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Sub-National Implementation of the Extractive Industries Transparency Initiative (EITI)

Working paper

Working paper

This report was prepared to provide insight into the possible expansion of the Extractive Industries transparency Initiative (EITI) to the sub-national level, for consideration by the EITI International Advisory Group. The matters and options discussed may have application to other organisations involved in transparency, accountability, and good public sector and corporate governance.
A survey of 56 natural resource-endowed developing countries undertaken for this commission identified 17 countries as having either a formal statutory or explicit policy-driven framework for the assignment of natural resource revenues from national government to sub-national government jurisdictions. All 17 countries are oil or gas producers. Of these, six are also mineral producers to which the same or similar revenue-sharing legislation or policy frameworks apply. A sub-set of 12 of these countries make intra-governmental NR revenue transfers to both 2nd and 3rd tier levels of sub-national government (SNG), i.e. federated states or provinces, and municipalities or districts. The remainder appear to be transferred to 2nd tier only. A further 16 countries have no discernable arrangements for the explicit assignment of NR revenues from national to sub-national levels. However these might be included in an expanded EITI programme because the sustained high commodity prices in oil, gas and minerals, means that conventional intra-government revenue transfers are likely to incorporate a predominance of NR resourced revenues (defined in this report as >60% of the national income).
The above classification envisages allocating EITI resources on the basis of either (i) the proportion of national income derived from NR revenues, or (ii) the existence of a legal or policy framework for intra-governmental transfers. An alternative approach is to target resources at specific producing regions regardless of the ratio of NR revenues to national income. The focus would be on those jurisdictions where a continued lack of accountability in intra-governmental revenue transfers (attributable or unattributable) carries high potential for revenue mismanagement, the failure to achieve sub-national sustainable developmental goals, and/or commercial risks for operating companies and investors. This approach would be more inclusionary of the mining sector, which rarely exceeds 10% of a country’s total revenue and which to date has received less attention within EITI.
In compiling this report we found little evidence of legal or policy-driven arrangements for transfer between different sub-national government jurisdictions levels of revenues directly attributable to NR-related income.

Michael Warner