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EITI: The U.S. Effort to Increase Transparency in the Oil, Gas and Mining Industries

The view from Claire Ware’s home on the Wind River Indian Reservation is a stunning landscape of high mountains, broad plains and bright, lingering sunsets—a daily reminder of her Wyoming community’s spiritual, nature-based roots.

The land, home of the Shoshone and Arapaho tribes for generations, also boasts something much more interesting to outside companies than cultural history—a vast spread of lucrative oil and gas fields. Those resources funnel a constant stream of revenue into local counties but according to Ware, director of the Shoshone & Arapaho Tribes Minerals Compliance, people living on the reservation see precious few of those dollars. Whereas nearby districts enjoy up-to-date facilities, the reservation can’t afford improvements to their schools, recreational programs and emergency services.

Ware says school districts have been “gerrymandered” to divert resource revenue away from the Native Americans who actually own the resources.

“There are hardly any Indian kids in those schools, but yet they’re taxing our production happening on our reservation,” Ware said. “So those [state] tax dollars never come back to the tribe or to service the programs that should be on the reservation."

The money involved in this corner of Wyoming is just a small portion of the trillions of dollars generated worldwide by the industries that extract natural resources through mining or drilling. Across the globe, the payments and paths of money related to extractive industries often go undisclosed, leaving local communities, such as Ware’s, to wonder where their revenues went.

Into the void steps the Extractive Industries Transparency Initiative (EITI), an international standard focusing on providing transparency and accountability in the governance of natural resources.

EITI calls for companies to disclose how much they pay for oil, gas, minerals and other natural resources, and governments to disclose how much they receive. The numbers are then verified and reconciled by independent auditors and published in a report for the public to access.

In September 2011, President Barack Obama announced that the United States would sign on to EITI as part of an effort to increase transparency in government worldwide through the Open Government Partnership. His administration plans to submit an application to the EITI international board in early 2014.

Ware is hopeful that if the U.S. joins the initiative, EITI will increase the returns her community sees from the production happening on its land.

“I think EITI would open people’s eyes. Certain areas benefit from the production while others don’t.”

Embracing International Reforms

The U.S. would join 39 countries that have already adopted the initiative, many of which have benefitted greatly from EITI. In the Central African Republic, for instance, corruption has decreased by 50 percent. Liberia’s citizens say they can better trust their leaders, and in Togo, the mining community has gained the necessary information to stand up for its rights. These reforms and others spurred by EITI were shared in a video produced by the EITI Secretariat.

Former U.K. Prime Minister Tony Blair established the initiative in 2002 as a way to determine who is profiting from publicly-owned natural resources. Corruption, bribery and kickback schemes mean citizens often do not receive financial benefits, even when their land is stripped of oil, gas and minerals.

“There is plenty of money that comes from the exploitation of the Earth,” Joseph Bindoumi, the national coordinator of Publish What You Pay in the Central African Republic, says in the video. “There is lots of money coming out, but what remains is poverty.”

A Culture of Ethical Failure

In one example, a 2008 inspector general report accused the Minerals Management Service of having “a culture of ethical failure.” The investigation claimed that employees of the agency, which is the branch of the Department of Interior responsible for collecting resource revenues, regularly violated conflict of interest policies in developing cozy relationships with industry representatives. The report further detailed substance abuse and illicit sexual encounters, both among federal employees and also with their industry contacts.

The Minerals Management Service faced additional scrutiny following the BP oil spill, after which it was alleged the agency’s relationship with industry had allowed BP and other companies to avoid environmental and financial oversight.

Gathering Public Input

Since Obama’s announcement, the Department of Interior has overseen the formation of a multi-stakeholder group to develop the U.S. application to EITI. The group is comprised of representatives from the industry, the government and civil society.

The 23 appointees plus alternate members who make up the advisory committee have spent the past 10 months working on the application. Starting today in Houston and New Orleans, the committee is hosting a series of informational meetings across the country. After the meetings are completed—including an online presentation Oct. 2, the U.S. application will be submitted to the EITI international board in early 2014.

While most participants of the U.S. EITI committee do not expect the EITI report to uncover the same levels of corruption that have been seen internationally, the U.S. has seen its fair share of scandal related to mineral revenue collection.

Greg Gould, the director of the Office of Natural Resources Revenue, said that the implementation of the EITI standard fits nicely with the government’s established goal of rebuilding trust and increasing transparency.

“We want to improve how both the US government and the industry report resource revenues, so that the information is not only accurate but also easy to understand and accessible to the general public,” said Gould, a member of the multi-stakeholder committee.

Royalties from natural resources are one of the largest sources of revenue for the American government, besides taxes.

Danielle Brian, executive director of the Project On Government Oversight and co-chair of the advisory committee’s civil society sector, said that while EITI is not a law, the promise of increased openness leaves her optimistic.

“It’s an enormously important revenue stream and because of the history of problems, the only way you can have accountability is if we have more transparency into the interaction between the extractive industries and the government,” she said. “So EITI can be a really good step to making sure there is integrity in the process.”

Gould believes that EITI will also reveal the positives that already exist in the U.S. system. He noted that much of that money derived from resource extraction is sent to conservation funds or back to the states for infrastructure and education improvements.

“We see this as a way to show the public that the money that we collect from the extractive industries is used to benefit the American people,” Gould said.

According to Michael LeVine, a member of the multi-stakeholder group, the level of detail required by the EITI report will encourage better decision-making.

“It’s one thing to say that extractive industry contributes 11-and-a-half billion dollars to the government coffers every year, but it’s another thing to understand where that money is coming from and what projects it’s tied to,” said LeVine, who is senior legal counsel for the environmental group Oceana. “For example, for those of us who care about the Arctic Ocean and the potential for extractive industry there, it’s important to disaggregate the potential benefits that might be coming from project in the Arctic from those that come from other places like the Gulf of Mexico.”

Transparency Reduces Corruption

Oil rigs in Texas and coal mines in West Virginia may be the most well-known images of natural resource extraction in America but the United States has a wealth of commodities beyond those.

Through the course of its meetings so far, the advisory committee grappled with what to include under the EITI standard in an attempt to balance practicality with comprehensiveness. The group eventually settled on oil, gas, coal, hard rock mining, geothermal, solar, and wind as the commodities for which payments will be included in the first report. The Department of Interior has committed to disclosing 100 percent of revenues they collect at a level of detail that has not previously been available.

Many of the challenges ahead will lie in ensuring that all relevant parties agree to participate in EITI, since neither the Department of Interior nor the multi-stakeholder group has the power to force EITI compliance. This is particularly significant in the industry’s case, where adopting the standard will require companies to disclose more information than ever before.

In the context of today’s gridlocked political climate, several members of the EITI committee also pointed out the rarity of bringing together all relevant parties to the same table to reach consensus.

According to Veronika Kohler, who worked on EITI process at the World Bank, industries in developing countries often see direct benefits from EITI implementation.

“Sometimes companies are extorted for money and when a country moves forward with EITI, those payments are greatly reduced because of the visibility that is put on to that whole mechanism,” Kohler said, adding that operating processes and infrastructure also often improve.

In the U.S., the advisory committee predicts that EITI will not have the same effect because of the transparency and regulations that already exist.

“Companies are facing many challenges today and to present to them an additional burden without any benefit—and it’s voluntary to participate in this burden—may not go over so well,” said Kohler, the co-chair representing industry of the multi-stakeholder group.

Advocates for indigenous communities, such as Ware, said that EITI will help shed light on the way natural resource revenues that are supposed to go to them are funneled away from the Indian reservations where they are actually extracted.

“I believe that in order for the process to work, the United States is going to have to share, state-by-state information about what they get from their minerals, taxation dollars and further down, county dollars,” she said.

Rebecca Adamson, a member of the advisory committee and founder and president of First Peoples Worldwide, said that in the past, there has been an information imbalance between the U.S. government and the tribal representatives with whom they cut deals.

“We are seeing a significant degrees of corruption and lost revenues that could all go towards building better infrastructures, schools, a future for our kids, healthier communities,” said Adamson, a member of the advisory committee. She added that additional transparency would lead to more fair outcomes.

Brian added: “One hundred percent of the federal royalties on tribal land go back to tribes, and half of the federal royalties collected in states go back to the state of origin, so they’re incredibly important revenue streams for them. For the states and tribes to have more clarity on how these systems are working and whether they have integrity is going to be really valuable for them. I hope we see the states and tribes join us in this effort, not just because of their interest in federal public lands, but in the value of this transparency process for their own lands and resource revenues as well. ”

U.S. Participation Seen as Vital

Effectively spreading this message will depend on the outreach done by the advisory committee over the coming months. Members have meetings planned with the general public and Native American Indian groups. Public comment periods are scheduled up to Nov. 18, and the committee invites any interested party to participate.

Despite the challenges, if EITI implementation is successful it will be a model both internationally and domestically.

In her opening remarks at the advisory committee meeting on July 29, Claire Short, the chairwoman of the board of EITI International, noted the importance of America’s participation.

“Some of the big and middle income countries…were saying ‘Here we go again, this is the north telling south of the world what to do in turning us to be transparent, but they’re not being transparent themselves,’” Short said. “And so it was very symbolic and powerful when the U.S. said we’re going to do it.”