Alongside maximising economic recovery, the spotlight on accountability in oil and gas production has grown in recent years. The UK’s participation in the EITI is one route towards ensuring the industry operates transparently across the globe.
Given the importance of hydrocarbons to both political and corporate agendas, it is paramount that governments and oil producers can demonstrate responsibility in their activities. One key route to supporting this is the Extractive Industries Transparency Initiative (EITI), an international standard for openness around the management of revenues from natural resources.
EITI is designed to improve accountability and public trust for the revenues paid and received for a country’s oil, gas and mineral resources. Although EITI is principally aimed at developing countries where there may be concerns over the stewardship of these resources, many in industry and civil society in the UK – along with the government – see participation as an important demonstration of leadership and solidarity. Accordingly, May 2013 saw the Prime Minister announce that the UK would subscribe to this standard. Implementation of the initiative was launched the same July and the UK was admitted as a candidate country in October 2014. The UK is currently being assessed against its compliance with the standard and the outcome is expected later this year. As part of this process, the UK EITI Multi-Stakeholder Group (MSG), which oversees EITI implementation, is looking to increase support and awareness within the industry.
Setting the standard
In practice, participating extractive companies are required to disclose specific, group-level payments or repayments to government agencies (such as HMRC, the Oil and Gas Authority, Crown Estate and Crown Estate Scotland) that total £86,000 or more. These figures are audited by the EITI’s independent administrator and published along with contextual information in an annual report.
Although the initiative is voluntary, the UK’s continued participation in EITI helps maintain momentum in the drive for more transparency worldwide, which is vital in tackling international corruption and economic crime. This requires the active involvement of companies from the sector, including many OGUK members.
Comprised of representatives from across industry, civil society and government, the MSG is responsible for overseeing and agreeing all decisions on implementation. Other functions include determining the scope of UK EITI, developing the work plan and appointing an administrator to carry out the reconciliation of payment data received from government and industry. OGUK, along with some OGUK members, hold seats on the group; if you are interested in getting involved please contact OGUK external affairs adviser Tom Evans.
Participation in the initiative helps enhance accountability to the UK public on the revenues generated from extractive industries, and in turn helps increase public understanding of their social and economic impacts. At a global level, alignment also supports moves towards common reporting standards in oil, gas and mining and helps ensure a level playing field for business in the UK and internationally.
As well as societal benefits, there are upsides for participating members – even in highly regulated markets such as the UK. Participating members can point to their involvement in the process as a sign of their commitment to transparency, good governance and responsible business, and for many, may also help to meet environmental and/or corporate and social responsibility (CSR) goals.
Companies are also asked to provide information relating to individuals that have a material influence on the company through their shareholding in the company, including individuals with political influence. In the UK, this is achieved via beneficial ownership records, known as the People with Significant Control (PSC) register, which has been in use since 2016. The PSC register is the first publicly accessible company beneficial ownership register in the G20 and one of the first of its kind anywhere in the world.
In setting up the PSC register, the UK has already fulfilled one of its EITI requirements, ensuring that all oil, gas and mining companies that bid for, operate or invest in extractive projects in their country disclose their real owners.
Its next milestone achievement will be validation against the EITI Standard. The process was carried out by the EITI International Secretariat during 2018 and is intended to provide all stakeholders with an impartial assessment of whether EITI implementation in the UK is consistent with the provisions of the standard. The validation committee will submit its final report to the EITI Board for discussion and a final decision is expected in late autumn 2019.
The UK MSG plans to publish its 5th UK EITI report in December 2019, followed by the planned launch of a standalone UK EITI website in spring 2020. The report will include data on extractive industries payments to and repayments by UK government agencies in 2018, as well as background information on the UK extractives sector and the EITI itself.
62 companies were included in the EITI reconciliation process for 2017, with 97% of the total in-scope payments reported by UK government agencies being reconciled. As awareness of the EITI standard increases, this may well grow further in the coming years.
Companies interested in participating in the EITI should contact Michael Nash at BEIS, or visit www.eiti.org for more information.