Natural Resources Final1 3

Natural resource
governance
New frontiers in transparency
and accountability
Sefton Darby
For more information contact:
Transparency
& Accountability Initiative
c/o Open Society Foundation
4th floor, Cambridge House
100 Cambridge Grove
London, W6 0LE, UK
Tel: +44 (0)20 7031 0200
www.transparency-initiative.org
Copyright 2010 Open Society Foundation.
All rights reserved, including the right to reproduce
this report or portions thereof in any form.
TAI New Frontiers / Natural resource governance 11
Contents
Executive summary 5
1. Introduction 7
The transparency and accountability initiative 8
Methodology 8
Scope 8
Defining transparency, participation and accountability 9
Linkages 10
Report structure 10
2. Classifying natural resources 11

Prioritising natural resource sectors 12
Issues in different natural resource sectors 14
3. Global trends affecting natural resource use 15

A global shift in power 16
Climate change 17
The commodities boom and crash 18
The financial crisis 19
4. Making the case for transparency and accountability 20

5. Resource production issues 23
Addressing conflicts 24
Improving contract negotiation and consultation practices 24
Improving information about natural resource projects 25
Policy and programme recommendations 28
6. Trade and consumption issues 29

Addressing sustainable governance in trade 30
Large-scale resource consumers 31
Resource use by individual consumers 31
7. Actor-specific recommendations 33
Government capacity building 34
Civil society capacity building 35
Private sector capacity building 36
8. The role of technology in improving governance 38

Increasing the availability and accessibility of information 39
Improving the mapping of resources 39
Monitoring the operations of resource users 39
Improving consumer choices 40
4 TAI New Frontiers / Natural resource governance
9. Recommendations for donors 41

Improving the duration and sustainability of funding 42
Greater strategy and coordination 42
Bias against existing programmes and institutions 43
Bias against low spend / high admin programmes 43
10. Policy and programme recommendations 44

Annexes 46
Annex I: Recommendations 47
Recommendation 1: Developing a strategic dialogue
with key emerging countries on natural resource governance 47
Recommendation 2: Improving the accessibility of information
on and monitoring of natural resource concessions and use 50
Recommendation 3: Improving transparency of and accountability
of natural resource use at the sub-national level 53
Recommendation 4a: Strengthening the extractive
industries transparency initiative (eiti) 58
Recommendation 4b: Developing new revenue
transparency mechanisms 61
Annex II: Summary of possible programmes 64
Annex III: List of interviewees 66
Acronyms and abbreviations 67
Acknowledgements 68
About the author 68
Executive summary
The Transparency and Accountability (T/A) Initiative is a donor collaborative that aims to create a more
coherent, relevant and effective community of practice, and to increase the impact, coordination and
breadth of funding available for transparency and accountability work. Part of the work of the Initiative
has been to carry out research to identify the New Frontiers for transparency and accountability in a
number of areas: international financial systems; donor aid; budgets, procurement, and expenditures;
climate change; and natural resources.
This strategic review represents the first of two key Engaging with the middle-income emerging economies on
deliverables in the natural resources area of this New Frontiers transparency and accountability issues in natural resource
work. The second deliverable consists of detailed explanations governance is therefore absolutely essential. At present
of four of the 11 recommendations made in this report. governments and companies from these countries see
transparency and accountability as, at best, an irrelevance
Natural resources oil, gas, minerals, forests, fish, water and
and, at worst, as being antithetical to their perceived
land present a number of challenges to the transparency
competitive advantage. This approach may help to secure
and accountability agenda. The greatest amongst those
natural resource supplies in the short term, but risks
challenges is the fact that the use of such resources to
generating social and political risks that will undermine
satisfy domestic demand and to fuel export industries has
long-term security of supply. Tensions around these
been a fundamental component of the economic boom that
investments threaten not only economic development
has lifted hundreds of millions of people out of poverty in a
in resource-exporting developing countries, but also in
number of large, emerging middle-income countries.
the emerging economies dependent on those resources.
This increased demand for natural resources across the The most important recommendation of the natural
board has created both massive opportunities as well resources theme, therefore, is that donors need to urgently
as considerable risks, for resource-exporting developing make a serious and long-term diplomatic commitment
countries. At one level, it has the potential to generate to establishing a sustained dialogue on these issues with
unprecedented levels of revenues for these countries. But, governments, companies and civil society groups in these
conversely, this can make countries more vulnerable to the countries. The current approach of fly-in-fly-out diplomacy
political and economic instability generated by commodity focused on inviting these countries to participate in existing
price fluctuations. In addition, increased competition for international voluntary standards will continue to fail.
these resources is in some cases generating resource deals
This increased competition and demand for natural
which undermine the transparency and accountability of
resources of all kinds is in turn leading to increased conflicts
how resource concessions are allocated (and who allocates
generated by overlapping resource claims between
them) and of how the benefits of major investments are
large-scale resource users and local communities. It is
distributed between investors, national governments and
also risks generating increases in illegal use of resources,
local communities.
particularly in the fisheries and forestry sectors (though
The pace of economic globalisation has far outstripped major consumer countries are increasingly passing stricter
the ability of global institutions to develop regulatory legislation to outlaw illegal timber imports). This report
mechanisms to deal with these kinds of negative makes a clear recommendation that the increased use
governance externalities. It has also outstripped the ability and affordability of internet and GPS technology have
of resource-exporting developing countries to develop created a significant opportunity to manage or mitigate
effective regulatory frameworks and institutions. At the some of these conflicts and to help to guard against illegal
same time, it is extremely difficult for developing countries resource use. This can be done by creating more effective
to reject the prospect of such investments, even if they systems that map the concessions held by major natural
lack adequate legislation and institutions. Into this gap resource users across all sectors; by making those systems
has tumbled a confusing plethora of voluntary multi- publicly available and easily accessible; and by using
stakeholder initiatives that seek to act as substitutes GPS technology and mobile telephony to empower local
for regulation. communities to monitor the activities and actual location
of large-scale resource users.
1 Foremost amongst which are Argentina, Brazil, China, Indonesia,

India, Russia, Saudi Arabia, South Africa, South Korea, Taiwan
and Turkey.
Much of the focus of donors engaged in transparency and in particular on the role of commodity trading and transfer
accountability issues in the natural resources sector has pricing practices that have the potential to significantly
been on improving governance systems at a national level. reduce revenues to resource-exporting developing countries.
While this can help to produce information that is useful
It should also be possible to build on the success of the
for policy makers and donors, it increasingly ignores the
EITI programme in other natural resource sectors such as
fact that state- and provincial-level governments, as well
forestry, fisheries, hydropower and large-scale agribusiness
as traditional authorities, play a crucial role in approving
investments. In all of these sectors there is strong potential
natural resource concessions, in managing conflicts
for developing programmes that would focus on creating
between resource users and in ensuring that revenues
greater transparency and accountability on revenues
generated by major natural resource projects are converted
generated by large-scale investments in these sectors,
into sustainable development in the communities where
though such programmes might have to focus on resource-
those resources are located. This report recommends that
exporting and trading companies, rather than on individual
donors need to develop specific programmes focused on
producing companies as the EITI does. Most importantly,
the transparency and accountability needs of communities,
there is an immediate and urgent need to develop revenue
civil society groups and governments at this very local
transparency mechanisms for the revenue flows that will
level and that those needs should not be defined as being
be generated by REDD programmes and proposed climate
simply a watered-down version of existing national-level
change adaptation funds.
transparency programmes.
There is a clear need to build on the work of the Extractive
Industries Transparency Initiative (EITI), which is one of
the most notable success stories in the natural resources
governance arena. The report recommends that EITI
programmes themselves should be strengthened by
providing greater resources for audits that would focus not
only on reporting what has been paid, but also on what
might not have been paid. This recommendation focuses
1. Introduction,
methodology
and scope
The transparency and Methodology

accountability initiative The research for the NRG theme was carried out by Sefton
Darby of S.E.B. Strategy Ltd (www.sebstrategy.com) a
The Transparency and Accountability Initiative (T/A) is a
consulting company specialising in transparency, anti-
donor collaborative that aims to create a more coherent,
corruption and natural resource governance issues. The
relevant and effective community of practice, and to
work was overseen by the Transparency and Accountability
increase the impact, coordination and breadth of funding
Initiative Program Manager, Martin Tisn, and benefited
available for transparency and accountability work. The
from extensive guidance from the members of the NRG
Initiative is a donor collaborative that includes the Ford
Reference Group convened to steer the work. The findings
Foundation, Hivos, the International Budget Partnership,
presented here are based on a review of NRG literature
the Omidyar Network, the Open Society Institute, the UK
and on a large number of individual and group interviews.
Department for International Development (DFID), and the
Details of the membership of the reference group, as well as
William and Flora Hewlett Foundation.
of all the individuals interviewed during this process, can be
The initial phase of the Initiative (April to October 2010) found at Annex III.
focused on three key areas of work:
Research on the impact and effectiveness of
Scope
transparency and accountability activities: This The natural resources strategic review is focused on a
work was focused on evaluating the validity of current number of different natural resource areas, specifically:
approaches and aimed to identify those approaches and
Oil and gas
strategies that have the greatest efficacy in promoting
enhanced accountability and transparency. The research Minerals and metals
aimed to improve understanding among policy makers and Forests
practitioners of the available evidence and to identify gaps Fish
in knowledge to inform a longer-term research agenda.
Land
New technologies for transparency and
Water
accountability: This area of work was focused on
carrying out a global review of the uses of technology The review focuses primarily on transparency and
in promoting transparency and accountability. It also accountability issues that occur around large-scale use of
carried out feasibility studies on implementing open these resources, and thus does not look at the many issues
government data initiatives in middle-income and related to smaller-scale or artisanal use of these resources.
developing countries. The review is also, due to the extremely diverse nature of
New frontiers in transparency and accountability: the resources covered, very high-level. It does not seek
The final area of work carried out strategic reviews of to identify all of the key governance issues around each
transparency and accountability issues in a number of of the resources, nor does it attempt to map all current
areas. This included identifying innovative proposals activities by donors in these areas. Instead, it seeks to focus
for programmes and policies on transparency and specifically on the transparency and accountability issues
accountability, with a particular focus on so-called in these sectors. The long-list of programme and policy
demand side interventions. The five areas of focus under proposals is biased in favour of demand side interventions
this area of work were: i.e. those kinds of initiative that would encourage greater
citizen involvement in promoting transparency and
o Budgets, expenditures and procurement accountability although other approaches are identified
o Donor aid where it is felt that the issue is of particular importance and/
o Climate change or requires greater attention from donors.
o Financial system reform Finally, the review is ultimately focused on issues, policies
o Natural resource governance (NRG) and programmes that are directly related to the citizens
This report consists of the strategic review, as well as a long- of developing countries globally. There will, however, be
list of possible programme and policy ideas, for the natural policy and programme proposals which will focus on actors
in developed countries who have the potential to impact
resource governance theme of this work.
(either positively or negatively) on developing countries.
Defining transparency, that oversee local public service delivery. Citizens may
participate through local associations, social movements
participation and accountability and campaigns, formal participatory governance spaces
Given the general nature of the key terms that the initiative and multiple approaches which employ several of these
is focused on transparency and accountability it is strategies. Participation is key to making transparency
necessary to provide some brief definitions around these and accountability directly meaningful to citizens. For the
terms. The following definitions have been developed by purposes of the Transparency and Accountability Initiatives
the T/A Initiative Program Manager and are being used research, citizen participation is relevant in as much as it
across all areas of research carried out by the program. leads to increased transparency and accountability.
Transparency Accountability
Transparency is a characteristic of governments, companies, Broadly speaking, accountability refers to the process
organisations and individuals that are open in the clear of holding actors responsible for their actions. More
disclosure of information, rules, plans, processes and specifically, it is the concept that individuals, agencies
actions2. As a principle, public officials, civil servants, the and organisations (public, private and civil society)
managers and directors of companies and organisations, are held responsible for executing their powers
and board trustees have a duty to act visibly, predictably according to a certain standard (whether set mutually
and understandably to promote participation and or not). Accountability is an institutionalised (i.e. regular,
accountability. Simply making information available is established, accepted) relationship between different
not sufficient to achieve transparency. Large amounts of actors. One group of people/organisations are held to
raw information in the public domain may breed opacity account (accountees), by other groups (accounters). It is
rather than transparency. In order for that to be achieved useful to think of an accountability relationship as having
a number of qualifying criteria must be added to the up to four sequential stages:
definition. Information should be managed and published 1. Standard setting: setting out the behaviour expected
so that it is: of the accountee and thus the criteria by which they
Relevant and accessible: Information should be might validly be assessed.
presented in plain and readily comprehensible language 2. Investigation: exploring whether or not accountees
and formats appropriate for different stakeholders, have met the standards expected of them.
whilst retaining the detail and disaggregation necessary 3. Answerability: a process in which accountees are
for analysis, evaluation and participation. Information required to defend their actions, respond to questions,
should be made available in ways appropriate to different and generally explain themselves. This applies both to
audiences, and at minimal or no cost. negative as well as to positive feedback.
Timely and accurate: Information should be made 4. Sanction: a process in which accountees are in some
available in sufficient time to permit analysis, evaluation way punished for falling below the standards expected of
and engagement by relevant stakeholders. This means them, or rewarded for achieving or exceeding them.
that information needs to be provided while planning as
well as during and after the implementation of policies Most accountability sequences are not as formal, and/or
and programmes. Information should be managed so do not include all these stages. More informally one can
that it is up-to-date, accurate, and complete. think of accountability as not only a set of institutional
mechanisms or a check list of procedures but an arena
Participation of challenge, contestation and transformation.
Citizen participation generally is understood either as
consultative participation or as empowered participation.
In the case of consultative participation, a government
provides citizens and their representatives with a chance
to be heard, but there is no guarantee that participation
will be heeded. Decision makers have the freedom to agree
with citizens or not, though there is normally an obligation to
give the reasons for why they agree or disagree. In
order for participation to be meaningful, there must be
accountability. In the case of empowered participation, the
participants are invested with decision-making power and
influence, such as having citizen representatives on boards
2 Transparency International, 2009.

Accountability can usefully be categorised in terms of The structure of this report

horizontal, vertical and diagonal mechanisms with the
proviso however that success is most often found not in This report begins (Chapter 2) with an introduction to
one of these approaches alone, but in their interaction. the different natural resource sectors that it considers
and identifies their various features and what kinds of
Horizontal accountability consists of formal transparency and accountability demands are created
relationships within the state itself, whereby one state by them. Chapter 3 identifies the key global trends that
actor has the formal authority to demand explanations are affecting natural resource use, most notably the shift
or impose penalties on another. It thus concerns internal in economic and political power from the G8 nations to
checks and oversight processes. For example, executive a broader grouping, and the subsequent gap between
agencies must explain their decisions to legislatures, the demand for and supply of global governance;
and can in some cases be overruled or sanctioned for climate change; the recent global commodities boom
procedural violations. Horizontal accountability can also and subsequent crash; and the recent financial crisis.
exist between states i.e. states can be accountable to Chapter 4 discusses some of the key challenges that face
one-another through treaties. the entire transparency and accountability agenda as a
Vertical forms of accountability are those in which result of those global trends. Chapters 59 then look at
citizens and their associations play direct roles in holding a wide variety of transparency and accountability needs
the powerful to account. Elections are the common in the natural resource governance area. These needs are
formal institutional channel of vertical accountability. grouped thematically according to issues that come up
But there are also informal processes through which during the production of resources (Chapter 5); the trade
citizens organize themselves into associations capable and consumption of natural resources (Chapter 6); the
of lobbying governments and private service providers, capacity-building needs of specific actors in natural resource
demanding explanations and threatening less formal governance (Chapter 7); the potential for technology to
sanctions, such as negative publicity. Again there is improve natural resource governance (Chapter 8); and the
potential for some aspect of international vertical need for donors to change the way in which they themselves
accountability e.g. individual states can be accountable support such governance programmes (Chapter 9).
to the UN security council.
From Chapter 4 onwards, various policy and programme
Diagonal accountability operates in a domain proposals are discussed in the text. The text related to each
between the vertical and horizontal dimensions, and of these recommendations is normally flagged as
refers to the phenomenon of direct citizen engagement Recommendation 1 etc. and the recommendations are
with horizontal accountability institutions in efforts to summarised at the end of each chapter, as well as in Annex
provoke better oversight of state actions. Citizens by-pass A. Chapter 10 establishes some of the criteria that the
cumbersome or compromised formal accountability long-list of proposals should be assessed against when
systems in order to engage in policy-making, budgeting, determining which 35 of those issues should be developed
expenditure tracking, etc. in greater detail for presentation to donors involved in the
Linkages T/A Initiative.
Transparency, accountability and participation need each

other and can be mutually reinforcing. Together they enable
citizens to have a say about issues that matter to them and
a chance to influence decision-making. To this end, each
concept is part of a strategy deployed for and by citizens to
have the means, capabilities and opportunities to influence
decision-making and affect development outcomes.
1
2. Classifying natural
resources
Prioritising natural Others still would rank sectors according to which would
be the easiest for donors to influence. Those sectors would
resource sectors be where there are relatively high degrees of concentration
The natural resource sectors being considered in this report (i.e. large-scale exploitation); where the sector is dominated
oil, minerals and metals, forests, fish, land and water are by large, visible actors; and where much of the end
extremely diverse, and finding any sort of common ground product is consumed in developed countries. Based on
amongst them, and amongst those working in those this assessment, the easiest sectors to influence would
sectors, is extremely difficult. People interviewed for this be mining, forestry, fisheries, oil and gas, water and then
report held very diverse views on which resources were the land.3 Two diagrams below attempt to show the relative
most important ones to focus on, and on whether the scope concentration of different sectors according to whether (i)
of this project should be narrowed to focus on only a few ownership and exploitation are dominated by governments,
of the resources studied. These differences in opinion were large private sector companies, or small scale users; and (ii)
primarily influenced by the interviewees own area of sector the point in the spectrum of production and consumption
specialisation, as well as of their way of definingvalue. at which there is the greatest degree of concentration.
Different ways of prioritising sectors in need of greatest The oil and gas sector, for example, is dominated by
attention from donors are discussed below. governments, and the greatest point of concentration
occurs at the point of production and trade. The fisheries
Some would prioritise by making a strict economic sector, on the other hand, involves both large-scale and
assessment of the tradable value of the various resources. small-scale private users, and the point of concentration is
This definition was favoured primarily by those focused probably best found amongst companies which import fish
on developing programmes that would deliver greater in consumer countries.
financial resources to governments and citizens in
developing countries. By this definition, the most A final way of ranking the relative importance of the sectors
important sectors to focus on would be (in descending would be by how much of a gap there is in the development
order of importance) oil and gas, mining, forestry, fisheries, market of programmes focused on improving transparency
hydropower and large-scale land investments, followed by and accountability of resource developments. By this
smaller-scale land and water resource developments. criterion sectors such as land, water, and fisheries (which
correspondingly have the lowest levels of concentration in
Others would prioritise based on an environmental terms of organisations involved in exploiting them) would be
assessment of the value of various resources: many were prioritised over forestry, oil and gas, and mining.
focused primarily on looking at the relative importance of
resources in delivering or harming public environmental There is no right answer as to which sectors members of the
goods such as clean air, clean water, etc. The problem T/A Initiative donor collaborative should focus on. Different
with this approach is that any attempt to prioritise donors will have different areas of comparative advantage;
environmental values immediately runs into the question sector focus; attitudes towards project risk; willingness to
of what level of environmental impact one is looking invest in short or long-term projects; and philosophies on
at (e.g. global vs regional vs local), not to mention the whether one should focus on resource production or resource
complex myriad of linkages between different aspects of consumption (i.e. whether one should attempt to bring about
the global ecosystem. The only area of agreement in terms change by influencing production in developing countries, or
of environmental priorities appears to be that focusing patterns of consumption in developed countries).
on effective forest governance has the greatest overall
impact. Beyond that, the debate is too diverse (and the
qualifications of the author in this area too slender) to
attempt a ranking of the environmental importance of
different resource sectors.
3 The relatively
low position of oil and gas in this ranking reflects out by state-owned companies in producer countries, and the
the very high percentage (75 80%) of production that is carried relatively disaggregated consumption of the end-product.
3
Figure 1. ownership and exploitation by sCale oF user
TIMBER
GOVERNMENTS LARGE SCALE PRIVATE SECTORS SMALL SCALE USERS
Figure 2. ConCentration oF produCtion and Consumption
TIMBER
PRODUCTION TRADE REFINE IMPORT RETAIL CONSUME
EXPORT VALUE-ADD MANUFACTURE

Issues in different natural in the sector: many large forests are government-owned,
and while the actual extraction is often carried out by a large
resource sectors number of small-scale companies, the international trade is
relatively concentrated.
Oil and gas
The oil, gas and mining sectors are currently approached by Fisheries
many donors through a variety of risk mitigation programmes The fisheries sector is seen primarily as a sector that is suffering
that are strongly influenced by the resource curse debate from a classic crisis of the global commons i.e. that there is a
i.e. that countries dependent upon those resources are collective failure of governments, corporations and individuals
disproportionately susceptible to a combination of political, to agree and police sustained quotas. This is partly because there
economic, and conflict risks that make many such countries are large areas of ocean that are not bound by national exclusive
poorer than those without such resource concentration. The economic zones and are therefore essentially unregulated. And
sectors are therefore influenced by economic governance where sea areas do fall inside a countrys exclusive economic zone,
specialists, and to a lesser degree by those concerned with the capacity of the state to monitor and police its zone is often
conflict and authoritarianism arising from resource contestation. considerably less than its needs; this is particularly the case for
The advantage of focusing on focusing on the oil and gas large archipelagic states such as Indonesia and the Philippines
sectors is that they has a massive and tangible economic value,4 and for small island states in the South Pacific. The tradeable value
and the production and trade of oil is very concentrated in the of fisheries is relatively small compared with extractive industries.
hands of a relatively small number of governments (and to a Indeed, in many countries the fisheries sector is a net loser of
lesser degree international oil companies). revenues, due to the long-term depletion of stocks, subsidies (e.g.
for fuel) and poor sector management. A recent World Bank report
Mining estimates that poor management of the fisheries sector costs the
Similar to the oil and gas sector, much donor analysis of the global economy some $50 billion per year.5
mining sector is influenced by the resource curse analysis. Due
to the role of artisanal mining in funding armed insurgencies in Water
Africa there has, however, been a greater focus amongst donors Water is difficult to treat as a homogenous sector, largely
on mitigating conflict through a combination of sanctions and because the governance challenges, economic returns,
certifying the origin of resource production. Although the mining environmental impacts, and concentration of ownership vary
sector involves a greater number of smaller companies than the immensely according to use. Water use for energy generation,
oil and gas sector, it sometimes receives greater attention due i.e. through hydropower, requires very significant investments,
to the fact that virtually all production is onshore rather than most commonly by governments. It can also generate
offshore, and because of the greater role played by international significant export revenues. Water use for food production, is
companies (as opposed to the oil sector which is dominated by far more decentralised and is more important as an enabler
government-owned producers). There is some discussion related of the agriculture sector. Finally, water use for sanitation can
to consumer-focused campaigns on mineral and metal use (most involve both massive multi-billion dollar projects, as well as very
notably with diamonds and gold), but as most end-users buy small local projects. There is a mix of public and private sector
minerals and metals indirectly (i.e. in the form of other products), provision of sanitation and water services. The common theme
there has been less focus on changing consumer behaviour. of all three is that water serves primarily as an enabler of other
sectors and generators of public and private goods and services,
Forestry rather than as an exported commodity in its own right.
Forestry sector programmes have typically focused on
identifying the local ecosystem services provided by forests Land
to local communities, and increasingly on the role of forests Similar to water, land is difficult to categorise as a sector due
in reducing carbon emissions. The sector is heavily influenced to its highly divergent uses and the fact that it is exported in
by environmental and climate change specialists and debates, the form of other products such as food and biofuels, rather
as well as by a human rights debate on the conflict between than as a product in itself (with a few notable exceptions: small
large-scale extractors of timber, and local indigenous peoples. island states such as Singapore have significantly expanded
This focus on ecosystem services and local human rights their overall territory by importing materials from other
makes the debates around forestry very different from those states).6 Similar to water, land ownership can be both large-
that take place in the oil and mining sectors. The scale of the scale and small-scale, public and private. The issue of land
direct economic impact is considerably smaller: while figures ownership has become more prominent over the past couple
on the value of total forestry exports vary immensely, they are of years due to recent food crises, which have prompted
typically in the realms of billions and tens of billions of dollars significant private sector and government investments in
rather than the hundreds of billions and trillions generated by agribusinesses in Africa, Latin America and Southeast Asia.
the oil and mining sectors. Increasingly, the greatest tradable That said, the ownership of these large-scale projects remains
value of forests lies in carbon trading schemes rather than predominantly domestic rather than international.
traditional harvesting. There are some points of concentration
4 Itis extremely difficult to place a value on the total value of oil 5 See Arnason, R., Kelleher, K. and Willmann, R., The Sunken Billions
exports because grades of oil, costs of extraction, and distribution The Economic Justification for Fisheries Reform, World Bank, 2009.
of benefits from production, trade and consumption, vary Available at http://go.worldbank.org/MGUTHSY7U0
immensely. An extremely crude equation of 84m barrels of oil per 6 An example of this would be the export of sand by Cambodia and
day at a value of $70 per barrel would yield a value of just over $2
Indonesia to Singapore see the Global Witness Report Shifting
trillion per year. Sand available at http://www.globalwitness.org/media_library_
detail.php/963/en/environment_at_risk_as_cambodia_exports_
millions_o
5
3. Global trends
affecting natural
resource use
Any research that has the objective of identifying potential programmes and
policies for development organisations needs to begin with an assessment of the
significant global issues surrounding the sector. It is relatively easy to develop ideas
for new programmes, but developing ideas that will endure because they link
strongly to global trends is more difficult.
The Extractive Industries Transparency Initiative (EITI), for of its eight members are high-income OECD countries. In
example, has been able to gain significant global traction the G20, on the other hand, permanent Security Council
because during the core years of its development it linked members are a minority; the wealth of those countries is
strongly with a number of global problems that it was far more diverse (ten are high-income countries, seven
seen as having the potential to at least partially address.7 are upper-middle-income countries and three are lower-
Four main trends have been identified in the course of middle-income countries 9 ); and there is a more diverse
researching this report. They are: approach to the issues of political and civil liberties, which
are important for supporting many aspects of transparency
A global shift of economic and political power from G8
and accountability.10
to G20 countries and an increasing gap between the
need for global governance and the ability of formal Finally, globally there has been a general trend not so much
international institutions to deliver such governance; away from governance but towards more disaggregated
Climate change which is not only possibly the most and diverse governance, in which a wide variety of
serious challenge to global governance, but which is groups international institutions, national governments,
also having a major impact on natural resource use; sub-national governments; state- and privately-owned
corporations; and a rich variety of civil society groups are
The commodities boom and crash which have changed
all involved in influencing governance norms and rules.
the willingness of states to rely solely on markets to
There is of course great debate on how important this trend
secure natural resource supplies; and
is, or even whether it is actually a new trend. What is difficult
The financial crisis which has increased demand to dispute, however, is that the interaction of these different
in developed countries for greater regulation of stakeholders is taking place far more visibly than it has in
multinational companies. the past largely because of the accessibility of information
and communication technologies to even the poorest
A global shift of power people in the poorest of countries. And this is not solely a
The shift of economic and political power from the Western phenomenon: several interviewees noted that
G8 group of countries to the G20,8 and the increasing the failure of many development organisations to engage
emergence of the latter as a core grouping in international with China has come from a false perception that it is some
negotiations on most topics, is one of the most significant sort of monolithic state in which a homogenous approach
factors influencing natural resource use. The dramatic to politics and business is dictated by a small joined-up
economic rise of this broader group of nations Communist Party elite.
especially China, and to a lesser degree India has lead As the backgrounds and objectives of the countries
to a correspondingly massive rise in demand for natural shaping global institutions become more diverse,
resources, and the increased prominence of state- and they are simultaneously faced with perhaps the most
privately-owned companies from these countries in comprehensive demonstration of globalisation and the
natural resource development. All-in-all this major shift in need for global action climate change. Institutions such
global political and economic power has lead to a far less as the UN which were built around a 65-year-old balance
homogenous approach to global governance issues and the of power equation and with a primary concern for hard
role of major international institutions. security issues may find the challenge of economic and
This significant shift in economic and increasingly political environmental globalisation insurmountable.
power from the G8 nations to those of the G20 has not As international institutions such as the UN, the World Bank,
only increased the number of political players shaping the IMF and the WTO struggle to get to grips with a plethora
global institutions, but has increased the diversity of those of global governance needs that essentially require unwilling
players. The G8, for example, includes four of the five sovereign states to cooperate globally, one of the governance
permanent members of the UN Security Council, and seven gaps that has emerged is the way in which corporations
7 Those trends would include but are not limited to: the 9 And those 3 lower-middle income countries China, India,
commodities price boom that peaked in 2008; the major focus Indonesia collectively represent approximately 40% of the
in donor agencies on anti-corruption agencies in the mid-2000s; worlds population. Income category classifications can be found
highly visible resource driven or sustained conflicts in Africa at http://data.worldbank.org/about/country-classifications/
during the 1990s and 2000s; and publicity surrounding the country-and-lending-groups#OECD_members
multi-billionaire status of some of the former leaders of resource 10 In the G8all but Russia are classified by Freedom House as
rich states (e.g. Suharto in Indonesia, Abacha in Nigeria, and beingfree in terms of political and civil rights. In the G20, 16
Mobutu in Zaire / D.R. Congo).
countries (if the EUs membership is counted as that of a state)
8 The G8 grouping consists of Canada, France, Germany, Italy, are considered to befree, but 4 (China, Russia, Saudi Arabia and
Japan, Russia, the United Kingdom and the United States. Turkey) are classified as either partially free or not free see
The G20 grouping consists of the G8 nations and Argentina, http://www.freedomhouse.org/template.cfm?page=505
Australia, Brazil, China, India, Indonesia, Mexico, Saudi Arabia,
South Africa, South Korea, and Turkey.
7
state-owned, privately owned and publicly listed altering the actions of investors and companies working
private companies operate in developing countries. The in these countries. Moreover, these standards although
commodities boom of the 2000s has pushed considerable often focused on specific sectors, problems, processes or
investments by these companies into fragile states where the transactions do not exist in some sort of governance
capacity to effectively monitor and regulate their activities is vacuum; improved governance in one area can often
often weak and sometimes non-existent. stimulate demand for better governance elsewhere.
In the absence of both international and national
regulation, a plethora of economic, environmental, security,
Climate change
human rights, and governance standards and initiatives A notable common global driver across all the natural
have moved to fill the gap.11 Some of these standards are resource sectors is the impact of climate change and the
driven by governments, others by companies themselves actions that are being proposed to address it. Some of the
and others still by international civil society groups. Some, impacts of climate change in different resource sectors are
such as the EITI, give equal representation to all three of as follows:
these stakeholder groups in their international and national
governance arrangements. Oil and gas
There has been considerable criticism of these kinds of The boom in energy prices in mid- to late 2007 stimulated
initiative. The primary avenues of attack on them have been: considerable investments in biofuel projects. Much has
subsequently been written about:
That they are voluntary i.e. that there is no requirement
for either a company or a country to adhere to them, the economics of such projects - in the US, in particular,
and that there are no tangible sanctions either for not biofuel production has been used as a reason for
belonging to an initiative, or for belonging to an initiative perpetuating agricultural subsidies;
but not implementing it. the environmental impacts especially where forests are
That they distract from the real need to build effective cleared for biofuel crops; and
global governance institutions to regulate multinational the social and political impacts biofuel investments
organisations. have motivated some of the large-scale land acquisitions
That they undermine the role of governments in parts of Africa and Latin America.
to regulate by building a false argument that Beyond biofuels, climate change is also a major issue in
voluntary self-regulation is more effective. terms of increased investments in heavy crude oil and tar
That implementation by companies is highly variable sands projects, where considerably greater amounts of
and that initiatives can be used as public relations energy need to be expended to produce a barrel of oil than
exercises by companies to distract consumers from that which comes from more conventional oil fields. More
the real impact of their operations. positively, the dual pressures of increased energy demand
That they have failed to achieve significant buy-in from and the need for action on climate change have stimulated
both publicly and privately owned companies from the a greater focus on the need to use associated gas from oil
emerging economic powers amongst the G20 states production (rather than flare it).13
(most notably the so called BRICS Brazil, Russia, India,
China and South Africa). Forestry
That there is now such a proliferation of standards and The emergence of significant international proposals such
initiatives that it is entirely possible for companies and as the Reduction of Emissions from Deforestation and Forest
countries to search for the lowest-common denominator Degradation (REDD) initiative to address climate change has
set of standards that will maximise their reputation whilst the potential to deliver enormous sums for funding from
minimising the need for actual action. carbon-emitting developed countries to low- and middle-
income countries with significant forest areas (most notably
While the global financial crisis may spur on increased
Brazil, the Democratic Republic of Congo and Indonesia).14
regulation in home countries, including moves to While these funds have the potential to finally deliver
increase international reporting for multinationals (i.e. a
significant economic incentives to preserve forests as global
requirement by their home countries to report on their environmental goods, there are also considerable concerns
performance in the countries that they operate in),12 so
that transparency and accountability arrangements need to
long as governance and regulation in developing countries be put in place to ensure that those funds are governed and
remains weak, international voluntary standards will almost
spent appropriately. It will also be important for such funding
certainly remain the best (or possibly the only) way of
11 Amongst others there are initiatives such as the Extractive 13 See theWorld Banks Global Gas Flaring Reduction Partnership -
Industries Transparency Initiative (EITI), the Construction http://go.worldbank.org/NEBP6PEHS0
Transparency Initiative (COST), the Medicines Transparency 14 Section 8 of
the Copenhagen Accord contains a commitment
Alliance (MeTA), the UN Global Compact, the Voluntary
for developed countries to provide an additional $30bn in
Principles on Security and Human Rights, the Global Report
funding for mitigation and adaptation activities between
Initiative (GRI), the Principles for Responsible Investment, etc.
2010 2012, with that increasing to $100bn per year by 2020.
12 Forexample, the recent financial reforms in the US have See http://unfccc.int/resource/docs/2009/cop15/eng/11a01.
included a requirement for all US registered oil, gas and pdf#page=4
mining companies to disclose payments to all governments
globally. See http://www.publishwhatyoupay.org/en/resources/
landmark-us-legislation-sheds-light-billions-payments-oil-and-
mineral-companies
to go alongside a concerted effort to clearly communicate The commodities boom

the purpose of financial transfers to all end recipients i.e.
that they are essentially payments for global ecosystem and crash
services, not simply some form of international welfarism.15 The boom, and in most cases subsequent crash, in the
prices of multiple commodities during the past decade
Water has had a significant impact on resource development,
Not only does climate change have the potential, in use, and governance. Oil and gas prices were influenced
the long term, to significantly change the level of water by a number of factors, including speculators, concerns
resources across different states, but so-called adaptation over the accuracy of estimated reserves,16 ongoing war
funds i.e. funds that will be transferred to or spent on in Iraq, and an at time fractious relationship between the
projects in countries most affected by climate change largest consumers of hydrocarbons (the US and the EU) and
have the potential to drive very significant flows of funds major suppliers such as Iran, Russia and Venezuela. Global
into large-scale water management projects (e.g. dams, food production, while still rising during this time, was
sea walls, desalination plants). Similar to REDD funds, these increasingly pressured by population growth and in some
have the potential to be either a positive or a negative, cases the switching of land from food production to biofuel
depending on how effectively they are governed and spent, crops, which were increasingly in demand as an alternative
and so long as funds for new water-related infrastructure to hydrocarbons. In some quarters biofuels were also
do not replace regular and necessary investments in the promoted as a partial solution to global warming caused by
provision of drinking water and sanitation services. hydrocarbon consumption, though this claim has been
heavily disputed. But perhaps more so than any other factor,
Land the boom in commodity prices across all natural resource
The (heavily contested) proposition that biofuel sectors was spurred by increased demand (both to produce
developments might help to mitigate climate change exports, as well as from domestic demand) from countries
is driving significant large scale land acquisitions and such as China and India. The following table illustrates the
transformation in some developing countries. Moreover, rise, peak, and fall in the prices of a number of commodities.
changes in food production patterns caused by climate The important thing to note here is that while the global
change might increase the focus on large-scale agricultural financial crisis has caused the prices of many commodities
investments by some states as a way of addressing food to decrease since 2008, they have not returned to anywhere
security concerns. near the prices at the beginning of the decade.
Some of the impacts of the commodities boom
are detailed in the table below.
table 1: the rise and Fall oF Commodity priCes, 2001 - 201017
COMMODITY MAx 2001 PRICE $ MAx 2008 PRICE $ JUNE 2010 PRICE $
Thermal coal - $ per metric ton 34 192.86 105.2
Copper - $ per metric ton 1787.06 8714.18 6501.5
Iron ore - $ per dry metric ton 0.30 1.41 1.67
Hardwood logs - $ per cubic metre 173.2 326.62 260.61
Brent crude oil - $ per barrel 28.45 133.9 74.8
Palm oil - $ per metric ton 312.62 1146.86 764.91
Shrimp - $ per pound 16.9 10.29 7.22
Wheat - $ per metric ton 132.54 439.72 157.67
15 Note: greaterdiscussion of REDD and the transparency and 17 Source: IMFCommodity Price Data available at
accountability needs thereof can be found in the Climate http://www.imf.org/external/np/res/commod/index.asp
Change Strategic Review that has been produced in parallel to
this report.
16 Alack of transparency around Saudi reserves continues to be a
long-term uncertainty. On a smaller scale in 2004 the chairman
of Shell was forced to resign amidst accusations that the
company had significantly overstated its proven reserves.
9
State-driven investments The financial crisis

to secure resources The global financial crisis dramatically ended the
In virtually all areas of natural resource use, but particularly commodities boom of the early to mid-2000s and has,
around oil, key minerals and metals, and food supplies, probably temporarily, scaled back the level of investments
the massive escalation of commodity prices in the mid-to- in natural resources sectors (with the notable exception of
late-2000s has driven some governments and state-owned investments in gold, which is typically a counter-cyclical
companies from middle-income countries to rely less on open commodity). It has also increased the appetite amongst
markets to deliver supply core commodities, and to move to governments for stronger regulation of multinational
ensuring outright ownership or control of those resources. corporations, particularly banks and investment companies.
This has particularly been the case for some of the emerging Whether this will have a positive or negative impact on
economy G20 countries and their state owned companies. the promotion of transparency and accountability has yet
This has in turn created a form of resource nationalism both to be seen. High commodity prices and relatively easy
in producer states keen to maximise revenues, as well as in access to capital did in some ways make host countries (i.e.
consumer states keen to secure supplies.18 those with the resources) less likely to consider the need
for transparency and accountability standards that would
The development of natural resource mitigate long-term social, economic and political risk. At
investments in politically and the same time, the vast flows of investment and revenue to
environmentally fragile states resource-rich developing states also provided considerable
motivation amongst international donors and civil society
The commodities boom of the 2000s pushed many large- groups to push for those standards. With the dramatic
scale natural resource projects into more politically unstable reduction in commodity prices, conversely, more interest
and fragile states. Investments were made in longstanding might be seen in transparency and accountability standards
fragile resource states such as Angola and Nigeria, and also by host countries, investors and companies, in order to
in relatively new producer states such as Chad, Equatorial attract investment and mitigate risks. But it might also lead
Guinea and Uganda. In the former Soviet states, massive to less focus on those standards by donors and civil society
oil and mining investments have been made in Russia, the groups, even though donors currently have more leverage
South Caucasus and Central Asia. Major agribusiness and (i.e. because capital is more scarce and is more risk-averse)
mineral investments have been made in states such as DR on those issues than they did during the boom years.19
Congo, Guinea and Liberia. All of these investments are
clear examples of a general trend towards natural resource
investments moving into countries in geopolitically
unstable regions, often where there is a recent history
of conflict and where unstable, highly corrupt and often
authoritarian governance is the norm. Even investments
in stable resource states, especially in the oil sector, have
pushed into more fragile environments, with an increased
focus on the Arctic and on ultra-deepwater drilling. While
these investments may have in the short to medium term
improved supplies of natural resources, in the longer term
the fragility of these states, their governments and their
environments only threatens security of supply. From
a natural resource governance point of view, this trend
has made investment in transparency and accountability
programmes all the more important, but also considerably
more difficult.
18 Ward, H. (2009),Resource nationalism and sustainable 19 For a good summary of the impact of the global financial
development: a primer and key issues, International Institute crisis and the decline in extractive industry prices on many
for Environment and Development, London. Available at developing countries see McCarthy, J. and Pray, S. Advocacy
http://www.iied.org/pubs/pdfs/G02507.pdf Knocks: Transparency Reform Opportunities Post-Financial
Crisis, Revenue Watch Institute, 2010. Available at http://
www.revenuewatch.org/files/RWI_Advocacy_Knocks_Pray_
McCarthy_FINAL.pdf
4. Making the case

for transparency
and accountability
1
One of the most notable divergences of opinion between people interviewed for this report was
around whether or not they felt that the case had been made for transparency and accountability
programmes. Some felt very strongly that the value of and need for such programmes were so
obvious as to be a non-issue while others, including some in the donor community, still felt that
such programmes were difficult to sell both to their own senior management and to developing
country governments.
This divergence of opinion shows the crucial value that sometimes the most that can be hoped for. Secondly, it
will be played by the first theme of work being carried out can be observed that 99% of people do not care about
by the T/A Initiative namely, measuring the impact of 99% of government and corporate information 99% of the
transparency and accountability programmes. time, but that there is the potential for massive spikes in
demand for information during times of crisis, and thus the
The other significant tension that emerged from the
disclosure of information even in the absence of a crisis
interviews carried out for this report was between those
can be seen as a form of pre-emptive transparency and
who look at natural resource issues primarily from an
accountability.
economic governance point of view and those who see
it from a point of view of environmental governance. This The availability of government and corporate data following
tension is genuine and cuts across all stakeholders in the Deepwater Horizon disaster in the Gulf of Mexico, some
government, companies, civil society and in donors. At of which was already available but had not been subject to
best, each perspective can understand the usefulness of the scrutiny, is a good example of this phenomenon. That said, it
other: the REDD programme, for instance, has the potential is also a good example of how simply making information
to deliver billions of dollars to developing countries with available is not enough to engender transparency that
the objective of reducing deforestation, but this will information also needs to be comprehensible and actually
happen only if those funds are transparently managed used by capable actors. As one interviewee notedthere
and distributed to those who would otherwise have an is a real risk of drowning in disclosures... the transparency
incentive to be involved in deforestation. At worst, some movement will lose steam if those disclosures dont make
environmental campaigners see the focus on transparency any appreciable difference.
and accountability by donors and the international financial
When one considers the above issues in light of the global
institutions as a way in which those institutions are able
trends identified earlier in this report, one can conclude that
to be distracted away from (or are actively involved in
the case for transparency and accountability programmes
distracting others away from) environmental issues of
still need to be made there are still many individual
greater importance.
and organisations that need to be convinced. In light of
While most of those interviewed for this report were the growing importance of governments and companies
transparency and accountability enthusiasts, many noted from middle-income economies, it may be necessary in
that recent donor programmes had perhaps focused some ways for those involved in the transparency and
too much on the production of information (which can accountability debate to return to basic principles and to
be done relatively quickly), while not enough had been seek to involve those countries and organisations in new
done to develop the capacity of all organisations and programmes, rather than simply inviting them to join
individuals to actually use that information to achieve existing programmes which have largely been shaped
positive change. That said some interviewees defended the byNorthern actors. A far greater effort needs to be
focus on transparency on two grounds. Firstly, programmes made to demonstrate to middle-income countries, and
focusing on the production of information tend to be less investors from those countries, that the transparency and
controversial than those which seek to explicitly change accountability agenda is not a front for global political
how governments and companies operate. While this may competition, but rather a way of reducing risks to and costs
not be an issue in politically open societies, in authoritarian of their investments in developing countries.
countries the transparency of some information is
Indeed, one of the fundamental challenges to the T/A Policy and programme
Initiative as a whole is the need to clearly consider whether
the transparency and accountability agenda is synonymous
with democratisation, or whether it is possible to have
transparency and accountability in states and organisations Recommendation 1
that are fundamentally undemocratic.20 Any process of
reaching out to these states will be difficult insofar as it may Donor organisations urgently need to develop a
require a scaling back of the ambitions of some Northern strategic dialogue with middle income emerging
transparency and accountability actors and activists, countries* on natural resource governance issues,
as well as possibly the development of new global but with a particular focus on seeking to agree common
more inclusive standards which may seek to accomplish standards for investments in developing countries.
very similar objectives to those of existing initiatives do This would require donors to establish offices in these
(Recommendation 1). countries specifically to engage on governance issues,
rather than engaging in fly-in-fly-out diplomacy. It
could also involve working with existing civil society
organisations in these countries to help them to
engage with their governments and companies on
such issues. There would have to be a clear focus
both on strategic dialogue as well as on making the
economic case for transparency and accountability.
* A long-list of those countries would include a mixture
of OECD and non-OECD countries which are increasingly
prominent in international natural resource investments:
those countries would be Argentina, Brazil, China,
Indonesia, India, Russia, Saudi Arabia, South Africa, South
Korea and Turkey.
20 The termdemocratisation here assumes a broad definition discrimination; a clear separation of the executive from those
of the term i.e. that it is not simply about whether elections institutions charged with overseeing elections and the law;
occur or not, but also whether those elections are underpinned freedom of the press; etc.
by civil rights such as freedom of association and a lack of
3
5. Resource
production issues
Given the very broad range of resources considered by this report, and the way in which
they are used, it has proven very difficult to concisely identify priorities for transparency and
accountability actions at the point of production. Members of the natural resources reference
group advising this project were divided on both the strategy and the detail of this area more
than any other aspect of the project.
That said this report attempts to group those issues and local users of a resource, or ways in which local users
into three broad areas: can report the illegal use of resources. This would include
ensuring that there are established policies on compensation
Mitigating tensions and conflicts between
for damages to resources used at the community level.
different resource users;
Finally, there needs be clear tracking and monitoring of the
Improving contract negotiation and consultation revenue flows from these projects, so that all stakeholders are
practice around resource developments; and clearly aware of who the beneficiaries of resource projects
Improving the availability and quality of information are. Each of these issues is discussed below.
about natural resource projects.
Improving contract negotiation
Addressing conflicts and consultation practice
A common issue across all the natural resource sectors
The issue of the adequate consultation and involvement
is the need to manage, negotiate, and resolve conflicts
of those affected by major natural resource development
between different resource users. Several interviewees
projects is a significant issue. The core issues here are:
noted that this was the KEY issue in ensuring that natural
resource endowments contributed to poverty reduction Whether developing country governments and civil
instead of promoting unsustainable forms of development. society groups have the capacity to effectively negotiate
In all natural resource sectors with the exception of oil and such contracts.
gas (which naturally require large capital investments to The strong perception by civil society groups that
extract) all resources are developed and used by both large- local people are either poorly or rarely consulted by
scale international, state-owned, and national companies, both government agencies and potential developers
as well as by local communities. And even though oil and about natural resource developments, at all stages of
gas investments are naturally large-scale, environmental production during the planning process, permitting
pollution from the industry has the impact to reduce or and contracting, during the production phase, as well as
eliminate the livelihoods of local communities. Some small- during decommissioning processes.21
scale resource use can be carried out by itinerant users (e.g.
artisanal miners), while in the case of forestry, fisheries, land The area that has received perhaps the most attention from
and water, local use is fundamental to peoples day-to-day development organisations is that of building government,
livelihoods. There are four key components to ensuring that and to a lesser degree civil society, capacity to negotiate
these conflicts can be mitigated. contracts effectively. There is some perception that the
terms of many contracts have not been sustainable in the
The first component is ensuring that local people who long run due to those contracts delivering disproportionate
are likely to be affected by large-scale development are benefits to investors and companies. There are potentially
actively and consistently consulted before and during many different causes of deals which are perceived to
resource extraction/use. The second component is providing be iniquitous, including a huge imbalance between
information regarding the terms of resource contracts, and available negotiation resources (e.g. lawyers, economists,
ensuring that the physical locations of resource concessions financial and banking experts) available to investors and to
are publicly available and easily accessible. Thirdly, there need governments;22 outright corruption (e.g. when an investor
to be open channels of communication between large-scale bribes a government minister or officials in order to receive
21 Interviewees were extremely divided on the issue of whether 22 A selection of organisations involved in this area would
there should be more or less focus on trying to stop natural include the World Bank through its Extractive Industries
resource developments. Some felt very strongly that donors Technical Advisory Facility (EI-TAF see http://go.worldbank.
were almost entirely focused on mitigating harm after projects org/NGJ46W9J80 ); the African Development Bank through
had been approved, rather than trying to stop harmful projects its African Legal Support Facility (ALSF - see http://www.
in the first place. Others felt, equally strongly, that focusing on afdb.org/en/topics-sectors/initiatives-partnerships/african-
stopping natural resource projects would be almost entirely legal-support-facility/ ); and the Revenue Watch Institutes
pointless given the underlying global supply and demand work on contract transparency and providing assistance to
dynamics for various natural resources, and thus felt that efforts governments on contract negotiation (several different RWI
were best focused on improving the outcomes of resource projects relate to this work see http://www.revenuewatch.
projects for developing countries. The other great debate org/our-work/projects).
here (which is reflected in the structure of this chapter) is on
whether donors should focus on improving the transparency
of processes or the transparency of information. Some feel that
there has been far too much focus on producing information
which detracts from the need for transparent governance
processes. Others feel that changing processes can be difficult
(i) without information to critique in the first place; or (ii)
without being explicitly political something that many
donors are cautious of.
5
extraction rights cheaply); and even a failure to properly Improving information about
explain the full costs and risks of a project and why they
might differ from other projects. One obvious criticism of natural resource projects
much of this work is that it has been predominantly focused The issue of improving the quantity and quality of
on building government capacity, rather than civil society information about natural resource projects is considerably
capacity, and that it has been focused on the extractive less controversial than improving the transparency of
industries and less so on other natural resource sectors.23 governance processes. Two broad areas of information
There has also been a strong focus on ensuring that people transparency became apparent during the course of the
affected by natural resource developments have full access research for this report:
to information and negotiations involving investments. The Transparency of natural resource development contracts
Equator Principles and the IFCs Social and Environmental and details of actual resource concessions.
Performance Standards have a strong emphasis on these
issues. Amongst civil society groups the World Resources Improving the quality of information relating to
Institutes Access Initiative24 has focused strongly on government revenues and resource trading activities.
assessing the performance of governments in providing
Contract and concession transparency
their people with access to information; public participation
in decision making; and access to justice when peoples The issue of contract transparency, similar to that of
rights are violated by such developments. contract negotiation and consultation, also divided
those interviewed for this report: some thought that it
Perhaps the most consistent refrain in the debate around
was one of the singularly most important components
consultation on and monitoring of natural resource
of improving natural resource governance, while others
projects is that each side has a highly differentiated
considered it largely a diversion. Those who considered
view as to what constitutes effective consultation
contract transparency of vital importance for ensuring that
and monitoring. In many natural resource projects in
contracts maximise the public interest thought so because
developing countries it is relatively common to find
such contracts when combined with prevailing laws and
companies claiming to have consulted all those affected;
regulations would clearly set out the beneficiaries of such
civil society groups claiming not to have been consulted,
investments, the fiscal terms (which may be either contract-
or to have been consulted but not listened to; and
specific or governed by legislation), the geographical extent
governments often absent from the debate altogether.
of the investment and compensation measures for those
This raises the interesting prospect of whether what is affected by the development. Pushing for across-the-board
needed here are independent audits of consultation contract transparency would, it is hoped, lead to greater
practice by governments and companies, overseen by a harmonisation of contract terms both within countries
diverse group of stakeholders. This might mirror the kind as well as internationally. Those less enthused about
of approach developed by the EITI in which information contract transparency as a focus of work were not so much
on company payments and government revenues is against contract transparency per se, but rather saw it as
collated by an audit company independent of both the a distraction from more important issues: transparency of
government and companies; and that the process of hiring often highly technical documents is, they claim, little use if
that audit company and the definition of its scope of work is government and civil society organisation (CSO) staff have
overseen by representatives from government, companies no ability to use that information to influence government
and civil society. The advantage of this approach is that policy and company operations.
it has focused not just on producing information, but on
This is again an area on which there appears to have been
producing mutually acceptable, to some degree neutral,
more focus in the extractive industries, and less so in the
information. Such an approach could be developed around
forestry, fisheries, water and large-scale land acquisition
consultation practice on large-scale developments in all
sectors. It is interesting to note that much of the enthusiasm
natural resource sectors (Recommendation 2).
for a strong focus on contract transparency came from
those sectors where it has not yet been a major focus, while
those involved in contract transparency programmes in
the extractive industries were less enthusiastic about their
efficacy or importance (Recommendation 3).
23 Though the International Institute for Environment and 24 http://www.accessinitiative.org/

Developments excellent guide Investment contracts and
sustainable development (http://www.iied.org/pubs/display.ph
p?o=17507IIED&n=8&l=780&c=natres/water/land) is a notable
exception in that it covers all natural resource sectors.
Several interviewees noted that there had been a Resource trading and revenue
disproportionate focus amongst donors on the production
of information, as well as the development of cadastre and
transparency
registry systems for details of natural resources, without In the oil sector there is evidence that in some countries
thinking about: very considerable sums of money are generated for
corrupt elites by manipulating the price at which crude oil
The quality of the basic information and systems that
is marketed. Because of constant commodity and foreign
were being used to produce that information, or to
exchange fluctuations it is, for example, relatively easy
feed cadastres and land registries; or
to divert money by misreporting the actual timing of a
The accessibility and ease of use of such systems transaction. More broadly across most natural resource
to those outside of government. sectors the issue of transfer pricing is often raised as
The quality of information issue is an important one to an area where developing countries potentially lose
focus on garbage in ultimately produces garbage out. considerable revenue.25 It is an issue that it particularly
In this area several interviewees noted that transparency difficult for government revenue agencies in developing
and accountability could be greatly improved by countries where, due to low capacity, they are often overly
focusing on developing government capacity in the reliant on company self-assessment of taxation and may
often neglected (and politically uncontroversial) area of struggle to monitor and regularly audit major tax payers.
records management. Conflicts over natural resource use Both of these issues can be at least partially addressed by
were sometimes occurring, some noted, simply because ensuring greater transparency of company accounts, as
it was very difficult for governments to quickly respond well as through regular monitoring and auditing of such
to information requests related to contested areas (e.g. companies by government revenue authorities.
conflicts between companies and local users of a resource). Revenue transparency in the natural resource sector has
Government also has an important role in facilitation of received considerable attention over the past 8 years due
corporate transparency by making it easy for companies, to the efforts of the Extractive Industries Transparency
especially listed companies, to register their information Initiative (EITI); civil society groups such as Publish What You
and to submit annual reports and accounts in a way that is Pay, the Revenue Watch Institute, and Global Witness; and
straight-forward and transparent. Due to the sensitivities donors such as the World Bank, and the British, German and
around natural resource use, companies investing in Norwegian governments. The EITI itself has been criticised
developing countries are almost always required to from a number of directions:
register a local subsidiary, and in some cases those local That it is narrowly focused on only one aspect of the
subsidiaries participate in a joint venture relationship with value chain i.e. the payment of revenues by companies
a local partner (which may be a state-owned company). to governments while ignoring other important areas
Strengthening government systems around the filing of and such as contract transparency and the transparency of
public access to information about these companies would government expenditures.
dramatically improve corporate transparency.
That it has been almost entirely focused only on the oil,
Finally, several interviewees noted that when donors gas, and mining sectors.
support the development of land registries and cadastres, That it has failed to attract significant support from
greater attention need to be paid to making those systems middle-income emerging countries and their companies.
readily and easily accessible to people at a very local level.
That it has not been implemented in resource rich
This is because conflicts between multiple local landowners,
developed countries.
and between local landowners and natural resource
companies, were becoming increasingly common. The
inability of all parties to quickly and easily establish the
boundaries of local land titles (held locally), and exploration,
development and extraction licenses (most often held
nationally in the capital city), often leads to local conflicts
(Recommendation 4).
25 Transfer pricing essentially refers to the practice whereby can be used both to overstate the costs of inputs as well as to
related companies, or different units within companies, adjust understate the value of goods and services that are produced.
the price that is paid for a particular good or service so as to Both practices serve to reduce the profit of a company in
change the overall financial status of a company. This practice certain jurisdictions, and thus its taxable income.
is of particular importance to revenue agencies because it
7
This report is naturally partisan,26 but it would be a shame if It is for this reason that this report strongly recommends
boredom and a tendency towardsfashions in development that now is the time to reaffirm support to the EITI and also
were to lead such a successful initiative to be abandoned. to provide either the core EITI institutions 27 or individual
The EITIs narrow focus has enabled it to achieve two things organisations closely associated with the initiative 28 with
simultaneously. Firstly, it has been able to very successful funding to expand its mandate in a number of areas. Firstly,
expand the breadth and diversity of government, company, civil society groups in developed countries that are major
investor and civil society stakeholders who support it. extractive industry producers such as Australia, Canada,
Secondly, it has been able to complement its international Chile, Russia, Saudi Arabia and South Africa should be
standards with a rigorous focus on actual implementation supported to encourage EITI implementation in those
in developing countries, including direct financial and countries. Secondly, greater support could be given to
technical support to governments and CSOs. It is this developing country governments to fund audits looking at
second factor that makes the EITI almost unique amongst (i) commodity trading operations; and (ii) transfer pricing
international governance initiatives: many other initiatives issues (these issues are discussed further in Chapter 7).
have either more buy-in than the EITI (e.g. the UNs Global Finally, support could be provided to the EITI to consider
Compact) and/or are more academically comprehensive developing a number of voluntary modules around the
than the EITI (e.g. the World Banks EITI++/Governance transparency of other revenues from other natural resource
in the Extractive Industries Programme), but virtually sectors such as forestry, fisheries, hydropower and large-
none can compete with the EITIs actual track record on scale land acquisitions. It could also develop modules
implementation in developing countries and its increasing relating to other benefit streams or transactions the
willingness, through the EITI validation process, to carry out issue of improving the transparency of so-called social
quality control to ensure that its international standards are expenditures (i.e. expenditures by companies that are not
met at a local level. Finally, the EITI draws particular strength directly related to production) has been raised in several
from the fact that it has always been a multi-stakeholder countries.29 Similar to the issue of contract transparency,
initiative (i.e. involving governments, companies and civil there has been considerable enthusiasm amongst those
society groups) at both the international and national involved in the non-extractives sectors to see some
levels, rather than a standard that is led by one stakeholder form of EITI programme implemented in these sectors
group who may or may not consult with others. (Recommendation 5).30
26 The author
has been involved in the development and 29 As more and more stakeholders become involved in the EITI it
implementation of the EITI since 2003. has correspondingly become more difficult to change any core
27 The EITI policy or guidance hence why the recommendation here
International EITI Board and the International EITI
is for voluntary modules. These modules could be adopted by
Secretariat.
EITI countries, but those which chose not to would not suffer
28 The EITI is
supported by a broad range of donors, international any penalty for sticking to core EITI policy.
organisations, governments, companies, investors, and civil 30 Most recently the World Banks report on large-scale land
society groups see: http://eiti.org/supporters
investments Rising Global Interest in Farmland identifies the
EITI as a good model for information disclosure and multi-
stakeholder dialogue. See http://siteresources.worldbank.org/
INTARD/Resources/ESW_Sept7_final_final.pdf
Policy and programme recommendations
Recommendation 2 Recommendation 3
Developing a standard or initiative for the Improving the capacity of civil society groups to
independent audit of consultation and monitoring participate in natural resource contract negotiation
practices around natural resource developments. This processes. This proposal might focus more on the
could build on existing standards such as those used forestry, fisheries, water and land sectors where it is
by the Equator Principles and the IFCs Performance felt that there has been less attention paid to contract
Standards, but add a process of consultation audit and development issues. This could include building
multi-stakeholder oversight of those audits. Resources on the IIED work already carried out in this area, i.e.
would be required for designing the audit and focusing not only on the transparency of contracts but
oversight process, as well as for providing support for also on developing capacity in governments and civil
such audits to be carried out in a number of countries. society to negotiate effective contracts with natural
resource companies and investors.
Recommendation 4 Recommendation 5
Improving the accessibility of information about Consider providing additional support to the
resource licence and concession areas for all Extractive Industries Transparency Initiative
stakeholders. This could include improving record Secretariat, or with groups closely associated with
management systems (specifically in land registries it, to (i) encourage EITI adoption in resource-rich
and sector-specific cadastres) in developing country developed countries such as Australia, Canada, Chile,
government agencies which are responsible Saudi Arabia and South Africa; (ii) provide funds to
for holding information on natural resource implementing countries to allow them to focus more
developments, contracts, land titles, etc. This could comprehensively on auditing commodities trading
involve improving the ability of companies to file operations, and improve developing country capacity
project documents and ensuring that these systems to address transfer pricing issues within the sector;
are easily accessible at a local level. Any such system and (iii) develop EITI-type modules for other sectors
development would need to be complemented by a (e.g. land, fisheries, forestry) or other transactions (e.g.
rigorous focus on helping government officials to use social expenditures by companies).
these systems and to respond to information requests.
Finally, there is great potential to use technology (e.g.
GPS and mobile telephony) to allow local civil society
groups to access this information and to monitor large-
scale resource users e.g. to determine whether they
are operating inside their concession area or not.
9
6. Trade and
consumption
issues
Traditionally much of the focus of donors natural resource governance programmes has
been on improving governance in developing countries. This is naturally driven by the
demands of ministers (for bilateral donors) and boards of governors (for multilateral, private
sector and civil society donors) for aid budgets to be spent where funding is most needed.
On the bilateral side, DFID, for example, has a UK Treasury- resources from conflict zones - the most prominent of
mandated target of ensuring that at least 90% of its bilateral which is the Kimberley Process 32 which looks to regulate
spending is spent in low-income countries. 31 One of the the trade of conflict diamonds. Other programmes have
few downsides of this rigorous focus on poverty-targeted been developed around looking at certified trading chains
spending is that leaves little money in the budgets of in cassiterite and coltan in an effort to regulate the role that
development organisations for programmes that focus on those minerals have played in fuelling conflict in the eastern
how developed countries use natural resources exported regions of the DR of Congo.33
by developing countries. While the issues around the trade
Individual states have also developed programmes aimed
and sustainable consumption of resources are sometimes
at regulating the trade in illegally logged timber, the most
addressed by development organisations, they are often
prominent amongst these being the Lacey Act in the
treated as being policy or advocacy programmes rather
United States34 and the FLEGT programme in the European
than something worthy of substantial programme budgets
Union.35 There are also a number of initiatives focused on
in their own right. Moreover, donor organisations are
the prohibiting the trade in endangered species.36 In these
often weak players in the domestic policy environment
areas it is important to note that any action on developing
and inevitably are staffed mainly by sector specialists and
and implementing such consumer standards needs to
programme administrators who sometimes have little or
be complemented (as FLEGT does) with technical and
no experience of developing cross-government policy or of
financial assistance for exporting developing countries so
lobbying domestic developed country constituencies.
that they are able to meet such standards (chain of custody
In the oil, gas, mining, forestry and fisheries sectors, however, processes, for example, require significant capacity in
the vast majority of consumption of these resources is being government resource management and customs agencies).
done in developed and emerging economies. As large-scale
One potential new avenue of work is now looking at the
agribusiness investments intensify, this will increasingly
issues of trade in commodities from countries with highly
impact on the land and water sectors as well. Some of the
authoritarian regimes, where it is difficult to prove that the
transparency and accountability issues that fall out of how
resources have been extracted with the consent of local
natural resources are traded and consumed are as follows.
people a so-called clean trade campaign37 Such a project
would base itself on the key provisions in international
Addressing sustainable covenants on human rights which guarantee that all peoples
governance in trade may, for their own ends, freely dispose of their natural wealth
and resources.
Some effort has gone into looking at the issues surrounding
the trade of natural resources from conflict zones. Most The question raised by a prospective clean trade campaign
of these schemes look at mandating a certified chain of is at what point resources are stolen from people rather
custody over certain commodities i.e. schemes whereby than extracted with their consent by governments or
a dealer, company, exporter, government, importer, and companies. The trade in conflict resources is one aspect of
ultimately consumer can prove that a resource has come this debate, but another aspect is looking at the trade of
from a legal source. These schemes usually involve ensuring resources by the worst of the worst authoritarian regimes
that those involved in the trade are able to document where it may be difficult to genuinely determine whether
the origins of the commodity concerned. Most of these citizens of those countries have consented to the extraction
initiatives have focused on regulating the trade of natural
31 http://www.dfid.gov.uk/Documents/publications1/aut-perf- 35 FLEGT the Forest Law Enforcement, Governance and Trade

report-09.pdf programme focuses on addressing trade in illegal timber in
32 http://www.kimberleyprocess.com/ both producer and consumer countries. A summary of the
programme can be found here: http://ec.europa.eu/
33 The recent US Financial Reform Act which includes provisions environment/forests/flegt.htm The European Parliament has
for greater transparency of extractive industry company very recently (July 2010) also agreed to legislation that will
accounts also includes provisions that require US companies completely ban the trade in illegal timber see http://www.
that use cassiterite, coltan, wolframite and gold to ensure europarl.europa.eu/news/public/focus_page/008-76988-176-
that those resources are not benefiting armed militias in the 06-26-901-20100625FCS76850-25-06-2010-2010/default_
DRC. See: http://www.globalwitness.org/media_library_detail. p001c012_en.htm
php/1028/en/u.s._passes_landmark_reforms_on_resource_ 36 The most prominent of which is the Convention on
transpare See also the Pathfinder Project run by the Institute
International Trade in Endangered Species of Wild Flora
for Environmental Security http://www.envirosecurity.org/
pathfinder and Fauna, more commonly known as CITES
see http://www.cites.org
34 TheLacey Act is the US legislation that bans trade in illegal 37 My thanks to Leif Wenar for introducing me to this project
timber or wood products made from illegal timber.
See http://www.aphis.usda.gov/plant_health/lacey_act/ - see http://www.wenar.info/CleanTrade.html
downloads/LaceyActPrimer.pdf
1
and sale of natural resources. 38 This issue is particularly Resource use by individual
important in the non-renewable natural resource sectors
where, if resources such as oil and minerals are being stolen, consumers
they are in effect stolen forever from both the current and The final issue to be considered in this chapter is looking
future generations. The development of such a campaign at the potential for greater involvement of individual
would no doubt require significant funding to develop its consumers of natural resources to hold companies and
fundamental principles; to collate and publicise information governments to account for the governance sustainability
about significant resource flows from such states; to explore of the natural resources that they consume on a day-to-
whether such flows could be restricted through bilateral day basis. There are many challenges to such an approach,
or international trade mechanisms; and to develop a clear particularly during times of global economic crisis when
advocacy and communications campaign for potential consumers in developed countries may be less willing to
consumers of such resources (Recommendation 6). pay any sort of premium to ensure that the oil, jewellery,
cars, furniture, etc. that they purchase have come from
Large-scale resource consumers sustainable production both in terms of environmental
The next area where greater transparency and standards and of governance standards. The Kimberly
accountability would be useful is around the importation Process is one of the few standards that has had some
and use of natural resources by large public and private impact on consumers, in terms of adjusting the buying
sector organisations. A proliferation of standards has been behaviour of some diamond retailers and individual
developed over the years that can be used to determine the consumers. It has been able to do this partly because
environmental sustainability of products such as timber and diamonds are a product that are a discrete luxury good on
fish.39 Some interviewees noted that whilst a lot of attention which consumers have proved susceptible to marketing
had been paid to developing global standards for the pressure to ensure the cleanness of their purchase.
environmental sustainability of natural resources, very little
One traditional criticism of attempts to develop consumer-
if anything had been done to develop similar standards that
facing campaigns has been that the sheer cost of
measured the sustainable governance of such goods.
developing mass consumer awareness of such standards
There are also important opportunities to look at developing is exceptionally high. There is major potential here for
programmes that aim to target the supply chains of major technology to be a key catalyst. A recent minute-long
corporate and government consumers. There has been Greenpeace video advertisement protesting against the use
some focus recently, for example, on the role that demand of palm oil from Indonesian producer Sinar Mas by Nestl
for minerals, such as tin from the electronics and computing was viewed 1.5 million times and resulted in 200,000 emails
industries, has played in funding conflict in the DRC.40 of protest to the company. Nestl suspended purchases
Government consumers of natural resources such as timber from Sinar Mas.43 The potential of online marketing and
have also come under criticism for not doing enough to social networking sites to significantly reduce the cost of
ensure that they purchase from legal and sustainable reaching a mass audience makes the development of such
sources.41 Changing the procurement policies of major standards potentially more effective. Similar to chain-of-
corporations and governments can be particularly difficult, custody programmes requiring capacity building in both
especially if this comes with additional cost, or can be painted producer and consumer countries, there is also a need
as being anti-competitive. Changing procurement policies here for better coordination between civil society groups
in the private sector is, relative to public procurement, a working on these issues in developing countries, and those
lower-risk, lower-impact strategy changing the behaviour working on them in developed countries, so that unofficial
of individual companies is considerably easier than changing consumer sanctions walk hand-in-hand with efforts in
that of entire governments. That said, governments are producer countries to improve natural resource governance
almost always the single largest consumer in an economy, (Recommendation 8).
and some 4565% of their expenditure is spent on the
procurement of goods and services. A greater focus on
government procurement practices has the potential to have
a massive impact on reducing demand for natural resources
that are being extracted in ways that are unsustainable
from a governance and environmental point of view
(Recommendation 7).42
38 One common measure of political and civil liberties are the 40 http://news.bbc.co.uk/2/hi/technology/7747692.stm
annual surveys produced by Freedom House http://www. 41 http://news.bbc.co.uk/2/hi/uk_news/england/london/
freedomhouse.org . Using a scale of 1 (free) to 7 (not free),
5171888.stm
they measure the state of freedom globally. In the most
42 The International Institute for Sustainable Development (IISD)
recent survey (2010), 9 countries score a 7, putting them at
the extreme end of authoritarianism. Those states are Burma, has developed a sustainable public procurement programme
Equatorial Guinea, Eritrea, Libya, North Korea, Somalia, Sudan, that looks at these issues see http://www.iisd.org/markets/
Turkmenistan and Uzbekistan. It should be noted, however, procurement/ Interestingly, the IISDs recent report State of
that like any measure of quality of governance the Freedom Play in Sustainable Public Procurement finds that standards
House surveys have been criticised, particularly because much for sustainable public procurement are increasingly common
of their funding comes from the US Government. amongst local government bodies.
39 Most notable have been the Marine Stewardship Council (http:// 43 See The Economist, The campaign against palm oil: the
www.msc.org/ ) and the Forest Stewardship Council (http:// other oil spill, 24 June 2010 and http://www.greenpeace.
www.fsc.org/), both of which provide labelling or consumer kite org/international/en/news/features/Nestle-needs-to-give-
marks for fish and timber that are harvested sustainably. rainfores/
A more difficult criticism to address in developing standards been some focus in the USA and the EU on the potential for
for promotion to consumers is whether such standards the supply of core commodities to be disrupted by political
would find any traction in major emerging economy instability in producing states. 45 But this would require
consumers of natural resources such as China and India. long term international agreement by all major commodity
Indeed, were such standards to ultimately come with a consuming states that investment in highly unstable
cost44 it might be very difficult to persuade governments resource producing states would generate more costs due
in such countries to adopt or promote them. In such to the volatility of supply, than would a lower overall level of
circumstances it might be more sensible to develop a supply of particular commodities.
debate on the potential of governance sustainability
standards reducing risks to security of supply. There has
Recommendation 6. Recommendation 7. Recommendation 8.

Developing an international clean Developing a programme Developing consumer-focused
trade programme focused on focused specifically on marketing to raise demand
restricting the trade of natural influencing the public sector amongst consumers for
resources from countries where procurement policies in major companies/retailers to provide
no consent has been given by developed country consumers only goods that come from
local people for those resources of exported natural resources. sources that can guarantee
to be extracted or traded. This This would require developing that sustainable governance
would initially involve an advocacy some form of sustainable standards have been met. This
programme to develop a clean governance standards, and could include developing online
trade standard; interaction possibly considering the advertising campaigns, and
with major developed country development of some form of identifying those resources most
importers and international trade quality mark programme to help commonly produced in poor
organisations; and mapping natural identify resources/companies governance climates but which
resource flows from the worst of using only products that meet are exported and consumed in
the worst states. minimum sustainable governance developing countries.
standards.
44 Such a costwould come from a reduction in supply of 45 The EUs Raw Materials Initiative is one example of this focus
commodities, as it is assumed that not all commodity see http://ec.europa.eu/enterprise/policies/raw-materials/
producing companies and governments would be able to critical/index_en.htm
meet such standards. There is some anecdotal evidence that
it was such an increase in price that eventually attracted
diamond producing companies to the Kimberley Process that
diamonds without KPCS certification would not be able to
generate an equivalent price from retailers and consumers.
3
7. Actor-specific
recommendations
This chapter focuses on recommendations that are specific to different

kinds of actors i.e. governments, companies, and civil society groups.
The termcapacity building is used as shorthand for a in either the allocation of resource extraction licenses and
multitude of different actions, projects, programmes concessions, and/or in the monitoring of the operations of
and policies by development organisations to improve companies involved in resource extraction. In some cases
the ability of developing country governments and civil sub-national governments are even directly involved in the
society groups to function. These programmes can include commercial exploitation of natural resources.46
the development of hard skills amongst the staff of such
IIn light of this expansion of focus from national to sub-
organisations; the provision of core funding to allow
national governments, several interviewees felt that
them to develop basic organisational infrastructure; the
developing transparency and accountability programmes at
ability to carry out strategic planning and organisational
this level was necessary. In some ways this can be both more
development activities; and producing more information
as well as less challenging. It can be more challenging insofar
about their area of concern. The list of potential capacity-
as capacity in local governments is often considerably less
building interventions is endless. Virtually all interviewees
than it is at the national level. There are, however, perhaps
raised the issue of capacity building, particularly amongst
greater opportunities for rapid success on such projects,
civil society groups, as being key to improving transparency
as local governmental leaders are not bound by as many
and accountability arrangements around natural resource
political constraints as those at the national level. That said,
use. Many were less specific, however, about what that
the focus on the role of sub-national governments in natural
capacity building might actually entail, or what issues
resource governance is a relatively new one, and case studies
should be prioritised. Those areas where interviewees felt
and guidance are only now beginning to emerge.47
in particular that there were significant gaps in focus or
provision are as follows. One extremely difficult aspect of sub-national governance
is where it intersects with or is based on traditional
Government capacity building authorities and land-owners i.e. individuals or groups of
individuals who hold some form of hereditary power; where
Given the focus of the T/A Initiative on mainly demand-side
power is based on custom rather than on written law; or
interventions, this section does not by any means claim
where traditional authorities are explicitly recognised and
to identify all of the issues or areas where governments
empowered by the law. In many countries (both developed
can strengthen their transparency and accountability
and developing) these leaders still hold significant
performance, as many of these are inevitably more
power at the local level, and are often not subject to the
supply-side interventions (e.g. strengthening staff capacity
formal transparency and accountability requirements
in regulatory agencies so as to make more information
of state institutions. This is despite them often having
available). Indeed, such is the focus of traditional donors on
an important role in natural resource governance for
building national government capacity across the board,
example, in approving resource contracts; in adjudicating
that this report identifies only one very significant area
conflicts between different resource users; in receiving
(beyond those already identified in previous chapters) that
financial benefits from those projects; and in having an
would benefit from greater attention by donors namely,
implied responsibility for sharing those benefits with their
improving the transparency and accountability of sub-
traditional constituency.
national government institutions such as state, provincial,
and district governments, as well as traditional authorities. Development agencies have often shied away from this
area because of the naturally fraught nature of Northern
In recent years there has been some shift of transparency
organisations, often based in and staffed by people from
and accountability work from solely focusing on national
the former colonial powers, involving themselves in the
level government institutions, to sub-national level
effectiveness and performance of traditional governance
institutions e.g. state, provincial, regional and local
structures. Nonetheless, the lack of transparency and
governments. In the natural resources sector this has been
accountability in these institutions is a major issue,
prompted by two main factors. Firstly, in some sectors
particularly in post-conflict and/or fragile states where
there are specific revenue streams that accrue directly to
donors have sometimes worked with traditional leaders in
sub-national governments, or derivations of national-level
the absence of other legitimate leaders (Recommendation 9).
revenue streams that are then redirected to sub-national
governments. This has particularly been the case in the oil
and mining sectors in countries such as Indonesia, Nigeria,
Papua New Guinea, and Peru. The second reason has
been that sub-national governments are often involved
46 Thisis the case in both producer and consumer countries: 47 See theRevenue Watch Institutes focus on this area - http://
publicly owned companies from states and provinces in www.revenuewatch.org/our-work/projects/sub-national-
countries such as China have been involved in natural resource project-helping-local-leaders-and-communities-manage-
projects in Southeast Asia and Africa. resource-revenue One such sub-national project is the Bayelsa
Expenditure and Income Transparency Initiative (BEITI) in
Nigeria see http://www.beiti.bayelsa.gov.ng/
5
Civil society capacity building Private sector capacity building

Almost without exception every interviewee mentioned As noted above, most capacity building has been focused
the importance of capacity building for civil society groups on those organisations perceived as having the greatest
involved in transparency and accountability or natural need or financial inability to improve their performance
resource issues in developing countries. The first challenge CSOs and governments. Where governance programmes
that is presented here is that many civil society groups are are focused on the private sector they tend to be done so
typically focused on one area or the other i.e. they are in a way that seeks to increase regulation and to change
economic governance-focused groups, or they are natural- company behaviour, while at the same time paying very
resource focused groups. As noted in Chapter 4, there is little attention to the issue of capacity building for those
also often tension between the two kinds of groups. Any companies. Some of the capacity building needs in the
capacity building in this area should therefore start from private sector are as follows:
that point: i.e. by trying to narrow the gap between the two
approaches and by identifying complementarities between Investors
the economic governance and environmental governance Many interviewees noted that the quickest, though most
approaches and groups. challenging, way of making sustainable governance
The second challenge in the civil society capacity-building of material concern to major resource development
space is that virtually all of the policy and programme companies would be to influence the standards used by,
proposals identified in this report should have a civil society and capacity of, large institutional investors. Considerable
focus and a requirement for capacity building. In that work has already been done in this area most notably
regard, the issues of civil society capacity are mainstreamed through the Equator Principles48 which are in turn strongly
throughout the report and its proposals. It is worth, linked to the International Finance Corporations (IFC)
however, noting and/or reinforcing a few examples here. Performance Standards on Social and Environmental
Sustainability.49 Coalitions of investors have also emerged
Firstly, many interviewees complained that there was a around specific governance issues the EITI, for example,
tendency amongst donors to provide funding only for very is supported by a coalition of investors with approximately
specific, very time limited projects. This means that CSOs $16 trillion under management.50
are all too often forced to meet core funding costs e.g.
around the development of basic skills, maintaining and Both the Equator Principles and the IFC Performance
office, strategic planning and organisational development, Standards require, amongst other things, the disclosure
etc. by skimming funds from projects that are focused on of relevant project documents, consultation with those
other areas. This sometimes forces CSOs to be inherently affected by the project and the development of training
untransparent in the way they use funds. and capacity in companies running projects to implement
the performance standards. In the extractive industries,
Secondly, and related to this, the relatively-short term nature companies are specifically required to disclose details of all
of many CSO funding tools and models can force CSOs to payments to government.
focus their efforts on high-profile, event-based advocacy,
rather than building long-term capacity and focusing on
developing analytical strength (this is discussed further in
Chapter 9). This in turn plays into the hands of governments
and companies who can paint CSOs as being extremists who
are lacking in depth and specialised knowledge of the sector.
Thirdly, it is important that CSO capacity building is not
carried out in exclusion of more high-level projects by
donors to create legitimate space for CSOs to be involved
in debating and shaping government and corporate policy.
The best-equipped organisation in the world can still fail in
its objectives if the overall political climate is deeply hostile
to its participation.
48 http://www.equator-principles.com Prevention and Abatement; (4) Community Health, Safety and

49 http://www.ifc.org/ifcext/sustainability.nsf/Content/ Security; (5) Land Acquisition and Involuntary Resettlement;
(6) Biodiversity Conservation and Sustainable Natural Resource
EnvSocStandards In brief the performance standards are focused
Management; (7) Indigenous Peoples; and (8) Cultural Heritage.
on (1) Social and Environmental Assessment and Management
Systems; (2) Labour and Working Conditions; (3) Pollution 50 http://eiti.org/supporters/investors
Some of the potential gaps around the Equator Principles, There is definitely a clear gap in the transparency and
however, are that they are disproportionately focused on accountabilitymarketplace for the development of
issues related to the environmental impact of projects, simplified and relatively easy way to implement sustainable
relationships with local communities and health and governance standards for those small to medium
safety issues. They are weak onsustainable governance companies that are interested in engaging in the agenda,
issues.51 The requirement in the IFC Performance Standards but which do not have the resources to develop or be
to disclose payments to governments, for example, is involved in developing more comprehensive standards.
only required of the extractive industries. There is also Part of this could include producing a map of existing
the issue that the membership of the Equator Principles natural resource governance standards to help companies
consists predominantly of Northern banks and financial to negotiate their way through the current complex
institutions. The gaps, and therefore opportunities, for array of different standards. For those smaller companies
promoting investment principles around sustainable social, which are unwilling to engage with the transparency and
environmental and governance standards are therefore accountability agenda, there may be a need for more
predominantly with: concerted civil society monitoring and campaigning
(Recommendation 10).
Banks and investors from middle-income
and emerging economies. State-owned enterprises, politically
Small-to-medium sized investors investing in small to exposed persons
medium sized projects some interviewees observed
that the IFCs performance standards might possibly be Many interviewees identified the lack of transparency
a victim of their own comprehensiveness that smaller and accountability in state-owned companies involved
companies rarely had the time, funding and capacity to in resource extraction as being a crucial issue. This is
implement such comprehensive standards (see below). particularly problematic in the oil and gas sector, where
Private investors who are not publicly listed or traded. the vast majority of global production is carried out by
state-owned companies, and where several such companies
This focus on developing sustainable governance (e.g. Statoil, Petronas, Petrobras, CNPC, etc.) are increasingly
standards should be considered fundamental to both prominent in developing oil and gas prospects outside of
recommendations 1 and 10. their home countries.
Small and medium-sized companies State-owned mining, forestry, and fisheries companies
are less common though they do exist. In these sectors
Much of interaction between governments, companies perhaps the greater issue is the involvement of so-called
and civil society groups has naturally focused on larger and politically exposed persons (PEPs) i.e. a head of state,
publicly visible investors and companies. This is because minister, senior official or military officer, etc. in the
these companies: ownership of in the ownership of companies involved in
Have scale, and therefore a change in the policy natural resource extraction. Many international conventions
of a large multi-national can have a significant impact. (e.g. UNCAC) as well as national-level legislation (such
as the FCPA) prevent companies from being involved in
Have the staff resources that allow them to engage
investments and developments with companies owned
with the various voluntary social, environmental and
or partially owned by PEPs. The problem here, of course, is
governance standards
that determining the actual ownership of companies is not
Are most often publicly listed and are therefore already always straightforward, as a company may be owned by a
bound by regulations requiring the disclosure of key series of other companies and trusts, often spread across
corporate information on a regular basis. multiple jurisdictions, which makes their controlling interests
Are likely to be headquartered in Northern countries and visible only at several steps removed. The involvement of
are thus readily accessible to Northern civil society groups. PEPs in these kinds of investment is an often a very politically
Sometimes have a strong retail presence (e.g. BP, Nestle, sensitive issue, yet also a relatively under-appreciated one,
etc.) and therefore are vulnerable to reputational risk and and greater attention to these issues and to mapping of the
consumer pressure. ownership of companies in at-risk countries in the natural
resources sectors may help to expose PEPs and, in doing so,
Several interviewees noted, however, that many of the most guide investors to more legitimate and reputable companies
egregious actions in developing countries (either caused (Recommendation 11).53
deliberately or simply because the companies were too
small to have the capacity in-house to know how to operate
sustainably) were carried out by companies that were
relatively small; often have operations only in one or two
countries; are sometimes privately owned; often have no
headquarters presence in developed countries; and almost
never have a retail presence.52
51 Thisreport makes several references to the concept of 52 Thislatter feature is crucial the international oil trade, for
sustainable governance. At present it is an ill-defined notion, example, is dominated by a small number of extremely large
but a working definition of the term could be: ensuring that the companies (e.g. Vitol, Glencore, and Gunvor) who are almost
actions of donors, investors, companies, and civil society groups entirely invisible to individual consumers.
working developing countries contribute to governance that is 53 I am grateful to David Brown, Senior EITI Adviser in Indonesia,
transparent, accountable, and supportive of poverty reduction.
for talking me through this issue.
7
Recommendation 9. Recommendation 10. Recommendation 11.

Developing greater transparency and Developing a simplified set of sustainable Providing greater resources for thorough
accountability capacity in sub-national governance standards for use by small and due diligence on the beneficial ownership
and traditional governments involved medium-sized investors and companies, of major natural resource companies
in natural resource governance. This with a particular focus on the issues that (or investment and holding companies
could include building on the work of arise in natural resource sectors. Part of involved in natural resource sectors) in
the Revenue Watch Institute to help this could include producing a map of significant resource-producing countries,
develop transparency mechanisms in existing natural resource governance including identifying politically exposed
sub-national governments that receive standards to help companies to negotiate persons involved in those companies, and
significant extractive industry revenues. It their way through the current complex making that information readily available
could also include examining the role of array of different standards. This could to investors.
traditional authorities in natural resource then be complemented with active
management and developing acceptable promotion and provision of training
transparency and accountability for these investors and companies. The
mechanisms. training should, similar to that commonly
provided for government officials and
CSOs, be provided either free of cost or at
a substantially subsidised rate.
8. The role of
technology
in improving
governance
9
The terms of reference for this strategic review included making an assessment
of the ways in which technology might be used to improve transparency and
accountability in the governance of natural resources.
While there are no technology-specific recommendations, Increasing the availability

there are many recommendations that would include a
technology focus, and where this is the case it has been and accessibility of information
identified in the main text. Use of technology is also one of This would include improving access to resource use
the criteria that are used to assess the relative merits of the or extraction contracts; monitoring data and reports;
different proposals (see Section 10). information on financial flows; access to company reports;
Amongst interviewees there was considerable divergence etc. There is a tension here between availability and
as to whether the use of technology has the ability to accessibility and understanding, with some feeling that the
fundamentally transform sector governance. There are use of technology to increase the availability of information
effectively two different views of how technology can has far outstripped the ability to make that information
impact on a system to deliver better results. accessible and useable by the poorest of citizens in
developing countries.
The first view holds that technology is most useful in
facilitating efficiency gains in how individuals, businesses Improving the mapping
and government institutions operate. This view holds that
technological interventions should focus on strengthening of resources
individual or institutional capacity for example, by Publishing public information on the location and/or
improving basic communications and connectivity (through quality of non-renewable resources can help to level the
telephony or internet access or both); by providing basic playing field between competing bidders for resources and,
computing equipment to institutions to allow them to hopefully, drive a better deal for the country concerned.
use electronic instead of physical files; and to support this Mapping the use of renewable resources can help to
approach through basic training. track changes in land use, de/reforestation rates; water
The second view holds that technology has the capacity availability etc. so as to better inform policy around diverse
to deliver transformative gains that will allow individuals, areas such as investment in resource-related infrastructure
businesses and governments to fundamentally reshape the (e.g. pipelines, dams, etc.) and conservation issues.
way in which they access or deliver goods and services. In
the context of government and companies, for example, a Monitoring the operations
transformative approach would suggest that technology of resource users
should be used to join up previously disjointed institutions
and services so that the architecture of corporations and Resource users, whether small-scale or large-scale, almost
governments is relevant only to those who work there, not always operate within a specific area identified in a licence,
to those accessing goods and services provided by those concession or contract. One of the major causes of localised
organisations. It could also be used to extend governance in conflicts occurs in areas where there is overlap between the
ways that have not previously been possible the increasing operations of large-scale users and local people, including
ease of using satellite imaging technology to monitor artisanal small-scale users. There is increasing use of a
resource use is a good example of this kind of phenomenon. combination of mapping and location technologies (e.g. GIS
and GPS) to monitor the operations of large-scale resource
In the context of natural resource governance there are four users e.g. through the satellite tracking of fishing boats;
main ways in which technology might be used to improve using GPS devices and mobile phones to communicate
transparency and accountability. They are as follows. the location of boats, trucks, roads, etc. to a central point at
which the location of the user can be compared with the
area that they are licensed to operated in. The Norwegian
government, for example, has recently launched a satellite
specifically dedicated to the tracking and monitoring of
boats in its exclusive economic zone.54
54 http://www.spacecentre.no/?module=Articles;action=Article.
publicShow;ID=51302
Improving consumer choices expectations that cannot be met as one interviewee noted,
frustration is only increased if a citizen is empowered to
Until recently the development of large-scale and effective interact with an institution (either public or private), but the
marketing campaigns seeking to educate consumers about institution itself is either incapable or unwilling to respond.
where products come from and how they are produced
has been limited by the high cost and limited reach of There are, however, some ways in which to overcome the
traditional media such as television and newspaper inability of large organisations to provide information in
advertising. Section 7 provides a particularly vivid example a usable or accessible manner. Most obvious is to make
of the use of online videos and social networking to change information available and then to support and stimulate the
the procurement policies of a major international food market for information intermediaries i.e. organisations
company. The cheapness and reach of online advertising which can then repackage information in specific ways,
will only expand as the use of social networking sites in using various media, for different audiences.56
developed countries becomes the norm. Facebook alone,
for example, has more than 400million active users (i.e. 5.9%
of the worlds population) active users, 100million of whom
access it through a mobile device.55
There are, however, some legitimate concerns around
looking to technology to play a transformative role in
improving transparency and accountability in developing
countries. Firstly, and most obviously there are serious issues
around the ability of the poorest people, who are often
also illiterate, to access and use technology. Secondly, there
is concern that too much focus on technology may raise
55 See http://www.facebook.com/home.php?#!/press/info. 56 Forexample, in the UK www.howtocomplain.com bought

php?statistics together information on how to complain about both public
and private sector goods and services.
1
9. Recommendations
for donors
During the course of research for this report many interviewees requested that the New Frontiers
area of work in the T/A Initiative focus not only on identifying potential new programmes and
policy areas for donors, but also ways on which donors themselves could change the way that they
support transparency and accountability work in the natural resources sector. The key areas of
interest and frustration identified were as follows.
Improving duration and Greater strategy and coordination

sustainability of funding Several interviewees reacted positively to the fact that the
T/A Initiative is being supported by a broad consortium of
Donor programmes whether they be high level country
donors both private and public and were keen to see
strategies or specific projects tend to be medium term (3-5
that consortium expanded. Indeed, it might be useful for
years) in focus. In the context of natural resource governance
donors to develop a like minded group of those interested
this was seen as particularly unhelpful given that even
in harmonising approaches on natural resource governance
non-renewable resource extraction (e.g. oil and mineral
issues. That said, several interviewees expressed the not
developments) can typically last 10-25 years, while renewable
uncommon frustration that donor policies in the natural
resource extraction should theoretically be sustainable, and
resources sector were often extremely disjointed and
therefore needs to take into account the impact that it will
sometimes worked at cross purposes. Given the very different
have on future generations. Some licenses or concessions
needs of the audiences to whom different donors are
around large scale land use in Africa (e.g. for agribusiness
accountable, this is not unusual, though it does undermine
projects) are being issued for 50-100 years.
the effectiveness of spending and programmes. Some also
In this regard, donors are acting very similarly to many felt that there needed to be more coordination within donors
investors and markets they are inherently nervous about several interviewees noted, for example, that there were
the volatility of projects and are only willing to consider worrying disconnects developing within donors between
potential project risks and project returns over the medium those negotiating climate change policy and designing
term. For donors the 3-5 year timescale also reflects the adaptation strategies and funds, and those working
typical length of time that staff will spend in one position, on sectoral programmes (e.g. water services provision,
as well as the term length of term of most legislatures and agricultural programmes, etc.) which would be significantly
heads of state who are ultimately responsible for those impacted by those climate change policies and programmes.
programmes. Here twosustainabilities essentially clash
What was perhaps the most common concern in this area
future generations in developing countries demand
was that there appears to be a profound lack of strategy
long-term attention and support, whilst politicians and aid
within and between donors, and between donor and
administrators in donor countries feel unable to commit
recipient countries. Indeed, some felt that strategic
their own future generations to such long-term funding.
thinking had become one of the most significant casualties
Nonetheless, it is a clear recommendation of this report that in organisations flooded by competing research and
donors consider longer-term funding arrangements around information, while at the same time often being under
the areas of natural resource governance: independently enormous pressure to disburse funds and create projects.
funded monitoring of resource extraction, for example, The recommendation that comes from this observation is
cannot simply stop 5 years into a 25 year project. And that not only should T/A Initiative donors consider forming
sometimes the relative independence of that funding a likeminded group, but that they should also commit to
(compared, for example, with funding by regulators or regular strategic review processes.
companies) is crucial to effective monitoring. Donors
Finally, as noted in Chapter 7, donors should consider not
could, for example, examine the possibility of endowment
only strengthening their ability to coordinate and strategise
funding for reliable and well-governed organisations
internationally, but also domestically. The consumption
involved in natural resource governance work. The idea
of natural resources in developed countries ultimately
of long-term endowment funding in the natural resource
drives many of the unsustainable governance practices in
sector is not completely unheard of many governments,
developing countries. Because of this donors need to ensure
for example, are increasingly requiring mining companies
that they have the financial and human resources to engage
to lodge rehabilitation bonds that will, at the conclusion
in significant policy discussions at home as well as abroad.
of production, be used to generate a long-term source of
funding for mine site rehabilitation. Donors could consider
a similar approach, but focused on addressing issues that
arise before and during production. This is not presented
as a stand-alone recommendation in this report but rather
as a general recommendation that regardless of which
programme proposals are or are not adopted by members
of the T/A Initiative donor collaborative should be given
strong consideration.
3
Bias against existing programmes Even if governance programmes continue to be supported,

there could be increased pressure on delivering specific
and institutions outputs rather than actual outcomes. In the case of funding
Many interviewees expressed a high level of fatigue with for civil society groups, for example, this is reflected in donors
pilot projects, and with new initiatives and standards being being willing to support specific projects but not provide the
launched or supported by donors in this area. This fatigue core funding that allows organisations to keep their basic
was felt across all stakeholder groups civil society groups, organisational infrastructure going and their staff paid.
donors, and the private sector. Many pleaded for future More work needs to be done by donors, therefore, to link
donor work in this area to work with existing institutions the benefit of natural resource governance programmes to
and programmes rather than seek to invent a multitude of the overall economic and environmental well being of
new ones. In light of this feedback, one of the criteria which the countries in which they are working, rather than simply
have been added into an assessment of which policy and treating them as stand-alone projects. Strong natural
programme areas should be focused on (see Chapter 10) is resource governance should, for example, have a macro
whether it has the ability to work with and build on existing impact by preserving natural resource endowments for
institutions and initiatives future generations while at the same time generating the
kind of government revenues required to fund core public
Bias against low spend/high expenditures in areas such as health, education
admin projects and infrastructure.
Some interviewees felt that governance programmes

were being progressively discriminated against by donors
(particularly governmental ones) because they often required
relatively high levels of staff oversight and administration,
and relatively low programme expenditures. As donor
government budgets face greater scrutiny in light of the
financial crisis, this problem may well be exacerbated. As
donors face greater pressure to show tangible benefits for
their expenditures, they might be pushed into programmes
that are either administratively low in cost (e.g. large-scale
budget support operations) and/or which are extremely
visible and high spending (e.g. major infrastructure
development). If there is a trend towards this kind of
expenditure then it will be vital to ensure that effective
transparency and accountability programmes are in place
around these projects. Budget support programmes, for
example, sometimes contain high level targets around
natural resource governance and management.
10. Policy and

programme
proposals
5
The ultimate objective of this research process has been to develop significant
policy or programme ideas that can be considered by the donor consortium
supporting the Transparency and Accountability Initiative.
These proposals have been highlighted throughout the The key criteria that have been are used to determine
report and are summarised in Annex II. These ideas have the relative merits of the different proposals are:
been developed during the course of research or have
The centrality of improved transparency and
been suggested by interviewees or members of the NRG
accountability to addressing the problem identified.
reference group. They are presented here in summary form
only. Following consultation with key stakeholders, this long The ambition of the proposal and potential
list will be reduced to 3-5 target proposals which will then for it to have a significant impact.
be developed in detail. The risk (both positive and negative) of working
in such an area, and the overall likelihood of success.
Whether the proposal includes an element of technology
use (so as to link in with the second area of work being
carried out by the T/A Initiative).
The ability of the proposal to build on existing
institutions rather than create new ones.
The ranking of the different proposals by
members of the NRG reference group.
Based on these criteria each of the proposals has been
given an overall green (recommended); orange (possibly
recommended); or red (not recommended) ranking to help
guide members of the T/A Initiative donor collective.
Annexes
7
Annex I: Recommendations
Recommendation 1: Developing a strategic dialogue

with key emerging countries on natural resource governance
Summary of recommendation
Project summary: NR Sectors:
Developing an ongoing dialogue with governments Oil, gas, mining, forestry,
and companies from emerging economies on fisheries, large-scale land use.
natural resource governance issues. This may include Chance of success: Low
partnering with emerging economy civil society
groups. It will require developing permanent donor Technology linkages: Low
representative offices in key emerging economies
Problem: Actions: Immediate Ultimate goals:

Emerging economy Develop permanent outcomes: Sustaining growth in
governments and partnerships with Donors develop emerging economies
companies ignore NR governments, companies ongoing dialogue with by securing access to
governance issues. This and CSOs from emerging governments, companies aupplies and to markets.
can undermine stability of economies. This will and civil society
Mitigating social and
supply as well as generate require establishing companies from emerging
political tensions and
tensions and conflicts in permanent representation economies
conflicts around NR
NR exporting countries. in these countries.
investments in developing
countries
The most important global trend identified by representation in these countries in order to develop a
the natural resources strategic review was the permanent dialogue (and potentially new initiatives) on
emergence of governments and companies from natural resource governance issues with governments, CSOs
a relatively small number of emerging economies and companies from these countries. The primary objective
in natural resource projects in developing should be to work with governments and companies from
countries. This has been driven partly by a need emerging countries to show how addressing transparency
to meet increased domestic demand for these and accountability concerns can contribute to security
of supply (by mitigating social and political risks to their
resources, as well as demand for resources as
investments), as well as security of access to markets (by
inputs to export industries.
mitigating reputational risks).
There is a perception that some of these governments
and companies are either wilfully or inadvertently naive
about the long-term impact of natural resource projects
which pay little attention to governance issues. Failure
to address this issue could have major impacts in both
resource-exporting developing countries as well as in
emerging economy countries which have lifted hundreds
of millions of their own citizens out of poverty, partly on the
back of access to stable supplies of natural resources. This
recommendation suggests that donor organisations should
commit significant resources to developing permanent
The problem representatives need to be prepared to make a long-term

commitment to building trust it will require at least
The natural resources strategic review clearly identifies a 10 year, if not permanent, commitment of resources.
trends of (i) increasing natural resource investments by major
emerging economic powers in developing countries and The primary task of developing such a representative
(ii) likely increased competition for these resources so as to presence must be to work with emerging economy
governments, companies and civil society groups to develop
guarantee security of supply, rather than reliance on open
markets to deliver key resources. Much criticism some of the business case for these organisations to commit to higher
levels of transparency and accountability in natural resource
it exaggerated, some of it not has been levelled at the lack
of transparency and accountability in some major natural projects. At present many of these actors see transparency
and accountability as at best a distraction to business and
resource investments in developing countries, especially in
the oil, mineral, forestry and agricultural sectors. Some of at worst as an attack on their business practices. That is why
the key focus of the dialogue must be to demonstrate that
this criticism is justified, though can perhaps be attributed
to the fact that many of these countries are relatively new addressing transparency and accountability issues is key for
(i) mitigating long-term social, political and conflict risks to
players (i.e. in the past decade) in natural resource projects
in developing countries, compared with the North American natural resource investments in developing countries; and
and European countries and companies that have been (ii) ensuring that concerns over such investments do not
involved in such developments for considerably longer. undermine the reputation of companies from emerging
Some of the criticism comes from the fact that these deals economies and hinder their access to markets . Key to this
are sometimes driven by state-owned companies which are task will be providing clear historical evidence of where a lack
able to leverage other parts of their governments to bring of focus on these issues has led to the loss of investments (e.g.
other aspects to such deals: for example, that in return for because of expropriation or conflict) or of markets for those
resource concessions a developing country might receive a companies due to reputational concerns.
mixture of aid, concessional financing, manufactured goods Donors should also be very aware that access to natural
and sometimes arms. Determining the true value of such resources from developing countries has been a crucial
mixed deals, sometimes including elements of barter, can component in sustaining the massive and sustained period
be difficult. Finally, it should be observed that some of the of economic growth that has lifted hundreds of millions of
criticisms are at least partially motivated by increased political people out of poverty in countries such as India and China.
and economic competition between North American and Loss of access to either resources or export markets due to a
European governments and corporations and those from the failure to address governance concerns is not only an issue
emerging economies identified above. for the developing countries providing those resources, but
Some of the criticism also has its origins in the perceived is also a huge concern for those who have been lifted out of
failure of emerging economy governments and companies poverty in emerging economy countries.
to commit to existing governance standards for investors in A difficult issue that will need to be dealt with by such a
developing countries, such as the UN Global Compact, the programme would be developing a willingness by donors
Global Reporting Initiative and the Equator Principles, and to engage with more traditional, more state-aligned civil
sector-specific programmes such as the EITI. A major cause society groups in emerging economies such as academia,
of this failure is that emerging economy governments and government-sponsored think tanks and state-owned media.
companies are often being invited into initiatives only after To some donors, engaging with civil society that is not clearly
they have been negotiated, primarily by North American and independent of government may be an anathema, but often
European governments, companies and civil society groups. these institutions are the only ones with access to and/or
Where there have been attempts at engagement, they have influence over their governments.
tended to be on a fly-in-fly-out or conference-by-conference
basis i.e. there has been little or no attempt to build a The next dilemma that will be faced by such a programme
permanent dialogue with these countries. Another cause of is that of whether donors are willing to renegotiate existing
this failure has been that some of these initiatives have failed natural resource governance programmes, or to develop
to evolve beyond being global standards into having tangible simplified or less ambitious programmes in this area.
implementation in developing countries.57 Moving down such a route might prove a difficult ask for
organisations that are heavily influenced by North American
This recommendation is based, therefore, on a need for and European civil society groups, but at the same time it
donors to establish permanent representative offices in is difficult to envisage emerging economy governments
these countries. In the case of government donors these and companies committing to governance principles and
offices need to be in addition to existing embassies, not programmes that less than a decade ago were considered
simply an extension of them. Furthermore, these offices / extremely controversial in more developed countries.
57 A rare exception is the EITI, which requires any implementing been able to include details of payments made by companies
country to mandate all companies operating in a country to from Russia, China, Turkey, Iran, etc.
participate. In this way, EITI reports in some countries have
9
Programme deliverables Stakeholders

Out of all of the recommendations presented here, the Governments, national and sub-national-level state-owned
possible deliverables for this programme are the most companies, private companies, and civil society groups
intangible and difficult to define. They might include: from the emerging countries identified above.
Donor organisations developing permanent Civil society groups in North American and European
representative offices in a number of key emerging countries who may resist such dialogue, particularly if it
middle-income countries. is perceived to be leading to watered-down versions of
existing governance standards.
Developing a dialogue with governments and companies
from emerging economies on how transparency and
Technology linkages
accountability can help to mitigate long-term risks to
investments. This research should focus on identifying None.
potential governance-related vulnerabilities to natural
resource supply chains for key emerging economies. Risks
Developing partnerships with local civil society The risks of this recommendation are extremely high. The
groups in these countries on transparency and amount and duration of funding required are considerable.
accountability issues. It is possible, even likely, that such engagement might
have limited impact, particularly if is perceived in emerging
Geographic focus economies as being a political front for North American
and European political and economic interests. At the same
The key countries that would need to be focused on in this
time, donors run the risk of alienating their existing civil
recommendation are a mixture of major middle-income
society constituencies if they are seen to be compromising
countries which are increasingly involved in natural
on core governance principles.
resource investments in developing countries and middle-
to high-income countries which have been involved in
Links to other Transparency and
such investments for some time, but which have not been
comprehensively engaged on governance issues. An initial Accountability Initiative themes
list would include Argentina, Brazil, China, Indonesia, India, This recommendation has the potential to link to all
Russia, Saudi Arabia, South Africa, South Korea, Taiwan of the other themes covered by the Transparency and
and Turkey. Accountability Initiative: (i) climate change; (ii) budgets,
expenditures, and procurement; (iii) financial system reform;
Programme design: timing, and (iv) aid transparency. Indeed, given the high-cost high-
potential impact, stakeholders, risk long-term nature of this recommendation, it would
make minimal sense for it to be focused only on natural
technology linkages, risks resource governance issues.
Timing Existing initiatives
This project would require an extremely long-term None.
commitment at least 10 years for it to have any chance
of being able to substantively engage with emerging
economy governments, companies, and civil society groups.
Potential impact
In the short-term the impact of this project would
almost certainly be minimal. But in the longer-term any
improvement in the approach taken by governments
and companies from these emerging economies towards
transparency and accountability issues in developing
countries would potentially have a massive impact. Firstly,
it could help to secure and sustain the levels of economic
growth that have lifted hundreds of millions of people in
these countries out of poverty. Secondly, it could have a
major impact on mitigating social and political conflicts in
resource-exporting developing countries.
Recommendation 2: Improving the accessibility of information

on and monitoring of natural resource concessions and use
Mining, forestry, fisheries,
water, land
Chance of success: Medium
in which civil society groups are able to monitor the
actual location of major resource users
Technology linkages: Very high

Information on land titles Develop open databases outcomes: Local poverty reduction.
and NR concessions is that map the actual Both large-scale and
Reduction of local
often not accessible to the location of land titles small-scale resource
corruption.
public. as well as resourced users are aware of the
concessions. exact location of each Reduction in incidence
This can lead to conflicts
others lands/ resource of NR-related conflict.
between large scale and Develop community
smaller resource users. concessions.
monitoring programmes.
Increased demand for all natural resources is in some cases

generating conflicts from overlapping claims between large-
scale resource users and local communities. It is
also making illegal resource use (e.g. illegal logging and
fishing) more prevalent. Much can be done to address these
issues by creating more effective systems that map the
concessions that are held by major natural resource users
across all sectors; mapping individual or community land
titles; and making that information and the systems that
hold it publicly accessible and easily available. This can then
be complemented with both community-based monitoring
programmes using GPS technology and mobile telephony,
as well as larger-scale monitoring (e.g. by using satellite
imaging) to allow resource users of all sizes to clearly know
where they each are, and also to guard against illegal
resource users.
1
The problem Programme deliverables

One of the most significant and consistent causes of They key programme deliverables would be:
instability and conflict across virtually all natural resource
1. To work with government agencies in natural resource
sectors is ongoing conflicts between large-scale and small-
rich countries responsible for managing land registries,
scale (or artisanal) resource users. Some of these conflicts
resource cadastres, and any other system that identifies
are within the sector e.g. between local fishermen and
where resource concessions have been granted and to
large fishing trawler fleets, or between artisanal miners and
whom. This work could involve trying to join up disparate
industrial mines; and some of them are across sectors e.g.
systems, to digitise them, and to focus on making those
where the operations of a forestry company impact on small-
systems easier to access for both large-scale resource
scale community agriculture. Conflicts can be generated by
users and for the public at large.
both legitimate (i.e. concession-/licence-holding) large-scale
users and by illegal users particularly in the forestry and 2. Developing the capacity of civil society groups and local
fisheries sectors. communities in areas affected by large-scale natural
resource use to enable them to access and use those
The causes of these conflicts are complex, numerous and systems.
often area-, investment-, sector- and country-specific. One
3. Developing monitoring tools for communities located in
aspect of the problem is that local communities often have
or adjacent to areas used by large-scale natural resource
difficulty in accessing information about the actual location
users. This could include using mobile telephony and GPS
of large-scale natural resource concessions. This makes it
systems to allow local groups to monitor and report on
difficult to determine whether companies with legitimate
the physical location of resource users, particularly oil,
concessions are operating in the right area, and also to
gas, mining, forestry and agri-business companies, as well
differentiate between legal and illegal operators.
as individual fishing boats.
Difficulty is also caused by the fact that information about 4. Developing high-level satellite monitoring systems that
land and resource ownership is commonly held in separate, would allow either the tracking of individual resource
often paper-based systems. Sometimes the information is users (e.g. fishing boats) or the mapping of resource use
held at different levels e.g. land titles are held locally, while (e.g. forestry companies).
information on resource concessions is held by national
institutions in capital cities. While this recommendation would work best if taken as
a whole, it could also be broken down into stand-alone
Technology is a potential game-changer here in that it individual components i.e. 1 & 2; 3; 4 if need be.
is now much easier to develop databases that allow the
mapping of multiple levels of information e.g. land titles
and resource contracts. With the relatively low cost of
GPS technology, it is also now much easier to be able to
establish the actual location of resource users, regardless
of size. This proposal suggests that donors help to develop
integrated land and concession information systems that
are easily accessible by the public, and complement that
with programmes that promote GPS monitoring of resource
users by community users of resources, as well as possibly
with larger-scale monitoring of resource use and users
through satellite technology.
Geographic focus Risks

All natural-resource rich countries. The risks to this project are a mixture of practical and
political. In some countries the amount of information that
Programme design: timing, potential impact, stakeholders, would need to be digitised and bought into accessible
technology linkages, risks and joined-up databases might be so vast that the
potential cost of such a programme would be very high.
Timing Moreover, in many countries government agencies may be
Different programme deliverables have very different extremely reluctant to surrender control over access to that
timelines. Deliverables 1 and 2 would require relatively long information to the wider public.
periods of time to implement i.e. 3 to 5+ years. Deliverable 3
could be developed relatively quickly (i.e. 1+ years), though Links to other Transparency and
its efficacy would depend heavily on the effectiveness Accountability Initiative themes
and accessibility of existing land registries and resource
cadastres. Deliverable 4 could also be developed quickly The key linkages of this recommendation to other research
if need be, though it would require significant financial themes are to the climate change theme, where it will be
resources to do so. important for there to be greater accessibility to information
about forests and forestry concessions, and for there to
Potential impact be both small and large-scale monitoring programmes of
those resources and concessions.
It is extremely difficult to state how significant the impact of
such a programme would be, primarily because it is difficult Existing initiatives
to quantify the value of reduced tensions and conflicts over
resource use. An easier-to-develop impact statement might There are a number of examples of donors supporting
focus on reducing illegal resource harvesting, though again different aspects of this recommendation e.g.
this would vary immensely from sector to sector and from development of resource cadastres; or development of
country to country. community monitoring programmes but this research
has not been able to identify integrated projects that focus
Stakeholders on improving both the availability and accessibility of
information about resource concessions, whilst matching
The primary stakeholders for Deliverable 1 would be those that with small-scale (and through satellites, potentially
government agencies responsible for maintaining land large-scale) monitoring programmes.
registries and resource cadastres. Deliverables 2 and 3
would focus on civil society groups operating in and/or
representing communities in areas where major natural
resource users are present. Deliverable 4 could involve civil
society groups both in natural resource-rich countries, as
well as internationally based groups.
Technology linkages
There is very strong potential for technology to play a key
role in this recommendation, through:
Joining up disparate data-sets and information sources
on land and resource allocation.
Ensuring that those systems, or at least key information
held on them, are publicly accessible and useable. This
could also include developing mobile phone applications
to allow this information to be accessed in the field.
Providing local communities with monitoring tools such
as mobile telephony and GPS sets.
Using satellite imaging technology to monitor natural
resource use and users and to make that information
publicly available.
3
Recommendation 3: Improving transparency of and accountability

of natural resource use at the sub-national level
Oil, gas, mining, forestry,
fisheries, large-scale land use.
Chance of success: Medium-high

Failure to translate NR Survey of countries where outcomes: Local poverty reduction.
endownments into SN governments have Improved transparency
Reduction of local
poverty reduction often a significant role in NR and accountability of
corruption.
happens locally. management. local NR management in
specific NR-rich states/ Reduction in incidence
Sub-national governments Development of
provinces. of NR-related conflict.
fails to address NR-related guidelines.
costs and conflicts;
Development of T&A
revenues are not spent in
programmes with SN
affected communities.
governments and CSOs.
Sub-national governments and traditional authorities

often play an important role in the allocation of natural
resource concessions; receiving natural resource-derived
revenues; managing conflicts between large-scale and
small-scale resource users; and carrying out development
planning activities at the community level. Yet much
of the attention from international donors has been on
improving transparency and accountability at the national
level. Developing sub-national transparency programmes
would not simply involve replicating existing national-level
transparency programmes at a lower level: the transparency
and accountability needs of people living in communities
affected by or involved in large-scale natural resource use
are very different from those of national-level stakeholders.
The key advantages of this recommendation are that
(i) where good sub-national government partners are
found, progress could happen relatively quickly; (ii) it has a
relatively high chance of making an improvement in natural
resource governance (albeit in many areas from a very
low base); and (iii) it is an area that is currently only being
addressed or focused on by a small number of donors.
58 In this
context, sub-national is defined as any political unit based forms of government i.e. administration by chiefs,
below that of a national government i.e. state, regional, paramount chiefs, traditional landowners, etc.
provincial and city governments. It can also refer to traditionally
The problem Conflicts related to natural resource development are

often extremely local in nature i.e. they are caused or
Much of the focus of donors and international civil exacerbated by conflicts between large-scale resource
society groups has been on improving transparency and users and local communities. Sometimes this can be
accountability at the international and national levels. Focus because local communities believe that they do not
on the sub-national level has been far less, even though many receive a fair share of resource revenues (this is common
of these resources (such as oil, gas, minerals and forests) in oil states); sometimes because there can be significant
are essentially point-source resources: i.e. they have a fixed local environmental consequences of large-scale resource
location which has no relationship to the location of capital developments (mining and forestry); or because large-
cities or to cities and towns where sub-national governments scale resource users deny local communities access to
are based. This absence of focus is troubling because: other resources (forestry and agribusiness).
Sub-national governments sometimes have a significant In short, sub-national governments and traditional
role in natural resource governance. Roles played by authorities often play a vital role in all stages of a natural
state, provincial, and local governments can include: resource development process from approval of a license
o Administering local land registries with details of or contract; to monitoring operations of large-scale users;
small and large-scale ownership and use of land and to spending revenues generated by those resources; and to
the resources located therein. They are almost always managing conflicts that can arise from or be exacerbated by
involved in consent processes for new (or expansion of large-scale resource use.
existing) resource developments; One of the other problems generated by the excessive
o Being the primary providers of public services such focus on improving transparency and accountability at
as education, health and infrastructure. Sometimes the national level is that the governance needs at a sub-
funding for these might come from revenues national level are often extremely different. National level
generated by natural resources (see below); sometimes transparency programmes such as the Extractive Industries
this is complemented by social spending by resource Transparency Initiative (EITI) often produce information
companies; that is primarily of use for politicians, policy makers, donors,
o Hosting local offices of national institutions responsible and capital city based civil society groups. The information
for natural resource governance e.g. ministry of tends to assume a relatively high level of understanding of
mines or customs officials may be hosted in or close to technical issues; is almost always aggregated to a national
local governments; level (i.e. there is no regional breakdown of data); and is
often used in a relatively high-level debate on national
o Acting as the first port of call when it comes to
economic governance.
addressing disputes between large-scale and local
users of resources. The transparency and accountability needs at the local level
In some countries there are explicit funding formulas are often much more specific and tangible than those at the
which allocate a set percentage of certain revenue national level. Managing potential conflicts between large-
streams to sub-national governments in some cases scale resource users and local communities requires far
mining royalties (e.g. Ghana and Peru); in other cases a more tangible and specific information and open processes
certain percentage of oil and gas taxes and royalties (e.g. than are required at the national level. This can include
Nigeria and Indonesia); and for other resources local land Identifying which companies are operating where.
taxes and rents are often collected and retained locally.
Determining how much revenue has been generated
In the case of the extractive industries, this local payment
in a specific state or district.
is often an explicit way of addressing one of the great
dilemmas of resource extraction i.e. that the costs of Explaining how much of that revenue has been retained
extraction (e.g. environmental degradation; loss of other or reallocated to the state or district.
resources; greater impact on infrastructure) are often Explaining how many jobs have been created by natural
born locally, whilst many or all of the financial benefits resource use and whether those jobs are held by locals.
can accrue to the national government. Ensuring that local people are compensated for any
In addition to formalised revenue sharing arrangements, damage to their livelihoods caused by the resource use.
major resource companies often have significant corporate Helping to include local people in development planning
social programmes which deliver financial and in-kind processes.
resources to local communities in areas such as education,
Ensuring that there are forums where communities,
healthcare, and dual-use infrastructure (e.g. roads that
companies and sub-national government officials can
can be used by both companies and local people). It is
not uncommon for these social spending programmes to meet to discuss issues and address conflicts.
operate at worst in isolation from, and at best in parallel to,
existing local government development processes.
5
A significant issue that arises here concerns the accessibility Programme Deliverables
and competence of local government politicians and
officials. In most countries local politicians and officials Based on the above analysis useful programme deliverables
are considerably more accessible to local people than would be:
national politicians. In countries where such politicians
A global survey that identifies those countries in which
are elected locally (i.e. they are not appointed by national
sub-national governments and traditional authorities
government), it is sometimes possible that governors /
have a significant role in natural resource governance;
mayors, etc. will be willing to engage in a transparency
and discusses the transparency and accountability
and accountability process that is either of less concern to
aspects of those roles.
or is possibly opposed by national politicians.59 That said,
while there is perhaps a greater chance of finding windows The development of guidelines for improving
of opportunity for transparency and accountability at a transparency and accountability of natural resource
sub-national level, there is correspondingly often far less governance at the sub-national level, specifically in:
administrative capacity in sub-national governments. o The administration of local land registries.
In addition, officials at the sub-national level may not o The allocation of natural resource concessions and
always be able to access information held by national- licenses in which sub-national governments have
level government agencies involved in regulating natural a say / veto.
resource users.
o Developing systems to promote the transparent
Finally, there is an almost complete absence of donor reporting of natural resource derived revenues that
programmes that focus on the role of traditional accrue to sub-national and traditional governments (in
authorities/customary landowners in the governance of oil, gas and mining countries this could potentially be
natural resources. In many countries (both developed build into existing EITI programmes).
and developing), these leaders still hold significant power o Integrating those revenues, as well as company
at the local level, and are often not subject to the formal social expenditures, into local development planning
transparency and accountability requirements of state mechanisms.
institutions. Development agencies have often shied away
Working directly with a number of sub-national
from this area because of the naturally fraught nature
governments or traditional authorities in resource rich
of Northern organisations, often based in and staffed
countries to develop natural resource transparency and
by people from the former colonial powers, involving
accountability programmes.
themselves in the effectiveness and performance of
traditional governance structures. Nonetheless, the lack of Working directly with civil society groups operating at
transparency and accountability in these institutions is a a sub-national level in resource rich regions to develop
major issue, particularly in post-conflict and/or fragile states natural resource transparency and accountability
where donors have sometimes worked with traditional programmes.
leaders in the absence of other legitimate leaders.
In summary, the theory of change for this programme is
this: most natural resources are point-source ones and
therefore place demands on specific environments and
communities. Sub-national governments often have a
substantial role in natural resource governance, particularly
in the allocation of resource concessions, in mitigating
conflicts between large-scale and small-scale resource
users, and in local development planning. The opportunities
for greater transparency and accountability are sometimes
greater at the local level and in countries where those
processes are stalled at the national level, progress can
often be made from the bottom-up. At the same time,
however, the capacity needs of local government and civil
society institutions are often greater than those at the
national level.
59 The Revenue Watch Institute has worked with local civil society Expenditure and Income Initiative), this engagement came at a
groups in Nigeria and Indonesia to develop relatively close time when work on extractive industry transparency issues was
relationships with politicians in specific resource-rich states and stalled at the national level.
regions. In the case of the work in Nigeria (through the Bayelsa
Geographic focus Programme design: timing,

The focus of such a project would need to be on (i) potential impact, stakeholders,
countries where there is some form of decentralisation of
natural resource governance and/or fiscal flows; and (ii)
technology linkages, risks
where opportunities have been identified to work with Timing
reform-minded sub-national governments. The following
table shows a number of countries where revenues from oil, The overall recommendation of the natural resources
gas, and mining are either directly shared with sub-national strategic review is that donors should consider longer-term
governments or account for the majority of national interventions in the area of natural resource governance
government transfers to sub-national governments (see due to the fact that natural resource projects are often
table below).60 either long-term (in the case of the oil or mining sectors,
where mines and fields are typically developed over a 10
Further research would need to be carried out to identify 30-year period of time) or potentially open-ended in the
those countries where (i) sub-national governments have a case of renewable natural resources (some of the contracts
role in the allocation or monitoring of resource concessions regarding large-scale land investments have had terms of
(i.e. they are not simply recipients of revenues); and (ii) 50100 years). That said, specific projects in this area could
where sub-national governments receive significant be relatively short- to medium-term in scale i.e. 25 years
revenues and/or are involved in allocation and monitoring if need be.
of forestry and agribusiness concessions.
Potential impact
The potential impact of the project would be varied.
Developing general guidance for improving transparency at
the sub-national level could help to improve transparency
and accountability in multiple countries. Government and
sub-national government-specific interventions would have
a potentially high but extremely localised impact.
COUNTRIES WITH STATUTORY OR POLICY FRAMEWORKS COUNTRIES WHERE CONVENTIONAL INTRA-GOVERNMENT

FOR INTRA-GOVERNMENTAL ASSIGNMENT OF REVENUE TRANSFERS INCORPORATE A PREDOMNANCE
ATTRIBUTABLE NR REVENUES OF NR RESOURCED REVENUES (ExCLUDING COUNTRIES
IN COLUMN 1)
KEY 2nd tier transfers only italics
Mineral producing countries
Angola Mexico Algeria Azerbaijan

Bolivia Nigeria Botswana Cameroon
Brazil Papua New Guinea Brunei Darussalam Ecuador
Chad Peru Republic of COngo Indonesia
Colombia Philippines Equatorial Guinea Iran
Ecuador Russia Gabon Iraq
Indonesia Sudan Kuwait Kazakhstan
Kazakstan Venezuela Libya Mexico
Malaysia
60 Table sourced from

Transparency Initiative (EITI), 2006 available at
Overseas Development Institute,
Sub-National Implementation of the Extractive Industries
7
http://www.odi.or
g.uk/resources/de
tails.asp?id=5021
&title=sub-
national-
implementation-
extractive-
industries-
transparency-
initiative-eiti
Key stakeholders Links to other Transparency and

The key stakeholders in such a process would be: Accountability Initiative themes
Sub-national governments in resource-rich regions. This The key linkages in this recommendation to other research
could include governments at multiple levels i.e. both themes are:
state-level (immediately below national government) and
Donor aid: similar to natural resource revenues and
local-/district-level (below that of state governments).
company social spending projects, aid is often planned
The key determinant would be whether the government
and delivered separate to formal budget and development
had a formal and defined role in natural resource
planning processes. An expanded version of this
governance processes;
recommendation could therefore look at improving the
Traditional authorities in resource rich regions; transparency and accountability of all extra-budgetary
Civil society groups in resource rich regions: it would revenues and development planning processes at the sub-
be important for these organisations to actually have national level i.e. company social expenditures, as well as
a tangible base in the region rather than be a national aid expenditures;
group that simply travels to that region to implement
Budgets, expenditures and procurement: a more
projects;
ambitious option for this recommendation would be
Large-scale natural resource companies: particularly oil, for it to focus on transparency and accountability needs
gas, mining, forestry, and agribusiness companies. More and demands writ large at the sub-national level i.e. not
difficult to include might be fisheries companies who just on natural resource governance issues. The Bayelsa
may operate in a region but not be based there. Expenditure and Income Transparency Initiative (BEITI)
in Nigeria, for example, has this broad scope. While the
Technology linkages majority of the revenues received by Bayelsa State are
Beyond using technology to improve overall governance derived from oil and gas revenues, the BEITI project has a
systems there is no specific technology component stated ambition of including reporting on aid flows, non-
to this recommendation. natural resource revenues and all major expenditures and
transfers by the state government.
Risks
The risks to the international aspect of the programme
Existing initiatives
are relatively minimal there is so little existing guidance The Revenue Watch Institute has pilot programmes in
available on sub-national transparency and accountability Ghana, Indonesia, Nigeria and Peru looking at sub-national
in the natural resources area that new guidance would be a revenue transparency issues in the oil and mining sectors.
substantial improvement. At the local level, risks are similar See http://www.revenuewatch.org/our-work/projects/sub-
to the potential impact high but localised. In particular, it national-project-helping-local-leaders-and-communities-
is worth noting that including traditional authorities in the manage-resource-revenue
scope of this programme would be contentious. The best way
of mitigating this risk would be to ensure that donors work The Bayelsa Expenditure and Income Transparency Initiative
through credible local partners, rather than through their (BEITI) is one such programme being led by a coalition of
own local offices, or through national-level NGOs without civil society groups and the Bayelsa State government in
local offices in resource-rich regions. Nigeria. See http://www.beiti.bayelsa.gov.ng/.
The International Budget Partnership is currently carrying
out research on how to assess budget transparency at the
sub-national level. The research was expected to be finished
by end-2010. See http://www.internationalbudget.org/
budget-advocacy/strategies-tools-tactics-opportunities/
engaging-actors-government-levels/?fa=subnational-
governments.
9
Recommendation 4a: Strengthening the extractive

industries transparency initiative (EITI)
Chance of success: Low-medium

Developing countries lose Work with national EITI outcomes: Poverty reduction.
significant oil and mining coalitions to strengthen Increased extractive
Reduced corruption.
revenues through transfer reporting processes; industry revenues for
pricing practices and provide greater resources developing countries.
corruption in commodity for independent audits; Increased risks and costs
trading operations improve civil society for corrupt politians.
capacity.
Thus far the Extractive Industries Transparency Initiative them to better understand the issues concerned and to
has focused on developing national level programmes negotiate a broader scope for their EITI programmes. It
which generate reports on what was paid by oil and mining would also require providing significantly greater resources
companies, rather than what should have been paid. In the for independent auditors appointed by EITI steering
oil sector greater attention needs to be paid to commodity committees. The potential impact in individual countries
trading practices to ensure that those selling production- of such a programme would be quite high it is possible
share on behalf of governments are maximising revenues that millions or even billions of dollars of potential revenues
for the government, and that those revenues are being are lost through these practices. The chance of success,
passed on to the budget. There also needs to be a greater however, is reasonably low as it would require very high
focus on potential transfer pricing practices i.e. where levels of political will in individual countries to directly
companies are illegally shifting tax liabilities away from confront these practices.
the point of production, thus depriving governments of
revenue. Both of these objectives could be met by working
with existing EITI programmes. This would involve working
with EITI steering groups in individual countries to help
The problem At present, there are essentially three levels of surety behind
any EITI reporting process:
There are a number of different ways in which oil- and
The model adopted by the majority of EITI countries
mineral-exporting countries can lose revenues from those
is one in which government agencies and companies
industries. A variety of different interventions is required
disclose to an independent auditor what they say they
to address different sources of losses. Two areas where
have received or paid. The independent auditor accepts
international donors have had little focus to date are on the
these statements and generally only asks for further
potential revenue losses from transfer pricing practices and
data or clarification if there is a significant discrepancy
the losses from corrupt commodity trading practices.
between what a company says it has paid and what
Transfer pricing essentially refers to the practice whereby the government says it has received. In short this is
related companies, or different units within companies, the we paid and received what we say we paid and
adjust the price that is paid for a particular good or service so received model. There is no actual audit and so long
as to change the overall financial status of a company. This as the numbers match, company and government EITI
practice is of particular importance because it can be used declarations are not questioned, tested, or audited.
both to overstate the costs of inputs and to understate the The second model of reporting that has been adopted
value of goods and services that are produced. Through this by a small number of EITI countries is a this is what
practice, a company will attempt to transfer or overstate its we actually paid and received model. In this model
costs in jurisdictions where company taxes are high, while company and government auditors either sign-off on
attributing profits to jurisdictions where company taxes their EITI statements to declare that they are consistent
are low. Transfer pricing is illegal, but it requires significant with audited accounts; and/or the auditor appointed to
capacity and resources in government revenue agencies produce the EITI report looks at actual bank statements
to detect. It also often requires the cooperation of revenue and company/government accounts to ensure that their
authorities in other jurisdictions. EITI declarations are consistent with what was actually
The issue of revenue losses through commodity trading paid or received.
practices is particularly prevalent in the oil sector. It is The final model of EITI reporting, which has only been
relatively common for countries to receive a certain portion partially adopted in one country Nigeria asks the
of oil produced by companies (this is called production question, Is what was paid the amount that should have
share) in addition to any oil produced by state-owned been paid?. Under this model of reporting, the auditor
companies. This production share is sold either by the appointed to compile the report looks not only at what
actual producing company, by the state-owned oil companies paid and government agencies received, but
company or by a specialised oil marketing agency. The point also at whether those amounts have been calculated
at which oil is monetised provides numerous opportunities correctly as per the existing legislation and contract terms.
for the true value of the sale to be under-reported by (i)
It is this third level of reporting that this proposal hopes
misreporting the grade of the oil sold; (ii) misreporting the
to contribute to.
foreign exchange rates prevalent at the time of the sale; (iii)
misreporting the time of the sale itself; or (iv) declaring that The immediate outcome of both aspects of this programme
some oil or gas has been lost in transit (due to leaks, old should be increased levels of revenue for resource-rich
pipelines, theft, etc.). Because exchange rates and oil prices developing countries. In the case of transfer pricing, those
fluctuate constantly, it is possible to divert millions of dollars revenues would come from a mixture of the extractive
simply by misreporting the time at which trades take place. industry companies themselves and from the governments
The only way of addressing this issue is through effective of countries with lower tax levels where companies are
metering of oil and gas production and exports (the two seeking to declare their profits. In the case of clamping
are rarely the same) and through in-depth auditing of those down on corruption in commodity trading, those revenues
organisations responsible for oil and gas marketing. would come from a mixture of commodity traders and
those in developing countries complicit in/receiving benefit
This recommendation suggests working on these issues
from fraudulent trades. The major assumption in this part
in countries which have already committed to the EITI
of the programme is that, by bringing these revenues into
process and which have already produced some form of EITI
a governments accounts and actual budget, it will make
report. By doing this, one would be working with countries
it more difficult and more costly for those monies to be
and stakeholders that have already demonstrated a clear
used corruptly. This in turn leads to the second immediate
commitment to improved revenue transparency, and to
outcome: that it will make grand corruption (in which very
doing that through a multi-stakeholder accountability
large sums of money are stolen by a very small number of
process i.e. through the oversight of EITI programmes by
individuals) more difficult.
a mixed group of government, company and civil society
representatives. Working with existing EITI countries and
institutions would also avoid creating new institutions to
address similar issues.
1
Programme deliverables Risks

To work with countries already involved in producing It is important to note that national EITI programmes have
reports for the EITI, to deepen the level of detail captured been developed through complex negotiations between
by those programmes and reports. In particular, greater governments, extractive industry companies and civil society
support could be given to countries to: groups, and thus it will be important to work only with
countries where the national EITI stakeholder group is keen
Help government revenue agencies and/or EITI to expand the scope of the EITI programme. Attempting to
administrators (i.e. independent auditors) look at the do so against the wishes of such a stakeholder group would
issue of commodity trading i.e. whether the full value of undermine the EITI programme itself.
commodity sales is being passed on to the budget.
It will also be important to work closely with the
Investigate the issue of transfer pricing practices by oil
International EITI Secretariat and Board on this programme.
and mining companies.
Given the delicate consensus that exists on EITI policy at
Develop capacity building programmes for civil society the international level, it is unlikely that addressing transfer
groups on these issues. pricing and commodity trading issues could be adopted
into core EITI policy, though it might be possible to work
Geographic focus with the Secretariat and Board to develop voluntary
There are 23 countries that have already produced some guidance on the issue.
form of EITI report61 and they would obviously be the first
countries with which to consider discussing a deepened Links to other Transparency and
reporting process with. Accountability Initiative themes
Programme design: timing, There is possibly some link with the Financial Reform
theme insofar as this recommendation would insert greater
potential impact, stakeholders, transparency into one aspect of the international financial
technology linkages, risks system i.e. commodity trading.
Timing Existing Initiatives

At least 2 years. Negotiations with individual national EITI None.
stakeholder groups could potentially take more than a year,
and implementation of detailed audits a further 1-2 years.
Potential impact
A greater focus on commodity trading and transfer pricing,
especially that of oil, has the potential to identify billions
of dollars of revenues that do not currently make it to
governmental budgets. But beyond that it is difficult to
assess the impact before the work is actually done.
Stakeholders
EITI multi-stakeholder working groups (consisting of
governments, companies and civil society) in countries
that have already produced EITI reports.
The International EITI Board and Secretariat.
61 They
are Azerbaijan, Cameroon, Central African Republic, Madagascar, Mali, Mauritania, Mongolia, Niger, Nigeria, Norway,
Congo, Cote DIvoire, D.R. Congo, Equatorial Guinea, Gabon, Peru, Sierra Leone, and Timor Leste.
Ghana, Guinea, Kazakhstan, the Kyrgyz Republic, Liberia,
Recommendation 4b: Developing new revenue

transparency mechanisms
Forestry, fisheries, hydropower
large-scale agribusiness
investments.
Chance of success: Medium
Problem Actions Immediate Ultimate goals

Lack of information and Develop revenue outcomes Reduction of corruption
accountability over transparency programmes More revenues from across the board.
revenues generated in a number or different NRs make it into
Greater revenues lead
by forestry, fishery, sectors in different national budgets.
to poverty reduction.
hydropower and large- countries.
scale agribusiness Development of multi-
Development of long-
Work towards developing stakeholder platforms
developments. term multi-stakeholder
revenue transparency around various NRs.
dialogue around NR use.
standards for different
sectors.
This recommendation suggests developing country- The problem

level revenue transparency programmes, and possibly
international guidance or standards, for other natural While revenue transparency issues have been a strong focus
resource sectors such as forestry, fisheries, hydropower in the oil and mining sectors through the EITI, there has
exports and large-scale agribusiness investments. Such a been less of a focus on this area in other natural resource
programme should begin with developing country-level sectors such as forestry, fisheries, hydropower and large-
multi-stakeholder programmes on specific sectors. These scale land investments.62 During the development of the
programmes should be focused on engaging at the point at natural resources strategic review, it became apparent that
which there is the greatest concentration of resource flows there was considerable demand in these other sectors for
through the smallest number of corporate players. In the their own EITI-type programmes.
case of forestry, fisheries and agribusiness, this may require
The relatively limited focus on this area thus far has come
engaging with resource exporters instead of individual
partly from a perception that these sectors lack the level of
producers. Most urgently, there is an immediate need to
industrial concentration of the extractive industries. This is
develop revenue transparency mechanisms to cover the
partly the case insofar as the value of exports from these
multibillion-dollar revenue flows that will be generated by
sectors is considerably less than that of the oil and mining
the Reduction of Emissions from Deforestation and Forest
sectors. But as the natural resources strategic review points
Degradation (REDD) programme i.e. payments to countries to
out, it is also because the concentration in these sectors
stop deforestation as a way of addressing climate change.
often occurs not so much at the point of extraction or
resource creation, but at the point of export: i.e. logging
companies, fishing boats and individual landowners are
(relative to oil and mining companies) small players, but the
export, trade and importation of those resources is often
concentrated in the hands of a relatively small number
of large companies, and it is those companies that would
62 Withthe notable exception of the Liberia EITI programme,

which that includes reporting of forestry and agribusiness
revenues. See http://www.leiti.org.lr/
3
need to be involved in the development of new revenue It will be important for any new resource revenue
transparency standards. transparency programmes to learn from the EITI. The key
issues that any new programme should emphasise is:
Perhaps the greatest and most urgent opportunity to
develop a new revenue transparency mechanism is in the Country ownership of national programmes and
area of the Reduction of Emissions from Deforestation involvement in any international governance structure
and Forest Degradation (REDD) programme. Under this is key. Other transparency programmes have had less
programme, multibillion-dollar payments will be made success because they have been seen purely as creations
by both individual countries as well as by multilateral of the donor community and have involved developing
institutions to countries with significant forest resources. country governments and civil society groups only in a
These payments will be linked to preservation of these consultative role.
forests i.e. in lieu both of legal logging and to provide clear The multi-stakeholder approach pays long-term
incentives to rigorously police illegal logging. dividends. EITI has had some success because it involves
all key stakeholders governments, companies and
The collection of revenues is, of course, only one aspect
civil society groups directly in the governance of the
of effective natural resource governance, and there has
initiative (both at the international level and the national
also been some criticism of the EITI for focusing only on
level) and in determining the overall scope of each
revenue transparency at the expense of other aspects of
programme. Initiatives driven by a single stakeholder
governance. It is for this reason that it is useful to briefly
group have had considerably less success.
outline why revenue transparency offers a useful entry-
point to broader natural resource governance issues: The national must drive the international: some
international initiatives have struggled because
Developing transparency and accountability programmes they have been negotiated internationally and have
that focus on all aspects of natural resource governance then been bequeathed to countries as completed
can prove difficult in that they require a large and initiatives. One of the strengths of the EITI is that its
complex variety of stakeholders, with widely divergent implementation experience drove policy, not the
responsibilities and interests. The EITI has succeeded opposite. Moreover, the donors involved in supporting
partly because of its lack of ambition i.e. it has stuck to the EITI funded an international track to the initiative,
only one aspect of natural resource governance. as well as providing significant financial and technical
Revenue is tangible and relatively easy to measure resources to implementing countries. Any standards,
and report on, compared with other aspects of natural guidance or initiatives need to follow not precede the
resource management (e.g. the fairness of a contract or development of strong national-level programmes.
the effectiveness of a local development programme, Comprehensive resource governance needs to be built
the assessment of both of which is considerably more step by step: revenue transparency is by no means the
subjective). only or the most important aspect of natural resource
Reporting on revenues is in some ways a usefully governance it is but one step in a chain of actions
uncontroversial entry-point into natural resource that need to be taken to ensure effective resource
management insofar as it is reporting on an expected governance. But the experience of the EITI is that, by
transaction, not asking for a rebalancing of or change maintaining a narrow focus on this area, it has in the
in systems or in the distribution of benefits from a long term allowed national EITI programmes to slowly
natural resource development. That said, it is far easier take on other areas of natural resource governance.
to lobby for changes to systems or benefit distribution Correspondingly, programmes which have attempted to
if one has accurate information on levels of payments reform all aspects of natural resource governance have
made by natural resource users, and collected by generally suffered from a lack of tangible outcomes,
government agencies. resulting from an over-ambitious scope.
Revenue collection occurs at the mid-point of a resource Similar to the EITI, and the first part of this
value chain i.e. it naturally follows the negotiation of recommendation, it will be important that any new
contracts and the beginning of production, but it precedes revenue transparency programmes measure and audit
the spending of those revenues. As a result, revenue not only revenue generated, but also physical quantities
transparency can be used as an entry-point to both issues of resources (fish, timber, power, food) exported, so that
e.g. to ask whether the amount of revenues generated the two can be compared.
reflects a resource concession that has been negotiated
to the benefit of all parties; and whether those revenues
are making it to the national budget and whether they are
being spent effectively.
Programme deliverables In some countries it may be possible for these programmes

to be developed through existing EITI initiatives, though
The main programme deliverables would be: that should only be done where the local EITI multi-
stakeholder group is open to such an approach.
To work to develop natural resource revenue transparency
programmes for the forestry, fisheries, hydropower, and
Technology Linkages
large-scale agribusiness sectors in a number of countries.
The priority sector for developing a revenue transparency There are no obvious technology linkages for either
model should be the forestry sector, with a particular component of this recommendation.
focus on developing a transparency mechanism for
REDD payments and revenues. Risks
To work with governments, companies and civil society It will also be important that the development of any new
groups to implement those new models. revenue transparency standards learns from some of the
If the national level programmes are successful then donors mistakes and challenges faced by the EITI and some of its
may wish to consider supporting governments, natural perceived successor programmes, such as the Construction
resource companies and civil society groups to consolidate Sector Transparency Initiative (COST) and the Medicines
those programmes into global guidance or initiatives. Transparency Alliance (META).
There may be some pressure from within the donor
Geographic focus community to develop global standards or initiatives in this
All natural resource rich countries, but with an initial focus area before there is adequate national-level experience. This
on countries that have important forest resources Brazil, would run the risk of creating initiatives based more on a
D.R. Congo, Indonesia, Papua New Guinea, etc. desire for global initiatives than because there are genuine
commitment and buy-in from developing countries to
Programme design: timing, such programmes. Indeed, experience from country-level
programmes may find that there is not enough commonality
potential impact, stakeholders, of issues, stakeholders and natural resource management
technology linkages, risks structures to make the development of global standards
useful, and this should be an acceptable outcome if it occurs.
Timing
This programme would require an absolute minimum of 5-10
Links to other Transparency and
years commitment from donors in order to develop a wide Accountability Initiative themes
variety of national programmes in different countries and
The potential links to other Transparency and Accountability
involving different natural resource sectors. The first 2-3 years
Initiative themes include:
would need to focus purely on national-level programmes,
whilst development of international guidance, standards or Climate change: improving the amount of information
even initiatives could come from years 3-4 onwards if needed. on physical timber exports and revenues generated by
the forestry trade could provide useful data to efforts
Potential impact monitoring national level REDD (Reduction of Emissions
The potential impact of revenue transparency programmes From Deforestation and Forest Degradation) programmes.
would vary immensely according to the sector. It is clear that, Budgets, expenditures, and procurement: it will be
as programmes such as REDD gain ground, there will be new important that information generated by any new
multibillion-dollar revenue streams that have the potential to resource revenue transparency programmes is matched
act as a major incentive against deforestation, if spent well. to existing budget data.
Correspondingly, if those REDD payments are not managed
transparently, they could strengthen corrupt elites who have Existing initiatives
been complicit in or beneficiaries of rapid deforestation.
The Extractive Industries Transparency Initiative
www.eiti.org
Stakeholders
Construction Sector Transparency Initiative
The key stakeholders for these programmes would be:
www.constructiontransparency.org
Governments and civil society groups in countries where
Medicines Transparency Alliance
revenues (actual or potential) from forestry, fisheries,
www.medicinestransparency.org
hydropower, and large-scale agriculture are significant.
International donors and civil society groups involved in
promoting better governance in these sectors.
Major international forestry, fishery, hydropower, and
agribusiness companies.
5
Annex II: Summary of possible programmes
Programme 1.* Programme 2. Programme 3.

Donor organisations urgently need developing a standard or initiative for Improving the capacity of civil society
to develop a strategic dialogue with the independent audit of consultation groups to participate in natural resource
middle income emerging countries* on and monitoring practices around natural contract negotiation processes. This
natural resource governance issues, with resource developments. This could build proposal might focus more on the forestry,
a particular focus on seeking to agree on existing standards such as those fisheries, water and land sectors where it
common standards for investments used by the Equator Principles and the is felt that there has been less attention
in developing countries. This would IFCs Performance Standards, but add a paid to contract development issues. This
require donors to establish offices in process of consultation audit and multi- could include building on the IIED work
these countries specifically to engage on stakeholder oversight of those audits. already carried out in this area, i.e. focusing
governance issues, rather than engaging Resources would be required for designing not only on the transparency of contracts
in fly-in-fly-out diplomacy. It could also the audit and oversight process, as well as but also on developing capacity in
involve working with existing CSOs in for providing support for such audits to be governments and civil society to negotiate
these countries to help them to engage carried out in a number of countries. effective contracts with natural resource
with their governments and companies companies and investors.
on such issues. There would have to be a
clear focus on both strategic dialogue, as
well as on making the economic case for
transparency and accountability.
* A long-list of those countries would
include a mixture of OECD and non-OECD
countries which are increasingly prominent
in international natural resource investments
those countries would be Argentina, Brazil,
China, Indonesia, India, Russia, Saudi Arabia,
South Africa, South Korea and Turkey.
Programme 4.* Programme 5.* Programme 6.

Improving the accessibility of information Consider providing additional support Developing an international clean trade
about resource license and concession to the Extractive Industries Transparency programme focused on restricting the
areas for all stakeholders. This could include Initiative Secretariat, or with groups trade of natural resources from countries
improving record management systems closely associated with it, to (i) encourage where no consent has been given by local
(specifically in land registries and sector- EITI adoption in resource rich developed people for those resources to be extracted
specific cadastres) in developing country countries such as Australia, Canada, or traded. This would initially involve
government agencies which are responsible Chile, Saudi Arabia, and South Africa; an advocacy programme to develop a
for holding information on natural resource (ii) to provide funds to implementing clean trade standard; interaction with
developments, contracts, land titles, etc. countries to allow them to focus more major developed country importers and
This could include improving the ability comprehensively on auditing commodities international trade organisations; and
of companies to file project documents, trading operations, and to improve mapping the natural resource flows from
and ensuring that these systems are developing country capacity to address the worst-of-the-worst states.
easily accessible at a local level. Any such transfer pricing issues within the sector;
system development would need to be and (iii) to develop EITI-type modules
complemented by a rigorous focus on for other sectors (e.g. land, fisheries,
helping government officials to use those forestry) or other transactions (e.g. social
systems and to respond to information expenditures by companies).
requests. Finally, there is great potential
to use technology (e.g. GPS and mobile
telephony) to allow local civil society
groups to access this information, and to
monitor large-scale resource users e.g.
to determine whether they are operating
inside their concession area or not.
Explained in greater detail in a separate report.

Programme 7. Programme 8. Programme 9.*

Developing a programme focused Developing consumer-focused marketing Developing greater transparency and
specifically on influencing the public campaigns to raise demand amongst accountability capacity in sub-national and
sector procurement policies in major consumers for companies/retailers to traditional governments involved in natural
developed country consumers of provide only goods that come from sources resource governance. This could include
exported natural resources. This would that can guarantee that sustainable building on the work of the Revenue Watch
require developing some form sustainable governance standards have been met. Institute to help to develop transparency
governance standards; possibly This could include developing online mechanisms in sub-national governments
considering development of some form advertising campaigns, and identifying that receive significant extractive industry
of quality-mark programme to help those resources most commonly produced revenues. It could also include examining
identify resources / companies using only in poor governance climates but which the role of traditional authorities in
products that meet minimum sustainable are exported and consumed in developing natural resource management and
governance standards. countries. developing acceptable transparency and
accountability mechanisms.
Programme 10. Programme 11.

Developing a simplified set of sustainable Providing greater resources for thorough
governance standards for use by small and due diligence on the beneficial ownership
medium sized investors and companies, of major natural resource companies
with a particular focus on the issues that (or investment and holding companies
arise in natural resource sectors. Part of this involved in natural resource sectors) in
could include producing a map of existing significant resource producing countries,
natural resource governance standards including identifying politically exposed
to help companies to negotiate their way persons involved in those companies, and
through the current complex array of making that information readily available
different standards. This could then be to investors.
complemented with active promotion and
provision of training for these investors and
companies. The training should, similar to
that commonly provided for government
officials and CSOs, be provide either free of
cost or a substantially subsidised rate.
7
Annex III: List of interviewees
Individual interviews / meetings Group interviews / meetings

Clive Armstrong, International Finance Corporation Global Witness: Gavin Hayman* and Ellie Nichol.
Alan Boyce, Adecoagro* International Budget Partnership:
David Brown, Senior EITI Adviser in Indonesia Warren Krafchik and Vivek Ramkumar.
Alfred Brownell, Green Advocates* International Monetary Fund: Marco Cangiono
Diana Corbin, World Bank Anton Op De Beke, Silendra Pattanyak, Mario Pessoa.
Lafcadio Cortesi, Rainforest Action Network* Publish What You Pay: Radhika Sarin, Joe Williams
Lorenzo Cortula, International Institute for Environment and Sunneta Kaimal (Revenue Watch).
and Development
Revenue Watch Institute: Page Dykstra, Akram Esanov
Alan Detheridge, The Partnering Initiative* Alexandra Gillies, Antoine Heuty, Rebecca Iwerks, Karin
Peter Eigen, Chairman of the Extractive Industries Lissakers, Jed Miller, Rebecca Morse, Juan Carlos Quiroz
Transparency Initiative
World Bank (Forestry):
Carole Excell, World Resources Institute* Bill Macgrath* and Tuuka Castren.
Frederik Galtung, Tiri*
Patrick Heller, Revenue Watch Institute
Vanessa Herringshaw, Revenue Watch Institute
Antoine Heuty, Revenue Watch Institute
Peter Hlobil, CEE Bankwatch*
Michael Jarvis, World Bank Institute
David Kaimowitz, Ford Foundation
Kieran Kelleher, World Bank
Chandra Kirana, Revenue Watch Institute*
Nalin Kishor, World Bank*
Kristian Lempa, GTZ*
Karin Lissakers, Revenue Watch Institute*
Paul Mathieu, FAO*
Ellen Miller, Sunlight Foundation
Manoj Nandkhani, Transparency International
Erik Nielsen, Water Integrity Network*
Diarmid OSullivan, Global Witness
Andrea Ordonez, Grupo Faro*
Lida Pet Soede, World Wildlife Fund*
Nuhu Ribadu, Center for Global Development*
Anthony Richter, Open Society Institute*
Cathy Ross, Open Society Institute
Jill Shankleman, Independent Consultant
Tom Slaymaker, WaterAid*
Andre Standing, Institute for Security Studies Africa*
Michael Stanley, World Bank
Tim Thorpe, Tim Thorpe Consulting
Peter Veit, World Resources Institute
Halina Ward,
Foundation for Democracy and Sustainable Development
Negbalee Warner, EITI Liberia / Lawyer*
Leif Wenar, Kings College London
* Members of the Natural Resources Reference Group

Acronyms and abbreviations
ALSF African Legal Support Facility

CITIES Convention on International Trade in Endangered Species of Wild Flora and Fauna
CSO Civil Society Organisation
DFID Department for International Development (UK)
EI-TAF Extractive Industries Technical Assistance Facility (World Bank)
EITI Extractive Industries Transparency Initiative
FCPA Foreign Corrupt Practices Act (US)
FLEGT Forest Law Enforcement, Governance and Trade programme (EU)
GIS Geographic Information System
GPS Global Positioning System
IFC International Finance Corporation (part of the World Bank Group)
IFI International financial institutions (i.e. the World Bank Group, the International
Monetary Fund, and various regional development banks).
KPCS Kimberley Process Certification Scheme
LIC Low Income Country
NRG Natural Resource Governance
PEP Politically Exposed Person
REDD Reduction of Emissions from Deforestation and Forest Degradation
T/A Initiative Transparency and Accountability Initiative
UNCAC United Nations Convention Against Corruption
9
Acknowledgements About the author
The author is extremely grateful for the very considerable Sefton Darby is an independent consultant specialising in
amount of time provided by members of the natural natural resource governance issues. He can be contacted at
resources reference group, as well as many other [email protected]
interviewees who contributed to this project. All are listed
in Annex B of this report. Thanks are due especially to those
who gave very detailed comments on early versions of
this report: Alan Detheridge of the International Business
Leaders Forum; Erik Nielsen of the Water Integrity Network;
Alexandra Gillies, Antoine Heuty and Chandra Kirana, all of
the Revenue Watch Institute; Carole Excell and Peter Veit at
the World Resources Institute; Leif Wenar of Kings College,
London; and of course Martin Tisn, the Program Manager
of the Transparency and Accountability Initiative. I am
grateful to all of these contributors; mistakes of both fact
and interpretation of course remain the authors.

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Natural resource

2. Classifying natural resources 11

3. Global trends affecting natural resource use 15

4. Making the case for transparency and accountability 20

6. Trade and consumption issues 29

8. The role of technology in improving governance 38

9. Recommendations for donors 41

10. Policy and programme recommendations 44

1 Foremost amongst which are Argentina, Brazil, China, Indonesia,

The transparency and Methodology

2 Transparency International, 2009.

Accountability can usefully be categorised in terms of The structure of this report

Transparency, accountability and participation need each

Figure 1. ownership and exploitation by sCale oF user

GOVERNMENTS LARGE SCALE PRIVATE SECTORS SMALL SCALE USERS

Figure 2. ConCentration oF produCtion and Consumption

PRODUCTION TRADE REFINE IMPORT RETAIL CONSUME

EXPORT VALUE-ADD MANUFACTURE

to go alongside a concerted effort to clearly communicate The commodities boom

table 1: the rise and Fall oF Commodity priCes, 2001 - 201017

Thermal coal - $ per metric ton 34 192.86 105.2

Copper - $ per metric ton 1787.06 8714.18 6501.5

Iron ore - $ per dry metric ton 0.30 1.41 1.67

Hardwood logs - $ per cubic metre 173.2 326.62 260.61

Brent crude oil - $ per barrel 28.45 133.9 74.8

Palm oil - $ per metric ton 312.62 1146.86 764.91

Shrimp - $ per pound 16.9 10.29 7.22

Wheat - $ per metric ton 132.54 439.72 157.67

State-driven investments The financial crisis

4. Making the case

23 Though the International Institute for Environment and 24 http://www.accessinitiative.org/

Policy and programme recommendations

31 http://www.dfid.gov.uk/Documents/publications1/aut-perf- 35 FLEGT the Forest Law Enforcement, Governance and Trade

Policy and programme recommendations

Recommendation 6. Recommendation 7. Recommendation 8.

This chapter focuses on recommendations that are specific to different

Civil society capacity building Private sector capacity building

48 http://www.equator-principles.com Prevention and Abatement; (4) Community Health, Safety and

Policy and programme recommendations

Recommendation 9. Recommendation 10. Recommendation 11.

While there are no technology-specific recommendations, Increasing the availability

55 See http://www.facebook.com/home.php?#!/press/info. 56 Forexample, in the UK www.howtocomplain.com bought

Improving duration and Greater strategy and coordination

Bias against existing programmes Even if governance programmes continue to be supported,

Some interviewees felt that governance programmes

10. Policy and

Recommendation 1: Developing a strategic dialogue

Problem: Actions: Immediate Ultimate goals:

The problem representatives need to be prepared to make a long-term

Programme deliverables Stakeholders

Recommendation 2: Improving the accessibility of information

Problem: Actions: Immediate Ultimate goals:

Increased demand for all natural resources is in some cases

The problem Programme deliverables

Geographic focus Risks

Recommendation 3: Improving transparency of and accountability

Problem: Actions: Immediate Ultimate goals:

Sub-national governments and traditional authorities

The problem Conflicts related to natural resource development are

Geographic focus Programme design: timing,