual terms and conditions. And why not use technology to ensure that this is an open process? Could we use a simple SMS technology to crowd-source a contract negotiation process, involving more community representatives directly impacted by an extraction? I am looking forward to an open and frank conversation to help us deviate from the norm once again!
With extractives contracts, stakes are high, and resource projects should be catalysts for development, not one-off efforts. This conversation explored fair, transparent contracting; engaging citizens in fixing bad contracts; and ensuring compliance and positive community outcomes, as well as possible over-emphasis on anti-corruption vs. human development and the poor.
Proactive disclosure to communities should precede signing of contracts, and community agreements, MOUs with local chiefs, contracts, and impact assessment and exploration should be transparent. Best practices like sign posting at extraction sites are vital. Contracts can be legal when tested but morally dubious; can criteria for top margins and fair deals be developed? Frameworks like ring fencing help enforce financial commitments, but contracts also need social and environmental criteria such as skills training and job creation.
To negotiate equitable contracts that survive public scrutiny and fix dubious contracts, we must build citizens' awareness and capacity to understand and act upon this data. Transparency increases incentives to be fair, is a prerequisite to accountability, and lessens information asymmetry, but good governance is needed to ensure deals satisfy citizens and meet constitutional obligations. Some have put contracts before Parliament for discussion and ratification. To build capacity, multi-stakeholder accountability committees, NGOs, civil society groups, and other intermediaries are developing books and trainings, legal literacy tools, and web-based projects to help civil society engage.
Though civilian monitoring should verify if terms are being kept, how can we achieve compliance and accountability if checks and balances are absent or unreliable? Participants discussed frameworks for spending and funding mechanisms, and the importance of community level agreements to reduce incidents of fraud. Positive on-the-ground impacts are sought, since it's easier for communities to verify the building of a school than a transfer of funds.
Sustaining capacity-building programs is a challenge; a pooled-funding model was discussed. Peer learning between countries and sharing of case studies and resources (e.g. a pilot database that aggregates publicly-available contracts) are helping to change the operating climate. From NGOs to corporations and governments, innovations discussed go beyond release of information to reconfigure relationships and provide value to all stakeholders.