Presentation delivered before EITI Compliance & 2nd IEITI Report Conference

Al-Rasheed Hotel & Oil Cultural Centre Baghdad

Iraq3-4 April 2013

ByAhmed Mousa Jiyad,

Iraq/ Development Consultancy and Research,Norway.

Email: mou-jiya@online.no Phone: (+47) 56595699

IEITI Future Reports: Expectations and Challenges

Key Message

Future IEITI reports, compared with 2009 and 2010 reports, are expected to be more thorough, comprehensive and challenging. This is due to:The Revised EITI Standard reflecting increasing importance of

and pressure for real, effective, comprehensive and participatory transparency measures.

The complexity and diversity of the fiscal and financial frameworks of the contracting modalities in the Iraqi extractive industry and the lessons learned so far.

Thus it is imperative to have functional IEITI structure and reporting process.

International efforts for effective Transparency

Section 1504 of the Dodd-Frank Wall Street Reform Act of 2010 already requires country-by-country reporting of payments to governments for all companies operating in the oil, gas, and mining sectors that report to the U.S. Securities and Exchange Commission.

Section 111 of the Cut Unjustified Tax Loopholes Act, introduced by U.S. Senators Carl Levin (D-MI) and Sheldon Whitehouse (D-RI) in February 2013 would require all multinational companies to disclose their employees, revenues, and tax payments on a country-by-country basis.

The European Union is debating a law similar to that of the US. Many CSO called EITI for tougher disclosure rules and standards. They urged the UK

Government to seek EITI Board agreement (in its Oslo February 2013 meeting) on five suggestions.

Iraq-EU Partnership and Cooperation Agreement –May 2012 emphasises transparency and the needs to enhance it in Iraq.

MoU (17 March 2013) between MoO & USAID to improve the effectiveness and transparency of MoO operations.

CSO: Enhancement of EITI national reports

All EITI countries to disclose all contracts that govern oil, gas and mining exploration and production

All payment and receipt data to be broken down by project

Require “in-kind” revenue data to be reported in sufficient detail to evaluate the governance of production sales

Disclosure of beneficial ownership in the register of licences and licence-holders Make the validation system for assessing whether countries meet EITI requirements independent, rigorous and consistent to ensure the credibility of the standard.

Revised EITI Standrad: to improve the EITI, by providing better EITI Reports, making implementation simpler, and the EITI a

stronger platform for wider reforms.

• The EITI has established a Strategy Working Group (SWG) to identify options and present recommendations to the EITI Board.

• Over 2012, the Board and the SWG received numerous proposals from EITI stakeholders for shaping the future of the EITI.

• 33 proposal were considered and 10 background papers were prepared for the purpose of revising the Standard.

P1: Contextual information . P2: Revenues distribution. P3: Earmarking for programmes or

regions. P4: Mainstreaming EITI data and

governments system. P5 & 6: Comprehensive data. P7: Subnational transfers. P8: Data quality. P9: Disaggregation of data. P 10,11 & 12: State-owned enterprises

(SOEs). P 13: Sale of in-kind revenues. P 14: Social expenditures. P 15: Transit fees. P 16 & 17: Licenses & ownership.

P 18: Contracts. P 19: Civil society participation. P 20: Work-plan. P 21 & 22: Use of EITI data. P 23: Annual activity reports. P 24: Annual review of EITI Reports. P 25: Expert panel. P 26 & 27: What and how to validate. P 28: When to validate. P 29: Who validates. P 30: Financing validation. P 31: Condensing to seven

requirements. P 32: Adapted implementation. P 33: Policy notes.

The Proposals

Adopting and Enforcing the Revised Standard

After considering 33 Proposals & 10 Working papers

The revised EITI Standard will be adopted in EITI Global

Conference in Sydney- “Beyond Transparency”, May 2013.

EITI Secretariat develops transition arrangements for consideration by the Board in Sydney;

The revised Standard comes into force on 1 January 2014.

Revised EITI Standard along the Value Chain: Ensuring that natural resource wealth

transforms into citizen wellbeing

Deciding to

Extract

Getting a Good Deal

Ensuring Revenue

Transparency

Managing Volatile

Resources

Investing for Sustainable

Development

EITI ReportLicense

&Contracts

sIncrease

production Payments/ Revenues

Revenue Sharing

Investment

Transparency Value Cycle of the Iraqi LTSCs

IOCs Investment

OilProduction/

Revenues

Payment to IOCs

Cash-flow/ Payment by IOCs• Process-fee• Attendance fee• Purchase of data package• Participation fee

Bid rounds

related payments

• Alahdab $3 million; BR1?: $400 million• BR2: $850 million; BR3: Null; BR4: $80 million• Total: $1333 million

Signature Bonus

• $100bn to develop upstream oil and gas fields;• $40bn to develop the gas industry;• $30bn to increase refinery capacity;• $30bn to expand export facilities.

Investment:

AWP/AB/Invoices

• CIT (IOCs)• CIT (Sub-Contractors- D5 of MSD/SCC)• RF for the SP

Production related payments

• Alahdab $200,000• BR1 and BR2 $5 million each• BR3 and BR4 $1 million each• Annual allocation for TTSF is $62.2 million

TTSF

OTPs

APs

Petroleum Flowcharts of Resource and….

IEA, WEO 2012. In kbd as on June 2012

Revenue Flow & AllocationRevenue Flow & Allocation

PER$

PDRID&$

MoF

IOBs:LC-IB DFI

UNCC:5%

CBI

FR SOAnnual Budget

IOCs

$34b paid (25K) &18 to be paid to K

GOI

Payments to IOCs• PC; SC;• I; AOC.• RF (b & boe).

Categories of Payments-

Caps on DRs

• CIT (IOCs) & [D5- 2011 by MSD]• SP (Exp 4BR)

51.25:48.75 RF Formula

• Cash• In-kind (Crude oil)

Form of Payment

Oil: Production, Domestic Consumption and Export

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

2,000

4,000

6,000

8,000

10,000

Total DomCons Export

Gross & Net Remuneration Fee

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 20290

1000

2000

3000

4000

5000

6000

7000

GARF CIT SP IOCsNRF

$ Billion

* ”R” less than 2- 30%:70%. ”R” is 2 or more 15%:85%

Testing!!

The Way Forward: IEITI Structural Model & Reporting Process

Rec-oncil

er

SOMO

IOBs

DFI

Tax Authority

MoO+

KRG

DM

IOCs+

SCs

IEITI

First: The Mission and ChallengesFuture IEITI Reports to be more detailed, comprehensive and challenging due to:

1- The Revised EITI standard and requirements;2- Increasing calls for real and effective transparency measures;3- The Governing modalities and conditions in the Iraqi extractive industry.

Three distinct contracting frameworks: [LTSC ; national efforts] & PSCs (KRG). Many major IOCs and many more Service Companies and Sub-Contractors IOCs with multi-projects involvement Payment: cash and in-kind (LTSC; KRG!!!!) Many IOBs (through SOMO) and KRG (?) Different legal obligations: IOCs vs. IOBs Increasing domestic consumption of petroleum products/refining sector ( domestic

revenues in ID, subsidies, accounting prices, etc)Second: Corresponding RequirementsNational Capacity Development and effective involvement in the IEITI reporting process:IEITI Secretariat:

Institutional (structure, setup, etc.):Systemic (rules, procedures, operational modalities, modus-operandi);Human resources (professional and specialised staff: local content!) Awareness & Outreach: Participation & public dialogue ( visibility, accessibility, connectivity, credibility and continuity)

MSG (Gov+IOCs+CSO)“Reconciler-Auditor” & “Validator”

Proper understanding of the LTSC contracts especially the provision pertaining to fiscal and financial implications. The same applies for PSCs of KRG.

Flows of Petroleum “ Oil & Gas” Resources and Revenues (Domestic & Export) require: comprehensive “material balances” and “Integrated National Metering System”.

Integrity of SOMO’s operations. Provide monthly data on quantity, quality (crude valuation), price, date of shipment, market destination, and any other vital information for each IOB

Meaningful coverage of “Other” Extractive activities of MIM. IEITI should have well structured “Website/ Database” covering all information required for

its annual reports, and accessible to the interested public. Consider IEITI annual report as “on-going process” that begins on day one after releasing

the previous Report and with full involvement of IEITI staff; IEITI annual report “Timeline” should be carefully planned to allow enough space for proper

review, debate and revision; Elaborated Terms of Reference for IEITI report: methodology, terminology, contents,

structure, coherence, “materiality threshold”, references, team composition etc.; Independent Expert Review of the “Reconciler” report before adoption by IEITI –MSG. Encourage the “Academia and Research entities” involvement in IEITI activities. IEITI report is a “Sovereign Obligation” to be prepared in accordance with EITI Standard,

and it is subject to international scrutiny!. De-politicise IEITI Reports Effective use of international cooperation opportunities (EU, USAID, …) for IEITI capacity

development.

Third: Suggestions