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Extractives and resources sector

The Addis Agenda highlights the importance of transparency in the extractive sector to assist populations of resource-rich countries to hold their governments accountable for the proceeds of these activities.

Resources project evaluations

The IMF has developed the Fiscal Analysis of Resource Industries (FARI) tool meant to evaluate fiscal regimes for extractive industries through financial and economic analysis of projects. FARI methodologies have been used in developing new policies for the extractive industries, and to estimate and manage a project’s revenue raising ability. It therefore looks into the lifecycle of a resource project, in order to estimate at which point the government is expected to make a profit, and what policies it needs to have in place in order for there to be a positive income flow while taking into account supervening costs related to, amongst others, decommissioning. Policy implementation and evaluation tools are important, especially for developing countries, in order to limit unnecessary tax incentives and tax subsidies related with the extractive venture.

Lifecycle of a resource project

The United Nations Committee of Experts on International Cooperation in Tax Matters is issuing in 2017 an Extractive Industries Handbook, aiming to outline the main phases of an extractive project, and to highlight, especially to resource rich developing countries, what types of considerations they ought to take into account in each phase, in order to generate a positive income flow throughout the project’s entire lifecycle, and not just during the production phase. 

In 2013, the European Union made it mandatory for businesses in the extractive and logging industries to publish their payments to governments relating to the exploitation of natural resources, on a project-by-project basis.

Extractives fiscal transparency

The IMF’s Fiscal Transparency Code (the Code) is the international standard for disclosure of information about public finances. Pillar IV completes the Code by stating unique principles and practices applicable to resource rich countries not covered under Pillars I-III. This pillar is under development. It has undergone two rounds of public consultation and the final version is expected to be submitted to the IMF Board by the third quarter of 2018. These principles and practices address transparency issues associated with the legal and fiscal regime governing the extraction of natural resources, the allocation of resource rights holdings, reporting by companies engaged in resource extraction activity, and the governance and operation of natural resource funds. They also reflect the changes in commodity markets and the structure of the extractive industries in recent years, and take into account the development of new natural resource transparency standards and initiatives since 2007.

The Code’s principles and practices will inform the accompanying Guide on Resource Revenue Transparency which will constitute the second volume of a revised Fiscal Transparency Manual. The first IMF Guide on Resource Revenue Transparency was published in 2005 and updated in 2007, and accompanied the 2007 version of the Code. The revised Guide will be aligned to the new code structure, elaborating in detail on the principles of all four pillars of the Code with respect to their application in the context of resource-rich countries. The new Guide will also provide details on prevailing international standards which are relevant to each principle of the Code.

In conducting fiscal transparency evaluations for resource-rich countries, all four pillars are used. Relevant Pillar I-III principles are applied in the context of natural resources to allow for consideration of important natural resource transparency issues such as those associated with national resource companies, resource revenue forecasting, commodity price risk analysis, allocation of resource revenues to sub-national governments, and public participation in the resource revenue management process. The amount of detail included for each issue depends on the level of resource revenue dependence, and the extent to which they are important for fiscal transparency. Pillar IV is applied to assess resource-specific transparency considerations.

The initial fiscal transparency evaluation pilots in Peru (2015), Tanzania (2015), and the United Kingdom (2016), which included an assessment of resource revenue transparency, have demonstrated that these principles of the Code are both useful and relevant to countries at varying degrees of resource development and resource revenue dependence.  The pilots have also demonstrated the flexibility of the Code in adapting to different categories of resource-rich countries.

Extractive Industry Transparency Initiative

Participating Member States of the Extractive Industries Transparency Initiative (EITI) commit to increased transparency in relation to their extractive sectors. There are currently 51 EITI countries, implementing the EITI Standard across all regions of the globe, as shown in the table.

EITI Countries, by development status and region
M49 Geographical regions Developed Developing Total
Asia 0 12 12
Europe 5 0 5
Latin America and the Caribbean 0 6 6
North America 1 0 1
Oceania 0 2 2
Sub-Saharan Africa 0 25 25
TOTAL 6 45 51

The EITI requires among others, disclosures of information related to the rules for how the extractive sector is managed. In 2016 the EITI standard was revised, and finally agreed upon in February 2017.  The previous system classified countries as “Candidate” or “Compliant”. The new procedure introduces more nuanced categories to better reflect progress toward meeting the EITI Standard. Countries can now be assessed as having made:  satisfactory progress, meaningful progress, inadequate progress, or no progress. They can also be suspended (countries keep their status on progress when suspended).

Most countries have not yet been assessed according to the revised 2016 EITI Standard. However the table shows the regional breakdown for those that have been assessed. Compliance ratings can be found in the EITI website, on a country basis.

EITI Countries status, by region
M49 Geographical regions Meaningful progress Suspended (yet to be assessed) Yet to be assessed aagainst 2016 EITI Standard Total
Asia 3 1 8 12
Europe 0 0 5 5
Latin America and the Caribbean 1 0 5 6
North America 0 0 1 1
Oceania 0 0 2 2
Sub-Saharan Africa 1 1 23 25
TOTAL 5 2 44 51

EITI countries are required to publish EITI Reports that disclose the revenues and other information from extraction of the country's natural resources. Companies report payments to government (taxes, royalties, etc) and the government reports what it has received. The table below shows that there is in fact a gap between the amount of revenues received, and the amount of taxes paid. In general, countries report to have received more revenues than the companies have reported to have paid. That is due to the fact that aggregate numbers for company payments do not necessarily represent all companies involved in a country’s extractive sector while government numbers do. The multi-stakeholder groups driving the EITI process in each country set materiality thresholds (usually between 90-100%) when deciding which companies to include in the reconciliation exercise.

Total revenue/payments disclosed by EITI Countries, by  region (United States dollar billions)
M49 Geographical regions Total government receipts Total company payments
Asia $1,035.4 $989.7
Europe $430.7 $429.2
Latin America and the Caribbean $98.4 $96.8
North America $32.2 $14.6
Oceania $0.4 $0.3
Sub-Saharan Africa $691.0 $635.4
TOTAL $2,288.2 $2,165.9