Beyond EITI: The Need for Transparency in the Awarding of Concessions

Beyond EITI: The Need for Transparency in the Awarding of Concessions

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Dossier: Resource Governance

Beyond EITI: The Need for Transparency in the Awarding of Concessions

April 10, 2008
Silas Kpanan’Ayoung Siakor, Sustainable Development Institute
Silas Kpanan’Ayoung Siakor
Sustainable Development Institute (SDI)


Summary


The twelve principles of the EITI focus heavily on transparency of revenue (1) and accountability. The principles are founded on the widespread, and sometimes misleading, assumption that improving transparency and accountability for revenues generated by the oil, gas and mineral industries will stem the plundering of Africa’s natural resources. However this doesn’t address the entire problem of the resource curse. EITI does not address the question of the concession allocation processes within the implementation framework. It leaves this to individual countries implementing the initiative. This paper presents a case study from Liberia and highlights the need to expand EITI to include transparency in the concession allocation process.
 
Concession allocation and the need for transparency

Transparency in the allocation of concessions for oil, gas and minerals should be given the same level of prominence as with revenue transparency in the principles. There is overwhelming evidence that corruption in concession allocation processes and corruption along the chain of revenue flow are equally damaging and, in fact, are mutually supportive. (2) Therefore, without subjecting concession allocation processes to the same level of public scrutiny as revenue flows, implementing EITI could give undue legitimacy to the operations of illegally acquired concessions; consequently undermining the rule of law. Considering that compliance with provisions of contracts is explicitly required (3) it is critical to ensure that those contracts are fair, legal and that their implementation will not undermine the rule of law

The Liberian experience

In 2004 the National Transitional Government of Liberia (NTGL) mandated a review of existing timber concessions in Liberia. (4) The review committee established by the NTGL identified a total of 70 timber operators, which warranted concession reviews. Of these seventy, 47 operators brought forward agreements and permits that they claimed granted them permission to operate. The criteria set by the review committee required each company to demonstrate that it was a bona fide business entity, legally registered to do business in Liberia, and that the concession contract was in force and effect. (5) All 47 companies failed to demonstrate that their operations in the country were, in fact, legal.

Ironically, the same transitional government that established the concession review process also negotiated and signed series of controversial concession agreements during its two years in office. The most controversial agreement signed by the NTGL was a $900 million dollar Mineral Development Agreement (MDA) with Mittal Steel for the exploitation of Liberia’s largest iron ore deposit in the northeast of the country. (6) Much of this controversy centred on allegations of corruption at various stages of the allocation process. For example, some members of the legislature were accused of receiving bribes to ratify the MDA. Most of the legislators reportedly did not see the full text of the MDA and apparently relied on a 2-page summary of the 79-page MDA prepared by the executive branch, which had negotiated the agreement. Numerous questionable terms in the MDA drew criticism from a few members of the legislature, members of civil society, some technical experts and the public; (7) thus making the MDA a critical issue during the Liberian presidential campaign of 2005. This consequently attracted a pledge from the incumbent president, then a candidate, that she would review the agreement if elected.

The MDA signed by the NTGL imposed conditions which raised significant concerns about the protection of indigenous rights and opportunities for public participation; the protection of human health and the environment; safeguarding human rights; and the government’s ability to enforce existing and future laws in connection with contemplated mining activities. In short the MDA provided little that would benefit the people of Liberia and instead left the Liberian government vulnerable. (8)

Conclusions

  1. Transparency [alone] of forest revenues would not have ensured that Liberia’s natural resources benefit all the people of Liberia. It would have however legitimised the operations of concessionaires, even though they were actively involved in undermining the rule of law.
  2. During the initial negotiations with Mittal Steel the public had limited access and input into the process. Public participation could have stemmed the backroom deals which pushed this controversial deal through to ratification. The MDA has been renegotiated and as a result major state assets, including a strategic railway link and the port of Buchanan, have been recovered. This would not have been possible without civil society intervention and pressure from the public.
  3. Revenue transparency is vital; but its importance should not overshadow the other critical issues associated with the extractive sector. For example, there must also be transparency and accountability in the concession allocation process. 
  4. A holistic approach to addressing the problem of the resource curse is needed to guard against ‘patchwork solutions’. The development of various initiatives dealing with different aspects of the problem, especially on voluntary basis, is in itself problematic. Although EITI has a critical role to play in addressing the resource curse, it must be a part of an integrated or holistic approach that addresses the entire chain of custody from the allocation of concessions to revenue flow and expenditures and gives due consideration to the environmental and social impacts of resource extraction.

Notes

(1) See EITI Principles and Criteria
(2) During the 2004 timber concession review process in Liberia none of the companies that operated in the sector could demonstrate that they operated legally. In many instances political patronage and favoritism had secured them their concessions, while corruption within the tax collection system allowed them to continue their operations even though they failed to meet their tax obligations.
(3) See EITI Principles and Criteria
(4) Timber is not included in the EITI implementation framework. However, there is a strong case for including timber in the EITI implementation in countries like Liberia where timber is a high-valued commodity, which can generate significant revenue for a country. Liberia’s history with conflict-timber revenue being diverted to fuel war proves that timber should be subjected to the same transparency initiatives of the other natural resource sectors.
(5) Forestry Concession Review (Phase III) Report, May 2005
(6) See Changing Faces, Sustainable Development Institute (2005); Heavy Mittal?, Global Witness (2006) for more on the MDA
(7) Liberian government hearing for Mittal Steel under review
(8) See Legal Issues in the Mineral Development Agreement Between the Government of the Republic of Liberia and Mittal Steel Holdings, prepared by Columbia Law School Human Rights Clinic for the Sustainable Development Institute, as published in the Daily Observer , Thursday April 13, 2006

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