The Extractive Industries Transparency Initiative (EITI) isa global standard that promotes the open and accountable management of extractive resources which includes the oil, gas and mining sectors. It requires companies disclosing what they pay and Governments what they receive along the entire extractive industries value chain. The EITI is a coalition of governments, companies, civil society groups, investors and international organizations working together. It supports improved governance in resource rich countries through the full publication and verification of company payments and government revenues from oil, gas and mining operations.
We define the Extractive Industries as the oil, gas, and mining industries.
EITI implementation in Uganda is overseen by a tripartite arrangement of a Multi Stakeholder Group (MSG) comprising twenty-five members from Government, Industry and Civil Society Organisations as follows: thirteen from the Government, seven from extractive companies and five representatives from civil society organisations. The MSG is supported by a Secretariat (UGEITI) which oversees EITI implementation on a day-to-day basis.
- Revenues from the extractive industries should be an important engine for economic growth leading to sustainable development.
- Some countries rich in oil, gas and minerals have under-performed relative to other countries without natural wealth. There is a close correlation between the countries rich in natural resources and the countries with high levels of poverty.
- Transparency over payments and revenues increases accountability and therefore the likelihood that the revenues generated by the development of natural resources are used in an efficient and equitable manner. It can also reduce the risk of diversion or misappropriation of resources.
- EITI as a planning tool – because of its reliable data and information, this could be used for research to establish areas for focus during development of strategic policies for the extractive sector.
- It will help to build trust among various stakeholders and thus minimizing conflict in the long run.
- Promote the good will of government as a partner in sustainable management and development of the extractive sector.
- It will help address the challenges related to the informal and Small-scale Artisanal Miners whose activities can make a significant contribution to GDP.
- The credibility earned by the country from EITI implementation will attract more foreign investment into the sectors.
- Over 50 developing countries are resource rich where Extractive Industries are important for economic development., They are home to some 3.5 billion people.
- There is nothing intrinsically wrong with extractive industries, but the high-risk, high cost and uncertain nature of exploration activities, coupled with a long gestation period before profits are realised and the finite nature of these natural resources, makes financial management of the sector difficult.
- Companies investing large amounts of resources for natural resource extraction need to be assured of a stable, and reliable investment climate for their investments.
- To Ensure that revenues from natural resources exploitation make it into government budgets for public sector benefit (e.g., on health, education etc.), is key to reducing poverty, promoting democracy and reducing the risk of conflict.
- The lack of accountability and transparency can lead to poor governance and corruption, and in the long run promoting conflict and poverty in resource rich countries.
- Transparency needs to be linked to efforts geared towards improving financial management and tackling corruption. Without transparency, donors and International Financial Institutions and companies will be cautious and less willing to invest in these countries.
- It will enhance the citizens’ capacity to hold their governments to account for the use of the resources.
During implementation, each EITI member country is assessed against the EITI Standard through a process called Validation. Validation is used for reviewing each country’s progress against the EITI requirements and recommendations are made for improving the governance of the extractive sector.
The validation process is overseen by the EITI Board through the International Secretariat.
There are five categories for assessing progress during Validation. These are: Outstanding, Satisfactory, Meaningful, Inadequate and No Progress.
If a country has made inadequate progress or less on any one of the requirements relating to stakeholder engagement (Requirement 1.1,1.2 and 1.3), the Board will suspend the country in accordance with Article 8 (EITI Standard 2019, Article 5).
Where validation verifies that a country has made satisfactory progress on all the requirements, the EITI Board will designate that country as having achieved satisfactory progress overall. Implementing countries must maintain adherence to the EITI Principles and Requirements in order to retain this status. Where concerns are raised about whether implementation of the EITI has subsequently fallen below the required standard, the EITI Board reserves the right to require the country to undergo a new validation (EITI Standard 2019, Article 6).
- Increasing transparency and knowledge about the sectors will empower citizens and institutions to hold governments to account for utilization of these resources. Mismanagement or diversion of funds for sustainable development purposes will become more difficult.
- Demonstrating transparency and accountability will benefit developing economies by improving the business environment, hence attracting foreign direct investment.
- Transparency and good governance are often pre-conditions for access to international financial institution lending which benefits the portfolio for investments in extractive companies.
- Extractive companies will to invest in the sectors stand to benefit from a more level playing field, a more predictable business environment and better prospects of security for their investments.
- Companies will also be able to demonstrate the contribution they make to an economy.
- The purpose of reconciling payment flows is to identify any potential discrepancies in the declarations and to clarify them.
- Conducting a scoping study to determine the scope of reporting (overview of applicable financial and non-financial disclosures in accordance with EITI Requirement 2-6.
- The collection of payment data from Government Agencies and extractive entities, which provides the basis for the reconciliation.
- A comparison of amounts reported by Government Agencies and Extractive entities to determine if there are discrepancies between the two sources of data.
- Contact with Government Agencies and extractive entities to resolve the discrepancies identified.
- Large scale mining in Uganda commenced in the 1970’s with the establishment of Kilembe Mine as a Large-scale mine, producing over 217,000 tonnes of blister copper as well as cobalt, phosphates and limestone
- These are payments in lieu of resource extraction and are based on volume or value of the resource extracted. They are paid on commencement of production. The Petroleum (Exploration, Development and Production) 2013 describes it.
- Signature bonus payments. The Uganda Petroleum Exploration, Development and Production Act, 2013 provides for payment of a signature bonus on granting a petroleum exploration or production The Act defines the signature bonus as “a single non-recoverable lumpsum payment by the licensee to the Government upon granting of the petroleum exploration or production license”. The amount payable is determined by the agreement between the government and the Oil Company.
- Production Bonus. The 2016 Model Production Sharing Agreement provides for payment of production The production bonuses are to be paid within 30 days following the date on which each of the aforesaid cumulative production volumes are first achieved.
- Licenses Fees to be paid when applying for grant renewals, or transfers of petroleum licenses. The Petroleum (Exploration, Development, and Production) Regulations, 2016 defines it.
- Annual Acreage The licensee shall pay acreage rental, surface rental or area fees calculated per square kilometer for the acreage held under a petroleum exploration license or petroleum production license on granting of a license and thereafter annually on the anniversary of the grant until the termination of the license. The Uganda 2016 Model Production Sharing Agreement (MPSA) describes it.
- Training and research The licensee shall pay annual training and research fees. Training and research fees shall be payable on the granting of a license and thereafter annually on the anniversary of the grant until the termination of the license. The Uganda 2016 Model Production Sharing Agreement (MPSA) describes it.
- Profit This refers to the share of production remaining after the contractor has retained the share attributed to cost recovery (Art 11 MPSA). The Uganda 2016 Model Production Sharing Agreement (MPSA) defines it.
- Income After deducting royalties, cost recovery oil and government profit oil share, the contractor’s profit oil share is subject to income tax in accordance with the income tax laws of Uganda. Income Tax Act, Cap. 340 and Income Tax (Amendment) Act, 2018 describes it.
- Value Added International Oil Companies may register for VAT at exploration and development stages before they embark on production. Value Added Tax (VAT) Act, Cap. 349 and VAT Act (2021Amendment) defines it.