Improving Resource Governance: Some Fundamental Questions

Students from the Madeleine Albright Institute of Global Affairs at Wellesley College recently asked NRGI governance policy analyst Marie Lintzer some fundamental and important questions about the governance of the extractive sector. We share the informative Q&A here on NRGI’s blog.

Wellesley students: In the Natural Resource Charter, your organization lists a series of important steps a nation should take to effectively manage resource wealth. Are there any specific steps that countries fail to take more often than others?

Marie Lintzer: First, to clarify, the charter does not prescribe steps but instead explores approaches that countries have used to manage successfully their natural resources. For countries to benefit from resource wealth, citizens and their governments must make a broad range of decisions. We’ve translated these policy decisions into 12 principles that relate to either the domestic or international foundations for resource governance, or the chain of economic decisions required to manage resources properly (from the award of licenses and contracts to the spending of revenues for sustainable development).

Identifying specific steps at which countries often falter is difficult. The picture is really diverse and no country looks alike. For example:

Angola has managed the first steps well (developing a strategy, allocating licenses, capturing substantial revenues from extraction), but these revenues have not been managed effectively or equitably. Between 2007 and 2010, $32 billion was reported missing.

In the DRC, management issues happen more in the first parts of the decision chain (especially around exploration and license allocation) than later in the chain. Efforts are being made to improve transparency in the sector, but research shows that the country lost about $1.4 billion because of systematic undervaluation of its mining assets due to opaque concession deals between the state-owned mining enterprise, GECAMINES, and offshore companies.

Worldwide, transparency is poor in the extractive sector. If you look at the Resource Governance Index, which measures the degree of transparency and accountability in the oil, gas and mining industries, only 11 of 58 countries achieved an overall score of “satisfactory,” meaning that only about one sixth of resource rich countries have a strong legal framework that set the scene for extraction, publish relevant data, and have some sort of oversight mechanisms in place to ensure accountability. Examples of countries at the bottom of the index include Equatorial Guinea, Afghanistan and Saudi Arabia.

How does a nation like Venezuela begin to reform its culture of corruption? Is it the system currently in place, or powerful actors as individuals that perpetuate corruption?

The system perpetuates corruption. Institutions affect the behavior of individuals in power but people are not predisposed to corruption. Nothing is historically predetermined about corruption.

What we note though is that the extractive sector is by nature particularly exposed to corruption risks and vulnerabilities. In Latin America, Venezuela is an extreme case. The country has the second-largest oil reserves in the world and is highly dependent on petroleum revenues. The president effectively controls the petroleum industry and transparency is weak. According to the RGI, as much as 60 percent of Venezuela’s extractive revenues bypass the treasury. All windfall profits from oil prices above $50 a barrel go directly to a development fund controlled by the president and expenditures from the fund are determined by the executive branch. PDVSA (the national oil company) is in effect a shadow ministry; it operates without checks and balances and large amounts of its revenues finance political projects. Given these specific shortcomings, Venezuela should, as a first step, extend transparency and accountability standards to PDVSA and its natural resource fund. Establishing robust reporting, oversight and audit processes is an urgent priority to reduce corruption.

What can citizens do at the grassroots level to improve governance of their nations’ resources? Is top-down policy reform or grassroots effort more important?

Citizens and civil society organizations play a critical role in keeping decision makers accountable. Ongoing scrutiny of behavior provides a strong deterrent against corruption and an incentive for improved performance across all levels of government. Citizens should monitor management of the sector by, for example, comparing the revenue information published by the government and the fiscal rule that the government has set itself (or the contracts signed by companies). We actually provide trainings on contract/fiscal monitoring to civil society in all regions where we work. For example, recently in the DRC, a civil society organization called POM published a report examining a major company’s social obligations and its compliance with the law. The publication of Extractive Industries Transparency Initiative (EITI) reports in line with the new standard will also provide more opportunities for monitoring government actions.

Both top-down policy reforms and grassroots efforts are important. Policy reforms are not sustainable if they are not monitored by citizens. Similarly, citizens cannot monitor policies if no information is published or if they are clearly limited in what they can do (such as in Azerbaijan for example, where the government curtails opposition political activity and limits public criticism).

How does NRGI work through the media to encourage reform?

The media has a key role to play in supporting good policies and informing citizens. Through articles and radio or TV broadcasts, journalists can inform policy makers to make the right decisions and expose unethical behavior. They can fulfill their oversight role only through informed analysis and reporting. In turn this requires good reporting skills and understanding of technical issues, which is particularly true nowadays with the growing number of technical data being available, including in the extractive sector.

NRGI offers media capacity-building trainings on extractives. We usually partner with local organizations to make our programs sustainable. I was in Uganda last year, for instance, to train journalists from the region on how to use the detailed and disaggregated data from the Resource Governance Index and how to use EITI reports. What we notice in a lot of resource-rich countries is that many journalists lack the breadth and depth of knowledge and skills to report effectively on oil, gas and mining, however key it is to their country’s economy. Deepening their knowledge of extractive issues and their reporting seems essential.