Extractive Industries Transparency Initiative (EITI) - Solution to Sustainable Development

9:41:44 PM | 5/30/2011

Vietnam has a diverse variety of natural minerals with more than 60 types of minerals found in over 5,000 deposit ore mines. Some types of minerals are discovered in large reserves, including bauxite, titanium, rare earth, and limestone. Oil, gas and extractive industries have been developed rapidly in the past years and made important contributions to the State budgetary collection and socio-economic development of Vietnam. Since 2000 to date, extractive industries always make up for 10 percent - 11 percent of the country’s GDP. In 2009 alone, revenues of mineral export reached some US$8.5 billion, of which US$ 6.2 billion came from crude oil. These sectors considerably accounted for some 25 percent of State budget revenues.
However, extractive industries are exposing weaknesses and unsustainable development. Illegal extraction has rampantly been existing for long time in many localities, causing loss of minerals and State budget revenues. A recent study by the Vietnam Chamber of Commerce and Industry (VCCI) and the Consultancy on Development (CODE) pointed out that legal regulations and law enforcement in extractive industries contain a lot of flaws. Specifically, several financial obligations that companies must pay to the State like environmental protection charges, information fees and royalties, etc. s are not or not yet fully implemented. Subsequently, the State loses a large amount of incomes. On the other hand, some localities collect unofficial fees like ‘infrastructure contribution fee’ and local support fee, etc. leading mining companies to difficulties in settling payments and declined profit.
Although the laws provide that stakeholders shall disclose information in connection to incomes and expenditures from extractive industries, in reality, only certain stakeholders have access to this information. The Law on Minerals stipulates that “mineral resources are owned by the entire people” but most people do not have the opportunity and tools to monitor their so-called ‘asset.’ Besides, the lack of transparency in disclosing information relating to incomes and expenditures is a spacious room for corruption. A typical example is the opaque information concerning environmental protection charge and commission fees in the oil and gas industry. Lax oversight mechanism in combination with the lack of information publicity and the low degree of accountability are currently primary causes of unsustainable development in the extractive industries.
To use benefits of mineral extraction and processing for the country’s social and economic development and to harmonise interests from mineral resources among the State, companies and people, strengthening policy and institution in general and the transparency of information relating to incomes and expenses of extractive industries are very necessary. In addition to recent efforts like amendments to and supplements of the Law on Oil and Gas 2008 and the Law on Mineral 2010, Vietnam should study and consider engagement in global collective actions like enforcing and joining Extractive Industries Transparency Initiative (EITI).
The EITI is an initiative based on a voluntary alliance between governments, companies, social and international organisations to enhance transparency in extractive industries. This is a global standard for transparency of incomes in extractive industries, it is based on two main mechanisms: (i) Mining companies are required to publicise their payments to governments and vice versa the government must publicise the revenue it receives from mining companies. (ii) An independent agency is required [by the EITI) to be established to compare the data collected, and this agency will be managed and supervised by a joint committee. As of May 2011, 35 countries have participated in the EITI. This initiative is also supported by more than 50 of the world’s largest mining companies, hundreds of civil social organisations, mining associations, and international organisations such as the European Commission, the Commission for Africa, the World Bank, the Asian Development Bank, etc.
The Party and State of Vietnam have adopted aggressive policies, guidelines and commitments to promote information transparency and publicity. Transparency enhancement is considered one of major criteria Vietnam is striving for in the process of integration and development and repeatedly stated in many important documents like the Law on Anticorruption, the Law on Enterprises, documents of the 9th, 10th and 11th Party Congresses; and international commitments like the United Nations Convention against Corruption and the World Trade Organisation (WTO). Recently, Vietnam has participated in two initiatives, namely Construction Sector Transparency Initiative (CoST) and the Integrity and Transparency in Business Initiative for Vietnam (ITBI). This proves that the Party and the State’s transparency policies have gradually been translated into some sectors. Therefore, transparency in extractive industries is not an exception, and the EITI can be a good option in managing extractive industries which is currently in poor management.
The research by VCCI and CODE shows that most stakeholders, including State agencies in charge of extractive industries and mining companies, support the accession to the EITI. Based on results of the research on realities of extractive industries in Vietnam and experiences in implementing the EITI in the world, the research recommended that Vietnam should join the EITI because Vietnam will be able to attain some benefits like increase in revenues for the State Budget and reduction in financial losses and natural resources losses from oil, gas and mineral extraction; minimising unofficial expenses for companies; averting conflicts amongst stakeholders and building the public confidence in the Government’s management; building the trust of investors to attract more foreign investment capital for extractive industries; creating a fair business environment for all economic sectors; improving the national credit index in transparency; preventing and fighting against corruption more effectively.
Moreover, the EITI is an open initiative where each country can modify the scope of EITI enforcement to suit its political and socio-economical conditions. In spite of political, financial and personnel obstacles that may rise from the implementation of the EITI, given strong political commitments of the Government, financial and technical supports from international institutions like the World Bank, the EITI International Board, the fulfilment of the EITI is definitely possible in the coming time.
Tran Trung Kien