SAKHALIN INDIGENOUS MINORITIES

DEVELOPMENT PLAN 2

FIFTH EXTERNAL MONITOR REPORT October 2014

Gregory Eliyu Guldin www.crossculturalconsult.com

http://www.crossculturalconsult.com/

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Fifth SIMDP 2 External Monitor Report October 2014

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ACRONYMS 3

FIFTH SIMDP 2 EXTERNAL MONITOR REPORT 4

I. OVERVIEW 4

A. INTRODUCTION 4 B. EXTERNAL MONITOR REPORT METHODOLOGY 6 C. STAKEHOLDERS’ OVERALL ASSESSMENT OF THE SIMDP: GENERAL PERFORMANCE DURING THIS REPORTING PERIOD (JULY 2013-JUNE 2014) 7 D. STAKEHOLDERS’ EVALUATIONS OF THE SIMDP TRIPARTITE COLLABORATION 8 E. SIMDP PARTNERS ENGAGEMENT IN THE PLAN 9 F. EXTERNAL MONITOR OVERALL EVALUATION 9

II. KEY ISSUES 11

A. MITIGATION MEASURES 11 B. COMMUNITY POLITICAL DIVISIONS 11 C. TARDY REPORTING 12 D. GRIEVANCES 12

III. GOVERNANCE 16

A. GENERAL GOVERNANCE ISSUES 16 B. GOVERNING BOARD 17 C. EXECUTIVE COMMITTEE 17 D. INFORMATION DISCLOSURE 18 E. INTERNAL MONITORING 19 F. CONFLICTS OF INTEREST 19

IV. SIMDP COMPONENTS 22

A. DISTRIBUTION OF BENEFITS BY DISTRICT 22 B. TRADITIONAL ECONOMIC ACTIVITIES SUPPORT PROGRAM [TEASP] 23 C. SOCIAL DEVELOPMENT FUND 28

V. PLANNING 35

A. ACTION ITEMS 35 B. SIMDP COMPLETION EVALUATION 35

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C. SIMDP 3 PREPARATION 36

APPENDIX: RECOMMENDATIONS ARRANGED INTO ACTION ITEMS FOR RESPONSIBLE PARTIES 38

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Fifth SIMDP 2 External Monitor Report October 2014

Acronyms

BF Batani Fund BP Business Plan CCCS Cross-Cultural Consulting Services, PLLC CEO Chief Executive Officer EC Executive Committee EG Experts Group EM External Monitor FPIC Free, Prior, and Informed Consent GB Governing Board IPO Indigenous Peoples Organization MGF Mini-Grant Fund PCE Plan Completion Evaluation RCAR Regional Council of the Authorized Representatives of the Indigenous

Minorities of the North of Sakhalin SDP Social Development Program SDF Social Development Fund SIM Sakhalin Indigenous Minorities SIMDP Sakhalin Indigenous Minorities Development Plan SOG Sakhalin Oblast Government SS Self-Sufficiency TEASP Traditional Economic Activities Support Programme

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Fifth SIMDP 2 External Monitor Report

I. Overview

A. Introduction

This report is the fifth1 in a series of periodic External Monitor Review Reports that cover the life of the Second Sakhalin Indigenous Minorities Development Plan [SIMDP 2]. This review covers the period from July 2013 through June 2014. It follows the Fourth External Monitor [EM] Report prepared in September 2012.

The Sakhalin Indigenous Minorities Development Plan 2 succeeded the first SIMDP that was implemented between May 2006 and December 2010. The SIMDP 1 was introduced by Sakhalin Energy Investment Company Ltd (“Sakhalin Energy”) with the support of Sakhalin Island’s Indigenous Minorities (as represented by the Regional Council of the Authorized Representatives of the Indigenous Minorities of the North of Sakhalin [RCAR]), and the Sakhalin Oblast Government [SOG]. By 2010, Sakhalin Energy, RCAR, and the Sakhalin Oblast Government had established a smooth working relationship to supervise and implement the SIMDP. Multiple rounds of consultations with Indigenous Minorities communities and other stakeholders were held and a new SIMDP developed by the fall of 2010. The draft SIMDP 2 was distributed in the areas of traditional indigenous residence during the first week of November to be considered by the indigenous population, followed by a special conference in Yuzhno-Sakhalinsk on November 17 called by the RCAR to approve and/or amend the draft SIMDP 2. At that conference the indigenous delegates declared that they gave their free, prior and informed consent to the Plan and to their representatives’ signing of a new Tripartite Agreement to implement the Plan. This signing took place at a ceremony in Moscow in mid-December with Sakhalin’s Governor, Sakhalin Energy’s Chief Executive Officer [CEO], and the RCAR’s Chair. All were personally representing their SIMDP partner organization in a public pledge of support to the renewal of the SIMDP.

First SIMDP The first SIMDP incorporated measures to mitigate negative effects on the lives and livelihoods of Sakhalin Indigenous Minorities [SIM] in the project area of the Sakhalin-2 oil and gas Project, as well as measures to share project benefits with Indigenous Minorities throughout the island. The latter was delivered by way of programmes of economic development (the Traditional Economic Activities Support Programme

1 The sixth report, if one includes the Midterm Evaluation Report, issued in September 2013.

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[TEASP]), health, education, culture, and capacity-building (the Social Development Program [SDP]), along with a stand-alone, indigenous-directed Mini-Grant Fund [MGF]. Yearly funding of the Plan was USD$300,000, which added up to a 5-year US$1.5 million commitment by the Company. In addition, administrative costs for the Plan (including staff salaries and costs for the operation of governance bodies) as well as other SIM-related projects were supported by Sakhalin Energy from non-SIMDP allocated funds.2

SIMDP 2

With the successful completion of SIMDP 1, the SIMDP partners prepared the SIMDP 2 to build upon the collective experience of the Plan and its implementers. The key objectives of this second Five Year Plan are:

Improving the lives and livelihoods of the Indigenous Minorities of Sakhalin Oblast through support for the delivery of benefits (social development programmes) in a culturally appropriate and sustainable manner

Enhancing the capacity of indigenous communities and individuals to actively participate in the management of the SIMDP and, by extension, similar socio-cultural and economic intervention strategies

Assisting Sakhalin’s Indigenous Minorities to prepare for the eventual establishment of an independent Indigenous Minorities development fund

Avoiding or mitigating in an environmentally sustainable manner any potential negative effects caused by the operation of oil and natural gas pipelines and associated Sakhalin-2 Project facilities

Key innovations of the SIMDP 2 are:

The application of the positive experiences of the Mini-Grants Fund of SIMDP 1 to extend indigenous-only programme committee membership to the Social Development Fund [SDF] Council and Traditional Economic Activities Support Programme Committee of SIMDP 2

The application of the positive experiences of the Mini-Grants Fund and the Social Development Programme (SDP; now SDF) of SIMDP 1 with the use of an Experts Group [EG] to initiate a similar assessment process for grant applications for the TEASP

Incorporation of the MGF’s focus on direct application for small grants by community groups into the SDP (now SDF), as the MGF—having fulfilled successfully its experimental purpose—-was eliminated as a separate Plan component

2 See SIMDP 2, Annex 3, for a listing of SIM-related projects supported by Sakhalin Energy beyond the SIMDP

between 2004 and 2010.

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Increased indigenous communities’ representatives on the Plan’s governing bodies

Internal monitoring of the Plan undertaken jointly by representatives of the three Plan partners

An increase in annual funding from Sakhalin Energy from USD300,000 to USD312,000 for five years for SIMDP programmes

B. External Monitor Report Methodology

For this report, the External Monitor3 visited Sakhalin between 9 and 27 June, 2014. Prior to the visit, the EM reviewed meeting minutes of the SDF Council, the TEASP Committee, and other Plan governance bodies, while also attending the December 2013 Governing Board meeting remotely. During the visit Sakhalin Energy’s Indigenous Peoples Unit and the Plan Coordinator shared key documents with the EM (most importantly, the Company’s SIMDP Semi-Annual Report, updates on the Mitigation Matrix, and the status of grievances, protocols of SIMDP bodies’ meetings) and arranged a series of meetings with key stakeholders, including:

Sakhalin Energy employees (personnel running the programme and others involved with management support of the SIMDP)

Indigenous Minorities (including the RCAR, individual community members, and indigenous community organizations [e.g., rodoviye hozyaistva (family enterprises) and rodoviye obschiny (family organisations)])

Authorities in the Sakhalin Oblast Government, including the Indigenous Peoples Department and the Indigenous Peoples’ Representative to the Oblast Duma

Authorities in various District governments, primarily their staff member responsible for Indigenous Minorities affairs

SIMDP governance participants, including those on the SIMDP Governing Board [GB], the Executive Committee [EC], the TEASP Committee, the Batani Fund [BF], the SDF Council, Kykh-kykh [the SDF implementing partner], the credit advisory council, and the two Experts Groups of the SDF Council and TEASP Committee

Representatives of SIMDP beneficiaries (managers, projects’ coordinators and implementers)

The EM visited Sakhalin Indigenous Minority communities around the island, including those in Nogliki, Okha, Nekrasovka, Val, Chir-Unvd, Tymovsk, Alexandrovsk-Sakhalinskiy, Viakhtu, Trambaus, Smyrnikh, Poronaisk, and Yuzhno-Sakhalinsk.

3 Gregory Eliyu Guldin of the consultancy Cross-Cultural Consulting Services, PLLC (CCCS) has been serving as the

External Monitor for SIMDP 1 and 2 since 2006.

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C. Stakeholders’ Overall Assessment of the SIMDP: General Performance during this Reporting Period (July 2013-June 2014)

The three SIMDP 2 partners (RCAR, SOG, Sakhalin Energy) all evaluated positively the overall performance of the SIMDP 2 during the period between mid-2013 and mid-2014. The assessment from the indigenous communities was also quite positive.

RCAR’s Evaluations of the SIMDP 2 The RCAR continues to rate the SIMDP highly, viewing it as a very positive model for the Russian oil and gas industry. The Council members appreciate both the positive benefits that individuals and organizations derive from the Plan as well as the support the plan gives to building indigenous capacity. Some weaknesses, however, were noted, as related to problems with indigenous organizations failing frequently to file reports correctly and/or on time. Also, there were complaints from some that the Company too strictly controls the various governance bodies.

The Indigenous Community’s Evaluations of the SIMDP 2 Indigenous community members similarly widely view the Plan positively. Some prior community concerns about the distribution of benefits have decreased as over the years an increasing number of families can claim at least one relative has received substantive benefits from Plan participation. The Plan is also recognized as one of the few sources of direct non-government support for indigenous communal organizations such as NGOs, the rodoviye hozyaistva and rodoviye obschiny.

SOG Evaluation of the SIMDP 2

“People know about the Plan; it’s part of their lives now,” is how one SOG official described the increasing awareness of the SIMDP among the island’s indigenous communities. Overall, the SOG representatives continue to see the Plan as both well-implemented and successful with less concern than previously about the vitality of the Tripartite Agreement. They also note the success of the TEASP with the growing interest in both the Business Plan and microloans programs as indicators that the Plan is fostering a more mature community interest in development rather than just the “charity” aspects of the Plan, such as the Self-Sufficiency grants sub-component.

Sakhalin Energy’s Evaluation of the SIMDP 2

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Sakhalin Energy also had a positive evaluation of the Plan, pointing out the successful implementation of so many projects benefiting indigenous individuals and groups. They did express concern that sometimes personal relationships interfere with successful implementation of the Plan. Nevertheless, they pointed out that the Company’s commitment to the Indigenous Minorities of Sakhalin had not diminished and pointed to the many examples of Sakhalin Energy support to these indigenous communities not only within the Plan but without, including the publishing of the poem “The Epic of Sakhalin Nivkh People” by noted Nivkh writer Vladimir Mikhailovich Sangi. This book was feted at presentations held in Moscow during October 2013 and then Yuzhno-Sakhalinsk and Nogliki. In recent years the Company has also supported the publication in local Sakhalin Indigenous Peoples languages of key United Nations documents.

D. Stakeholders’ Evaluations of the SIMDP Tripartite Collaboration

This year all three partners gave overall positive evaluations of the tripartite collaboration which undergirds the Plan. They all recognized that the three partners collectively participated in internal monitoring, serving on expert advisory panels and the Executive Committee and the Governing Board, while also serving to jointly investigate grievances. So, as in previous years, there was satisfaction that the Plan is operating as the joint vehicle for indigenous development of the Company, the RCAR, and the SOG. That said, there were a few criticisms of fellow partners. Some felt that the Company had reduced its promoting of other SIMDP partners by not inviting them to the events organized by the third parties or by not covering partners’ travel expenses to the events when the company publicized non-Plan activities which related to Sakhalin’s Indigenous Minorities. This rankled some of the Company’s partners who perceived this as one-sided and in violation of the Tripartite Agreement’s fundamental principles. For its part, the Company responded by pointing out that for activities which they did not organize and had no responsibility for, it was unfair to blame them for the third party’s not inviting SIMDP partners. As for the Company not paying for its partners to attend off-island events, Sakhalin Energy pointed out that as these activities were not funded by the SIMDP in any way, they had no such obligation other than to politely invite their partners to attend as interested parties as the Company always does. Their critics in turn respond by pointing out that although the Company might indeed totally finance and organize such activities or programmes outside of the Plan, the Sakhalin’s SIM were involved and so their official representatives—the RCAR—should have not only been invited but the Company should have arranged for their participation. The Company says that when the Company itself arranges such events, such as the “Epic” poem events, those SIM involved always participate.

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On the other hand, criticisms were also heard that not all members of the RCAR participated as in past years with the same courtesy and respect for partners and implementers of the Plan. This, it was alleged, had undermined personal relations among Plan participants and potential beneficiaries of the Plan and was against the spirit of the Plan. These RCAR members, in turn, felt that as this SIMDP 2 was planned to enhance SIM participation and capacity, the Company and SIMDP staff should be publically promoting the role of all three partners and not just the Company at all times in relations to SIM-related activities. In these circumstances, the partners have agreed - to continue cooperation on the basis of a general exchange of information about all projects, programs and activities of the Indigenous Peoples of Sakhalin carried out under the SIMDP framework which involves the three partners of the Plan.

E. SIMDP Partners Engagement in the Plan

In the judgment of the EM, the three partners all engaged actively in the Plan during the year under review. The RCAR supplied its members to serve on the governance bodies of the Plan and assisted in selecting community representatives to serve on those bodies as well. Along with the SOG and Sakhalin Energy, the RCAR also participated in helping respond to grievances, to participate in internal monitoring, and to publicize the Plan during the periodic visits to all seven indigenous districts. The SOG also continued its appropriate levels of support for the Plan and the contributions it makes to the SDF Experts Group is particularly well appreciated.

Sakhalin Energy’s Indigenous Peoples Department, assisted by the Plan Coordinator, also continued to be the spark at the heart of much of the Plan’s successful activities throughout the year. Many of the people contacted by the EM spoke very highly of the responsive “customer service” they have received from these SIMDP support personnel. Such testimonials came not only from individuals but from organizations who spoke of the many consultations held by phone before, during, and after the grant application periods.

F. External Monitor Overall Evaluation

Slowly, the SIMDP is helping building indigenous capacity on Sakhalin. Specialists serving on the expert groups of advisors for both the SDF and the TEASP report that the quality of applications is on the whole improving, with one advisor saying that organizations which previously were relying on others to help fill in applications were now doing it all by themselves and attaching the necessary accompanying documents without prompting. Others have noted that the SIMDP has encouraged a growth in rodoviye obschiny and rodoviye hozyaistva and that “people are doing things they weren’t doing much before, like publishing books on indigenous themes.” Between museum-sponsored exhibits, presentations and community festivals, the Plan can be

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seen as having encouraged a growth in ethnic pride among the SIM, while also encouraging economic development and distributing benefits. While there have been tensions among the partners over the past year or so as well, overall, the Plan has continued to function well while even the problems encountered now have people thinking of how to correct them by improving the next Plan—due to begin in January 2016. The External Monitor also took note that beyond the confines of Sakhalin Island, the SIMDP also received significant notice over the past year. In June of 2014, at the 21st World Petroleum Congress—the largest oil and gas forum in the world bringing together 5,000 delegates—the SIMDP was selected as one of three finalists (among over 100 applicants) in the competitive project contest category of “Social Responsibility.” Similarly the SIMDP was recognized as the best project in the category “Social Projects” for 2013 in the competition "KonTEKst" held by the Ministry of Energy of the Russian Federation.

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II. Key issues

In commenting on the Governing Board meeting in June, one independent indigenous member of the Board commented that there were seemingly only two key issues: i) the lack of a number of reports, and ii) the grievance regarding governance procedures. This observation had a lot of truth in it, and certainly these issues consumed a lot of time and energy of Plan partners and participants during the past year. There were, however, a few other issues of note and this report will touch on these as well in this section.

A. Mitigation Measures A key responsibility of the Sakhalin-2 project to both the Indigenous Minorities and general population of Sakhalin is to avoid and mitigate any negative projects on the people and environment of Sakhalin Island. The Mitigation Matrix established during the First Plan and carried over to the SIMDP-2 has continued to keep track of such issues. It continues to be noteworthy that this critical dimension of the Plan has been barely mentioned over the past few years and this year was no exception. Furthermore, government and indigenous representatives both reported that they were satisfied with the Company’s disclosure of information about project environmental impacts and there were very few questions raised regarding such topics during the June Governing Board meeting.

B. Community Political Divisions

The past year has seen the heightening of tensions between factions of the Sakhalin Indigenous Minorities communities on the island—and this has indirectly affected the SIMDP. In December of 2013, a group of indigenous leaders and community members held a meeting which sought to establish an alternative SIM representative body to replace the current RCAR. Although this alternative body has yet to receive widespread recognition from either government or corporate entities (including Sakhalin Energy), its presence has sharpened the rivalries pre-existing among indigenous groups and communities on the island. Although the existence of the rival organization has not directly affected the SIMDP, people have been quick to see in this year’s sharpened arguments and conflicts over Plan implementation a reflection of this external rivalry. Sakhalin Energy has maintained a scrupulously neutral approach to the rivalry and this is in the best interests of the SIMDP. This is in accord with the Company’s long-standing policy of not interfering in the internal affairs of the Indigenous Minorities of Sakhalin.

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C. Tardy Reporting

A chronic problem continued to draw attention this year, the problem of late and/or inadequate reporting on projects. Although some of these issues were embroiled in one of this year’s filed grievances, there were many examples of individuals or organizations which had been behind in filing project reports or in inadequately reporting on finances. This has occurred twice even with the Indigenous Peoples Organizations selected to implement SDF programmes during the Second SIMDP. Some complain that when even prominent organizations selected to help administer the SIMDP’s programmes themselves fall short in reporting it sets a poor example for all other Plan participants. Clearly, this is a significant issue. Some point to the relative complexity of the SIMDP reporting structure, under which copies of financial documents (receipts, invoices, statements, etc.) are needed for reimbursement. There are problems as well in the submission of the required analytical report in addition to the financial report. All recognize this deficiency. This past year a capacity-building plan was proposed to provide training for report-writing and simple accounting via a seminar format—a delivery mechanism allegedly applied successfully elsewhere in the country—but the proposal failed because it was not finalized and thus denied by the SDF. The proposal writer plans to reapply. One careful observer of the situation said that both SDF partner organizations and local rodoviye hozyaistva / rodoviye obschiny could benefit from such a programme as not all of the latter two groups have their own accountants or must rely on SIMDP’s partner organizations to supply the needed support. This leaves the latter two groups vulnerable to exclusion from business opportunities when their partner organization proves incapable of providing the needed assistance necessary.

RECOMMENDATION: √ Capacity-building programmes to assist rodoviye hozyaistva / rodoviye obschiny in report-writing and accounting should be a priority of the SDF in setting its capacity-building priorities for 2015.

D. Grievances This past year only two grievances were filed, the average for the Second Plan. The grievance resolution process was followed properly in both cases. However, as in

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previous years, grievances have been the place where major conflicts and controversies surrounding the Plan have been brought into public view—a key positive function of the grievance procedure mechanism. This year, of the two grievances filed one (#9) was the centrepieces of much of the internal angst besetting the Plan while the other (#8) raised the question of bias in the distribution of grants. Discussion of these two grievances will be circumspect to respect the confidentiality of the grievance redress process.

Grievance #9 claimed that the rights of applicants for SIMDP grants had been violated and that the Plan Coordinator and the Executive Committee had not acted properly. This caused a lot of consternation. Eventually, however, the grievance was withdrawn after due investigation by a team appointed by the EC. From the heated discussions—both private and public—a number of issues can be noted and need to be addressed by the Plan’s governance bodies:

1. What is the status of applicant grants when their partner-organization’s own status with the Plan is being challenged for non-performance? This year the applications of individuals or organizations that had chosen Kykh-kykh as their partner-organization were immediately disqualified by the SDF Council and the TEASP Committee and were not evaluated. How can the Plan safeguard the rights of such applicants while also ensuring that all organizations follow stipulated reporting and accounting rules? Similarly, what would happen in the case where an application was approved but the partner-organization was disqualified after the applicants had already been notified of their approvals? This past year a case arose very close to this situation although completely unrelated to Grievance #9. In one district a supposed grant applicant charged that a partner organization had filed an application on his/her behalf without their knowledge. In resolving the situation the responsible committee approved the transfer of the grant from one partner organization to another upon the request of the applicant.

2. What is the role of the Plan Coordinator in explaining the decisions of the SDF Committee or other bodies? Discussion revolved around how the decision of the Council and Committee to not consider applications filed under a “banned” partner-organization were conveyed and how they were explained to rejected applicants. Given the sensitivity of such an issue—and the possibility that such explanations may exacerbate tensions and conflicts—great care must be taken with such explanations. At the same time, there should be recognition of the practical conditions of the Coordinator in carrying out her role. This past year for example the bulk of the secretarial burdens of both the SDF Council and the TEASP Committee fell on her shoulders thus exacerbating the difficulty of separating out her role as “Coordinator” from those properly remaining with the Council and Committee.

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3. What is the role of the Executive Committee in regards to the decisions of the

SDF Council and the TEASP Committee? One difference of opinion apparently stems from two readings of the sentence in the Plan’s section 4.4.2: “The EC will review all decisions of both the TEASP Committee and the SDF Council.” One side interprets “review” as meaning that the active approval of the EC is needed for such decisions while the other side is of the opinion that unless there is a problem (i.e., a violation of the rules) that committee decisions should be allowed to proceed without the need for explicit EC action (i.e., “review” means passive approval). Yet the same section also includes the phrase: “Authority to supersede…decisions of the TEASP Committee and the SDF Council can be granted to the EC by explicit action of the GB.” Thus this Second SIMDP, in contrast to the First Plan, does apparently grant autonomy to the Council and Committee by requiring the EC to seek explicit authority from the GB before it can overturn Council and Committee actions. In the absence of such a request and its approval by the GB, the “passive approval” interpretation of section 4.4.2 appears the most appropriate.

Grievance #8 claimed that their analysis of the distribution of grants demonstrated a clear pattern of over-representation by one district among grant awardees and laid the blame for this on a biased selection process by those who controlled or influenced the committees. The Executive Committee formed a committee to carry out an investigation but found the charges to be unwarranted. The grievance was closed upon the promise of the EC to continue to monitor the situation.

RECOMMENDATIONS: √ The EC and the GB need to develop clear regulations to protect the rights of grant applicants to a fair consideration of their proposals and not permit them to be penalized for the failures or questionable status of their partner-organizations. Similarly, rules for the possible transfer of grants post-approval from one partner-organization should be specified. √ The TEASP Committee and the EC should include in the TEASP 2015 Concept Paper a clarification of mutual obligations of an applicant and the partner-organization. √ The EC should consider formulating a procedure whereby the Plan can confirm that all grant applications (or approved grants) were filed by the individual named in the

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application. √ The EC needs to develop guidelines for the Coordinator and Plan staff so that they are perceived as strictly following governance body dictates and performing their duties in a neutral manner. This can be accomplished by citing Governance Body regulations or decisions, as necessary. √ The EC and the GB should consider ways to bolster the capacity of the SDF Council and the TEASP Committee to carry out their own secretarial functions, thus reducing the burden on the Plan Coordinator. √ The EC and the GB should consider clarifying the interpretation of SIMDP 2 section 4.4.2 to remove any doubt as to when and under what circumstances SDF Council and TEASP Committee decisions can be overturned by the EC.

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III. Governance

A. General Governance Issues A number of general governance issues were raised by informants:

1. Performance of SDF Council and TEASP Committee members. Committee members were seen as having two roles: i) participating in council/committee work and conveying information about applicants and their applications to the committees, and ii) working as liaisons with their local communities to convey committee information to their home districts. Although nearly all praised the committee members for their contributions not only to the Plan but to their communities, some committee members were also faulted for not equally serving all local residents in their distribution of Plan information/advice and for not equally advocating for their grant applications before the committees.

Some also saw the lack of experience of the new committee members as leaving them open to manipulation by committee veterans, while others saw the need for continued training for committee members so that they could carry out the secretarial functions of their committees properly. Still others called for council/committee members to be barred from consecutive terms so as to prevent them from using their Plan knowledge to unfairly capture Plan benefits for themselves and their allies.

2. Role of the Coordinator. Most council and committee members (not to mention

community members) found the Coordinator to be very professional, courteous, and helpful while carrying out her responsibilities. Yet some questioned both her presence at Council and Community meetings and her neutrality in carrying out her work responsibilities. As mentioned above, however, the Coordinator serves a critical function at such meetings, ensuring not only that secretarial functions are carried out but ensuring continuity with past and present activities is maintained. The perception of some that the Coordinator represents the Company alone (and not all three partners equally) and does not always act objectively needs to be addressed.

3. Rudeness. A general point of agreement was that the level of polite and

professional interaction among those working with the Plan had declined this past year. Informants particularly pointed to the content of emails from the Governing Board chair. Overall, people indicated that this would take a “psychological toll” on people’s willingness to continue to work with the Plan.

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RECOMMENDATIONS: √ The Governing Board should consider continuing training for the members of the SDF Council and TEASP Committee. √ The SDF Council should make training a key priority and conceive of viable long-term training projects. √ The Executive Committee should discuss with the Coordinator her suggestions to ensure that in both word and actions the Coordinator makes clear that she does not represent the Company alone but the SIMDP and the three SIMDP partners.

B. Governing Board

The Governing Board over the last few meetings has increasingly demonstrated its a more pro-active approach to the running of the Plan. During its December 2013 meeting the Board gave explicit directions to the chairs of the TEASP Committee and the SDF Council to participate in community consultations, removed a sub-component from the SDF Concept Paper, ordered the Batani Fund to include the Credit Advisory Group’s loan recommendations giving reasons why microloans applications were rejected in their report to the Board, and ordered the Executive Committee to come up with an action plan to deal with irresponsible grant applicants. At the most recent meeting, in June 2014, the Board continued this approach ordering the TEASP Committee and the SDF Council to provide information on all submissions, not just those which were approved. This was an important step in the Board fulfilling its statutory role of oversight of all governance bodies. The Board also demonstrated dissatisfaction with the amount of information it receives relative to the micro-credit program as well as the tardiness with reporting by the SDF partner-organization Kykh-kykh.

C. Executive Committee

The Executive Committee continued its proactive review of SDF Council and TEASP Committee meeting decisions while fulfilling its other appropriate governance functions. The only suggestions heard regarding improving the work of the EC was for the EC to

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provide quarterly rather than semi-annual reports to the Governing Board to enable Board members to respond in a timely fashion to issues affecting the Plan.

D. Information Disclosure

“Everyone knows about the Plan,” was the refrain from Poronaisk to Nekrasovka. Information disclosure has been pretty extensive and only a few complaints were heard about not having access to Plan information (such as in the city of Okha). People gave great credit to the Plan representatives, particularly the Coordinator Svetlana Sangi, but also to Sakhalin Energy’s Yulia Zavyalova and Leena Zhamyanova, for reaching out and helping people learn about Plan programmes and helping people to apply. The yearly consultation visits were also highly praised for bringing the Plan into local communities and people described how useful such meetings could be. Those with computers also spoke about the possibility of email contact with the Plan’s representatives while others pointed out that the yearly visits of the External Monitor were also good opportunities to make contact with the Plan’s representatives and to ask whatever they needed to ask. District government specialists responsible for indigenous affairs also said that regular email and visits supplied them with sufficient information and were particularly appreciative of the reports informing them who won grant applications in their districts. The regular visits of the SOG Indigenous Peoples Department to the indigenous communities were also mentioned as a source for SIMDP information, along with needed updates about the Oblast programmes. Sakhalin Energy representatives pointed to the notices printed in local newspapers prior to open community meetings and to announce the Plan’s open competitions. There have also been SIMDP news, documents, quarterly reports and information bulletins on the Plan’s own website since February of 2011 and the list of SDF Council and TEASP Committee members are distributed to all regions. Sakhalin Energy should receive special recognition for their extra-SIMDP budget support for that excellent website which lists all contest winners and provides detailed information on both the component programs as well as the governance activities of the Plan. Some though suggested that not enough information is being revealed about who is receiving Plan monies and for what. They suggest that the name, project title, and district of all grant awardees can be revealed, even if the amount they received is kept private. This, they maintained, would be in keeping with Russian Federation legislation.

One other aspect of information disclosure also was raised by a few respondents who in doing so critiqued the behaviour of their local district representatives to the SDF Council and TEASP Committee. These representatives, they charged, were often slow or negligent in making efforts to inform all SIM in their district (particularly if the

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representatives were from another part of the district) as to grant application deadlines or to assist people in making the applications. This can be interpreted as a form of conflict of interest, a strategy of the representatives to minimize competition if the representatives themselves, their friends, relatives or organizations are applying for such grants.

RECOMMENDATION: √ Both the SDF Council and the TEASP Committee should consider requiring all of their members to hold timely public meetings prior to grant application deadlines and timely public meetings to report on the result of approval decisions by the Council/Committee after they are made.

E. Internal Monitoring The annual internal monitoring trip was carried out successfully with full participation of the representatives from Sakhalin Energy and the Regional Council and partial participation by the SOG. Grant recipients and other Plan participants were interviewed, recommendations for each recipient offered, and questions responded to.

F. Conflicts of Interest Conflicts of interest have been an ongoing concern for the Plan, both in its first rendition and this second one. The Plans have made great progress on dealing with the issue, though, and have developed guidelines for disclosure of such conflicts which have improved the situation. Nevertheless, complaints regarding such conflicts continue to be made and during this EM visit, some additional points were raised. One issue upon which there appeared to be confusion was as to what constituted a “vested (personal) interest” in a grant application coming before a Plan governance body for decision. All recognized that close kinship ties with the applicant would represent a “vested interest” but they were divided as to whether this definition should also include those who were working or

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participating in the same organization as the applicant (whether enterprise, institution, public organization, or obschina). Another issue resolved around consistency in disclosure of vested interests prior to decision-making at Council or Committee meetings. This past year, the Coordinator appropriately reminded Council and Committee members of the need to disclose vested interests and this many indeed did but without clarity as to whether this included non-kinship close connections as well. The result was that some discussions took place with greater transparency than others. Also another point raised was the appropriateness of those with conflicts of interest to be present during open voting on their applications even if they did not participate in the voting itself. An astute observer of this process suggested that the Plan adopt conflict of interest guidelines similar to the Governor’s Grant Committee. Some of these are included in the EM recommendations below. Another suggestion received was to assist Council and Committee members in their difficult task of choosing between many similar proposals by developing a point system set according to agreed-upon assessment criteria.

RECOMMENDATIONS: √ The EC should consider proposing to the GB: the inclusion of “employment relationship” or

“membership in the same organization” along with “close kinship tie” in a definition of “vested interest” in grant/loan application decision-making in Section 7 of the “Regulation of Coordinating Bodies within the Management Framework of the SIMDP 2 for 2011-2015.”

a Terms of Reference be developed for SDF Council and TEASP Committee members which would include such an amended definition of “conflict of interest.”

at the beginning of the grant decision-making meeting of both the Council and Committee that all members be required to make a formal “transparency statement” of any conflicts of interest.

new Council and Committee members be required to sign a statement of agreement with such conflict of interest provisions of their ToR.

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During general discussion and voting on an

application for which a member has declared a conflict of interest, they should leave the room (although they may be permitted to respond to direct questions the body may have regarding their proposal).

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IV. SIMDP Components

A. Distribution of Benefits by District

An issue of particular interest to Plan observers during both the First and Second SIMDP has been the distribution of grants by district—and particularly grants distributed by the TEASP. The project partners have paid particular attention to this as have the members of local communities (indeed the allegation of unfair distribution of Plan benefits was the subject of this year’s Grievance No. 8). An analysis of this year’s Business Plans [BP] and Self-Sufficiency [SS] grants revealed that Nogliki District continued to do well, although this may be a function of a greater number of applications submitted. See Fig. 1 below and additional commentary later in this section.

Okha Nogliki Poro-

naisk

Alex-

Sakh

Tymovsk Smyr-

nikh

Yuzhno-

Sakhalinsk

# BP Appli-

cations

4 2 1 1 2 0 1

# BP

Approved

1 1 1 0 0 0 0

Success Rate

for BP

Applications4

25% 50% 100% 0% 0% - 0

District BP

Success

Rate5

33% 33% 33% 0% 0% - 0

# SS Appli-

cations

16 25 11 0 9 0 0

# SS

Approved

2 4 2 0 4 0 0

Success Rate

for SS

Applications

13% 16% 18% - 44% - -

District SS

Success Rate

17% 33% 17% - 33% - -

Fig. 1: Success Rates for Business Plans and Self-Sufficiency Grants by District

4 That is, the percentage of district applications which were approved. 5 That is, the percentage of district applications which were approved as part of the total approved.

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B. Traditional Economic Activities Support Program [TEASP] The TEASP continued to attract great community interest. Members of the TEASP Committee noted a few positive trends over the past few years, pointing to an improving quality of applications to both the Business Plans and Self-Sufficiency grants. The chair of the TEASP Committee also noted that the Second Plan has placed a greater emphasis than the First Plan on Business Plans and microloans, reflecting a growing awareness on the need to build local economies and not just rely on distributing benefits. Capacity has also been built over the years, as last year’s (and the year before’s) failed applicant becomes this year’s successful one. This section will review all three TEASP components: Business Plans, Self-Sufficiency Grants, and microloans, before reviewing various governance aspects of the TEASP.

1. Business Plans

The TEASP Business Plan component has certainly developed into one of the more successful aspects of the SIMDP. During 2014, the number of applications increased slightly, rising from 9 to 11 applications over 2013, while the distribution of successful Business Plans—one each to Poronaisk, Nogliki, and Okha—was well-received. These plans involved increasing capacity for ongoing enterprises in fish processing and wild plant processing, two traditional SIM economic activities. Discussions with all three successful grant applicants revealed that the Business Plans were indeed enabling the increased employment of Indigenous Minorities. Those most familiar with the operation of the Business Plan component also argued strongly that these benefits could only be accomplished when Business Plan funds were concentrated rather than doled out in small amounts with diminished impacts. However, a number of complaints were heard criticizing what people perceived as the capture of Business Plan support by a few individuals or enterprises who received support year after year. To ensure that such benefits be more accessible to all SIM, some worthwhile suggestions to provide training and to emphasize employment were received and these are listed below.

RECOMMENDATIONS: √ Given the high demand and limited funds for the Business Plan component, the TEASP Committee should consider establishing SIM employment enhancement as one additional criterion for providing Business Plans or microloans.

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√ Recognizing that it’s quite difficult for entrepreneurs with only a primary school education to prepare a competitive Business Plan, TEASP should continue to support capacity-building training initiatives for would-be BP applicants.

2. Self-Sufficiency Grants

Interest continued high for Self-Sufficiency grants but with only 12 successful applicants out of 61, there were a lot of disappointed applicants. In some ways, though, this year’s applicants were less disheartened than in previous years as people have come to the conclusion that if one applies long enough—year after year—then eventually you will be rewarded. Tymovsk District was the lucky winner this year of one-third of all Self-Sufficiency grants awarded, with the successful applicants attributing much of their success to support from the Plan Coordinator. It was quite clear that the Self-Sufficiency grants also helped a lot of families in need and supported community bonds, with one recipient remarking that this Plan component had made possible “young boys providing help to their elders to get seals and fish to eat and to help with transportation that they otherwise would not have had.” She suggested that the TEASP Committee should make such good deeds a requirement for Self-Sufficiency selection, i.e., community service as a criterion for selection. Given the high competitiveness of the component (only 20% of applicants were successful), a number of informants offered suggestions for how to select applicants, ranging from a lottery system to select among equally qualified applicants to restricting applications to one per family. Key was to ensure that community members felt that access was available to all, which some informants strongly doubted. Discussions with applicants both successful and unsuccessful also revealed a number of misconceptions about the nature of the component, with some reporting being told that individuals could not apply for the programme, while some successful applicants were unaware that there was a five year waiting period before they could apply again. Many suggested that the Self-Sufficiency grants be more focused on individuals/families insisting that rodoviye hazyaitsva / rodoviye obschiny had alternate sources of support from the SOG and district government and should not rely on a component which the 2014 TEASP Concept Paper says should be focused on those who can live without wage labour and be self-sufficient in non-urban areas (recognizing that some individuals might have part-time ties to obschiny). Some further criteria for Self-Sufficiency grant selections are given below.

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RECOMMENDATIONS: √ The TEASP Committee and Coordinator should reinforce the message among grant recipients that there is a five-year waiting period before they can reapply for a grant. √ The TEASP Committee should also consider a mechanism to restrict applications to one per family per year.

3. Microloan Programme

The Microloan Programme is run by the Moscow-based Batani Fund, a partner-organization reporting to the TEASP under contract to Sakhalin Energy. Since its inception during the SIMDP 2, it has been very well received with those taking out microloans, saving entrepreneurs considerable amounts in lowered interest payments, reducing rates from 15-20% at commercial banks to only 3% with a payback period of a year. In 2014 four new loans were approved while nearly all borrowers from previous years have kept to their repayment schedule, some having already paid off their debt, and some having even paid the loans back before they were due. In that sense, the programme has been a big success. Not everyone has repaid though and that has caused some considerable concern. In 2014 there were two outstanding loans, with one recipient refusing to pay and the other promising to pay back eventually. The defaulted loan has caused much consternation and the Plan members have realized that their capacity to recoup funds or take action against defaulters is extremely limited with even their safeguards to secure the loans with collateral being too weak to be effective. The Batani Fund and the Plan have in effect written off the defaulted loan. As one response to this situation, the TEASP Committee Chair suggested that the TEASP Committee in the future require all credit applicants provide a partner-organization to guarantee the loan. Two other major issues—both of which were extensively discussed at the GB meeting in June 2014--were the perceived lack of Governing Board (and Plan?) control over the Batani Fund and what was seen as inadequate or improper Fund governance. Criticism revolved around:

i) Lack of transparency regarding money flows, particularly the status of repaid loan principal and interest;

26

ii) Reporting: incomplete financial accounting of all funds and what people perceived as the lack of a requirement to report directly to the GB (although the agreement between Sakhalin Energy and the Fund explicitly mentions such an obligation); and

iii) The Fund’s administrative fee: this was questioned as overly large given the size of the programme and its financing out of the cache of returned loan principal and interest.

Concerns were voiced that under such conditions the Batani Fund is not subject to oversight by the GB (although, again, the agreement between the Company and the Fund explicitly mentions that the GB is the highest SIMDP and that the BF has to report to it)—such as is the case for SDF partner-organizations—and that the microloan programme would never build up its own independent reserve of cash, one of the key goals of its establishment. The EM observed that even within the TEASP committee members their awareness of both the Batani Fund’s activities and the microloan programme was low, although they wished it otherwise. The Governing Board instructed the TEASP Committee to fully account for the use of SIMDP-derived funding so as to achieve sufficient transparency. Another concern heard regarding the Fund was the repeated delays in providing promised training this year in Okha (last year trainings were held in other districts). This year training was to occur in July, a less than optimal time as it is in the middle of the fishing season, whereas February would be more in tune with SIM schedules. A newly formed advisory group, the Credit Council, held meetings remotely (via email) to review microloan applications. Composed of one representative of each of the three partners along with three members of the TEASP Committee (including the Chair), and a representative of the Fund itself. One operational difference between the operation of this advisory group and that of the Experts Groups advising the SDF Council and the TEASP Committee is that the Credit Council advisors are only asked to comment on loan applications and not to provide formal recommendations. These comments are supposed to guide decisions on loan applications. Conversations with members of the advisory group revealed that there were no uniform criteria among group members for evaluating loans, with some insisting on an evaluation of the loanworthiness of the applicant while others feeling community involvement was sufficient justification for credit approval. These observers also pointed out that in contrast to loan applications with commercial banks where loan officers would assist applicants to make applications, the Fund apparently did not provide such services. They also spoke to the need to gather more information to judge the creditworthiness of applicants. This would include requiring applicants to verify claimed income sources rather than just stating them, to provide quarterly cash flow statements, and to predict what percentage of that cash flow could be redirected to loan

27

repayments over the coming loan repayment year. These questions would parallel the same questions asked of those applying for Business Plans. From such discussions with members of the Credit Council, a number of recommendations for the microloan programme’s operation were gathered, including some which were standard for the formal banking system, although less prominent among the financial interaction in indigenous communities:

RECOMMENDATIONS: √ The TEASP should review the microloan application forms to ensure that the proper level of attention to loanworthiness is paid, while realizing that some adjustments might be appropriate for a microloan programme serving SIM. √ The EC and GB should consider whether or not returned principal and interest from paid-off loans should come under the control of the TEASP Committee to decide on their reallocation, stay under the jurisdiction of the BF, or be subject to another procedure. √ External and internal Plan monitors (and any other Plan auditors) should receive a list of active and closed microloans prior to their commencing their work.

4. TEASP Partner-Organizations Applicants for Self-Sufficiency grants, as individuals without bank accounts and an official registration status, need a partner-organization that will provide a mechanism of financing the project on their behalf. The partner-organization would handle all money transfers and any equipment purchased by the partner would need to be transferred to a successful applicant within 30 days of equipment purchase. The search for partner-organizations, while a simple and uncomplicated task for some grant applicants, has proven quite troublesome for many others. Many partner-organizations do so quite willingly—and even enthusiastically—out of a commitment for public service and solidarity with their local indigenous community. For other organizations, however, the perceived burdens of being this organizational elder brother only grows with time so that after a while they cut back their sponsorship or stop providing this service entirely.

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There are a number of reasons for this reluctance to act as a partner-organization:

Report-writing requirements and financial statement: minimal as they are some organizations, particularly those lacking their own accountant, find this aspect particularly stressful and prefer to avoid it.

Minimal administrative fee: while TEASP regulations allow a partner-organization to charge up to 5% in the grant application for administrative costs, not every time does the organization receive even this relatively small amount. Sometimes they only charge 2-3% for the Bank fees they have to pay while other times they simply absorb the fee themselves if they feel the recipient cannot afford to pay even minimal amounts.

One partner-organization even reported that their work as a partner caused the prosecutor’s office to investigate them, suspicious of these flows of funds into and out of their accounts. For these and like reasons, many organizations have given up on performing this role. Responding to this lack of partners—and to reports of applicant abuse by partner-organizations (keeping the equipment for themselves, for example), some groups have themselves organized as obschiny to obviate the need for finding a partner-organization. This is one reason the numbers of rodoviye obschiny and rodoviye hozyaistva have grown quickly in the last few years on Sakhalin.

5. TEASP Experts Group Most, but not all, of the people who had reason to know about the work of the TEASP Experts Group praised its performance highly. The objective stance of the specialists serving on this team was well appreciated for bringing their knowledge of business to the application evaluation process (the representatives from the SOG Economics Department were particularly singled out for praise). As most members serving on the Group were not intimately knowledgeable about the indigenous communities, while this could be seen as a downside, most observers took it positively as it insured that the applications would be judged solely on their merits. Some group members also were pleased to note that the TEASP Committee took their recommendations into account when making their decisions and indeed all three of this year’s approved Business Plans and most of the approved Self-Sufficiency grants were recommended by the experts. One recent TEASP innovation was the requirement that applicants had to revise their proposals in line with the Expert Groups’ recommendations or the application would not be considered by the Committee. This was a very wise Concept Paper revision for it forced applicants to work with others to improve their proposals. Committee members believed that this helped yield a better final result and will continue the practice next year.

C. Social Development Fund

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What’s clear is that the Social Development Fund, and most particularly its annual contests--including this year’s “Link of Times”--have helped spur interest in and preservation of Sakhalin Indigenous Minorities’ cultures. The SDF was composed in 2014 of three components:

The Link of Times Competitive Grants Programme: 46% of SDF budget Long-term Programmes: 37%

Capacity-Building: 17% SDF Council members described very efficient and well-run meetings, with vigorous discussion and debate on the different contest applications. One new SDF member also expressed how appreciative he was of the training session he and other new Council members received in November 2013 in Yuzhno-Sakhalinsk. Another attendee at that training also said that “it was the first time that I saw how applications are supposed to be filled in correctly!” She continued, “people were open and objective about these discussions and voting. And even about applications from their own districts.” The Council also conscientiously reviewed its adherence to governance instructions from both the Governing Board and Executive Committee and this is a commendable step to Plan governance efficiency.

1. Link of Times This year’s contest received many applications and a good number of funding-worthy projects were approved. Many of the projects involved co-financing with different government offices from the oblast to municipal levels. Some have questioned the propriety of providing SIMDP funding to such projects, arguing that rather than in effect subsidizing state budgets, such moneys should be reserved only to Indigenous Peoples Organizations. They suggest that the SDF should perhaps put a cap on how much of Contest funds can be allocated to state organizations. One area that both the SIMDP and Sakhalin Energy in its own right have been quite prominent in is the effort to preserve indigenous languages. A few years ago the Company funded from non-SIMDP budgets the preparation and publishing of multiple copies of the first Uilta-Russian primer. During this year’s “Link of Times” one project supported a class at Poronaisk’s Lyceum No.3 to teach the Uilta language to youngsters in the second, third, and fourth grades, while at the other end of the educational continuum the Contest also supported an international symposium on the languages of the Indigenous Peoples of the Russian Far East which was to be held in October 2014 and would focus on indigenous language preservation With the involvement of local

30

SIM in its preparation, this project was aimed at connecting the scientific and indigenous communities so as to collaborate on this important work. Another project, this time in Alexandrovsk-Sakhalinskiy, financed by 2014 funds and planned to be carried out during Autumn 2014, focuses on spreading awareness of SIM cultures among not only the indigenous population but among the general population as well. The medium for this project (to which the SIMDP is contributing about one-third of total funding and the project applicant, the district Central Library, the remainder) is a travelling puppet show which performs traditional Nivkh tales. None of the library staff working on the project are Nivkh but to ensure authenticity they have engaged local Nivkh as “voluntary consultants.” The inspiration for this project and for similar projects in the museums and libraries of Sakhalin is owed to the stimulation their staff receives from interaction with SIMDP staff and partner participants. This in turn has led to increased exposure to and interest on the island in indigenous cultures.

RECOMMENDATION:

√ Responding to the request received by the EM from one SDF recipient, the Plan Coordinator should ensure that when SDF projects are co-financed by other organizations, those organizations should receive credit on the Plan’s online webpage. √ Similarly, SDF recipients should be reminded by the Plan Coordinator to give credit to the SIMDP for support received in all their promotional publicity as well.

2. Long-term Projects Long-term projects proceeded during 2014 without much controversy or problems. The two key items were education and health, with funds distributed as follows, as percentages of the SDF budget Health

Cofinancing of dental programs 5% Financing of eye disease treatments 1%

Support to medical institutions in SIM districts 6% Interviews with medical clinic staff recipients of grants observed that the SIMDP was an important source of equipment renewal which supplemented state support; critical

31

support, they maintained, for the communities to which they were donated. This past year, the SDF also removed, at the Governing Board’s instruction the sub-component which supplied financial assistance to people in medically difficult situations. This elimination, however, was questioned by a number of people interviewed by the EM who thought this both a very popular and a very humane aspect of the SDF programme. Others, however, thought such a sub-component inappropriate for the SDF as the SIMDP is aimed at capacity-building rather than at providing what can be viewed as “charity,” and that furthermore such support should be the government’s responsibility. The Governing Board also discussed this issue and the difficulty of choosing among medical hardship cases was also raised as a difficulty in implementing such a sub-component without clear guidelines for selecting among many appeals. The Board decided to ask the SDF to develop such criteria. Education

Scholarships to students paying tuition 18% Incentive scholarships 4% Medical student support 3%

Educational support continued to be a very popular and very appreciated sub-component. Students and their families appreciated the relatively simple application form, the size of the scholarships, and the fact that the money can be delivered far quicker than with other scholarship support plans. This component, like the health component, supplements the support offered to students from the state. One close observer thought that component could benefit by SDF considering monitoring the results of its support, asking for example if students who received support actually returned to their communities post-graduation? Or asking if this component really does help build capacity? Although it would be interesting and useful to know the answers, it might be very difficult to collect such data.

3. Capacity-Building

The SDF budget for 2014 carved out about 17% for the Capacity-Building Component, divided between programme support for SIM training at the oblast or inter-district levels and about 4% reserved to pay the administrative fee of the SDF partner organization. Questions were raised at the Governing Board meeting as to the propriety of financing the partner-organization administrative fee out of capacity-building component funds, while the decision of the SDF to transfer 100 thousand rubles of the component’s funds to finance projects in the Link of Times Contest component was similarly remarked on. Both actions were seen to indicate a low SDF priority for capacity-building despite the fact that one of the key goals of the SIMDP as a whole is to raise SIM capacity. However, Council members who participated in the transfer of funds said that overall this year’s capacity-building applications were of substandard quality and that was the

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main reason funds were available to be transferred. The SDF Experts Group largely agreed, recommending only 3 of the 8 applications, while two were approved by the SDF. Whatever the particulars of this year’s batch of applications, overall the point is well taken that capacity-building should maintain a key place in Plan objectives and budgeting. Most training programmes have gone well and been well-received, beginning with the training Sakhalin Energy supplied (beyond Plan budget) for Council and Committee members. Similarly, one capacity-building grant from 2013 whose results could only be seen in 2014 also demonstrated the potential of SDF and the Plan in an employment-enhancing direction and the value of co-financing arrangements. A training programme to certify seamen as vessel operators of small craft in Poronaisk District successfully certified the entire class of 10 SIM seamen candidates. This training programme also participated in the TEASP microloan programme while it also demonstrated a very productive collaboration with government, receiving direct subsidies from the SOG Indigenous Peoples department, collaborating with the SOG Education Department, and relying on the Poronaisk District SIM specialist to help recruit the indigenous candidates for its training program. The plan for 2014 was to recruit SIM candidates from other districts, particularly the adjoining district of Nogliki. One training or capacity-building programme which has been previously funded to good results was the “School for Young Leaders.” This year’s “School” application was rejected because it was submitted a day late, but the strategic need for such a programme of youth training is clear. Discussions with Plan observers and participants pointed towards two dimensions of youth training: one in terms of job-application programmes such as technical training in the oil and gas industry. The other direction could be in terms of a conscious programme to foster the skills that a network of Indigenous Peoples Organizations [IPOs] on Sakhalin would need, such as accounting, legal training, and management. These skills could be immediately applied to the burgeoning number of indigenous organizations such as the rodoviye hazyaistva and rodoviye obschiny as well as to other public organizations. The difficulties of preparing and maintaining the Young Leaders School beyond initial efforts should point to the need for a long-term approach to this critical issue to be developed by RCAR.

RECOMMENDATION:

√ RCAR, as the SIM partner in the SIMDP should develop a long-term strategy for how to use the capacity-building component of the SIMDP to help develop a reservoir of needed skills among the SIM population to support SIM capacity for self-management and community development.

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SDF Partner Organisation Kykh-Kykh, the SDF partner for 2013, was held to be delinquent in its reporting, particularly the financial sections. As of June 2014, a partner organization for 2014 had not yet been chosen and this gap was the subject of much debate during and before the GB meeting. The problem stems from the limited universe of potential organizations who can serve as partner-organizations. On all of Sakhalin, the number of indigenous public organizations has fallen from 12 in 2013 to only six in 2014, and of those, only two have accountants, a critical skill needed for the organizational assignment. During discussions to solve this problem, some suggested opening up the selection process to non-indigenous groups (although that would defeat the SIMDP goal of supporting and building the capacity of indigenous organizations), while others suggested considering encouraging non-commercial rodoviye hozyaistva or rodoviye obschiny to apply for the position, although their similar lack of accountants in their organization would make their selection problematic. Still others suggested increasing the administrative fee as an incentive for the reluctant public organizations to come forward while others stressed non-financial recognition such as presenting the partner-organization with an award at a public occasion. An allied disagreement was who should solve this problem. Some argued that RCAR—as the preeminent SIM organization on the island—should naturally lead the search for an IPO suitable to handle the task while others believed that this SIMDP responsibility should remain the responsibility of the SDF and the Plan Coordinator. The June 2014 GB meeting decided the SDF should issue another partner-organization tender in July of 2014.

RECOMMENDATION:

√ The SDF should revise its yearly Concept to spell out the mutual responsibilities of an SDF partner organization to the SIMDP.

SDF Experts Group The SDF Experts Group, composed of five SOG members representing different departments and one representative each of the RCAR and Sakhalin Energy, reviewed

34

applications for the Link of Times Contest, health programmes, and capacity-building programmes. Nearly all of their recommendations were followed by the SDF Council. Although one or two members of the Experts Group felt that the SDF Council did not fully pay attention to their recommendations (noting that they had not followed every EG recommendation and that the SDF did not insist that applicants improve their proposals by following EG guidance), Council members expressed appreciation for the support and guidance the SDF gave them (particularly newer members of the Council), often referring to EG recommendations during their deliberations. Some though indicated that sometimes they were not completely sure of the reasoning behind the Experts Group’s recommendations and that this undermined the utility of the EG’s efforts. Some who were not working directly with the SDF Council, though, questioned whether the composition of the Experts Group was balanced as it gives the SOG predominant influence over the recommendations (5 of 7 votes). This would not normally be a problem, but in the case when the SOG itself had put forth applications should this be considered a conflict of interest? Some Council members, for their part, felt that they appreciated the inputs of the SOG representatives immensely and did not feel the alignment should be changed. The question of conflict of interest for the Experts Group, though, is applicable to all Plan partners who might submit an application to the SDF.

RECOMMENDATIONS:

√ The SDF should consider inviting one member of the Experts Group to join the SDF meeting when they decide on applications. They could do so as an observer with the right of voice but not vote to respond to any questions which arose regarding the Group’s recommendations. An alternative approach would be to have the SDF Chair attend the meeting of the EG experts similarly as an observer. √ The SDF should consider whether or not a conflict of interest exists when the EG needs to review an application from a Plan partner. √ The SDF should consider including in its 2015 Concept Paper the requirement that applicants need to follow EG recommendations to improve their proposal prior to final SDF approval (similarly to the recent TEASP Committee innovation).

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V. Planning

A. Action Items

The items included in the Appendix are suggestions by the EM to enable the Plan to better adhere to its objectives and to improve its implementation effectiveness. Action Items are addressed to each of the below governance bodies or Plan partners:

Governing Board Executive Committee TEASP Committee

SDF Council RCAR SOG Sakhalin Energy Plan Coordinator

RECOMMENDATION:

√ Action Items should be reviewed by each of the indicated groups, discussed, and responded to in writing copying the Plan Coordinator, the Chair of the Governing Board and the External Monitor.

B. SIMDP Completion Evaluation

2015 will be the final year of SIMDP 2 implementation. According to section 4.5.4 of the Plan, a Plan Completion Evaluation (PCE) will be conducted by a representative of the SIM, a social science professional, and the EM. This team will prepare a Plan Completion Evaluation Report mid-way through the fifth year (2015) of SIMPD 2. This Report will also be used for planning the SIMDP 3. To carry out the PCE the Plan will need to provide the PCE team with targeted information for their analysis.

RECOMMENDATIONS:

√ All three partners should prepare to select the social

36

science professional and the RCAR to select the indigenous representative of the PCE team by February 2015. √ The Coordinator should begin planning to compile documents demonstrating SIMDP 2 performance for the PCE, including a document showing the cumulative distribution of all grants between 2011 and 2014 (and 2015, when available) by district, by component, and by recipient (following legal confidentiality regulations, as applicable).

C. SIMDP 3 Preparation

The SIMDP 2 mandates that upon the conclusion of that Second Plan in 2015, the Third SIMDP should begin in 2016 and carry forward through 2020. The content and governance structure of the SIMDP 3 will be determined in consultation with Plan partners and based on the results of Plan evaluations and the reports of the EM. Planning for the SIMDP 3 should begin in earnest during Quarter 1 of 2015.

Some initial suggestions received for organizing this work:

Organize two rounds of community consultations, one early in 2015 to receive suggestions for Plan 3 governance and content and one later in the year to confirm the Plan 3 draft (and revise the draft based on community input)

Decide on whether an FPIC approach will be pursued Each partner should independently develop proposals for governance and

other aspects of SIMDP 3 (or as one June 2014 GB member put it, “let’s not just wait for Gregory’s ideas, let’s come up with our own!”). The EM heartily endorses this sentiment.

RECOMMENDATION:

√ All three partners should prepare to select their representatives to a Working Group to prepare the SIMDP 3 draft as well as determine the process required to produce such a draft.

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√ The structure and terms of reference of that Working Group should be decided upon by the GB during their December 2014 meeting. The EC should oversee preparation of a draft Working Group ToR.

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Appendix: Recommendations Arranged into Action Items for Responsible Parties

Note:

These matrices capture all recommendations applicable to each body from throughout this External Monitor Report

Each party is responsible for responding to its Action Items Matrix and for designating the other responsible parties

Check recommendation in main body of Report for full text of recommendation

Governing Board Action Items Matrix (As of [Date]) Recommendation Response Status

√ The EC and the GB need to

develop clear regulations to protect the rights of grant

applicants to a fair

consideration of their proposals and not permit them to be

penalized for the failures or questionable status of their

partner-organizations. Similarly,

rules for the possible transfer of grants post-approval from one

partner-organization should be specified.

√ The Governing Board should consider continuing training for

the members of the SDF Council and TEASP Committee.

√ The EC and the GB should consider ways to bolster the

capacity of the SDF Council and the TEASP Committee to carry

out their own secretarial

functions, thus reducing the burden on the Plan Coordinator.

√ The EC and the GB should

consider clarifying the interpretation of SIMDP 2

section 4.4.2 to remove any doubt as to when and under

what circumstances SDF Council and TEASP Committee decisions

can be overturned by the EC.

√ The EC and GB should

39

consider whether or not

returned principal and interest from paid-off loans should come

under the control of the TEASP

Committee to decide on their reallocation, stay under the

jurisdiction of the BF, or be subject to another procedure.

√ Action Items should be

reviewed by each of the indicated groups, discussed, and

responded to in writing copying the Plan Coordinator, the Chair

of the Governing Board and the

External Monitor.

√ The structure and terms of

reference of that Working Group should be decided upon by the

GB during their December 2014

meeting. The EC should oversee preparation of a draft Working

Group ToR.

Executive Committee Action Items Matrix (As of [Date]) Recommendation Response Status

√ The EC and the GB need to develop clear regulations to

protect the rights of grant applicants to a fair

consideration of their proposals and not permit them to be

penalized for the failures or

questionable status of their partner-organizations. Similarly,

rules for the possible transfer of grants post-approval from one

partner-organization should be

specified.

√ The TEASP Committee and

the EC should include in the TEASP 2015 Concept Paper a

clarification of mutual

obligations of an applicant and the partner-organization.

√ The EC should consider

formulating a procedure whereby the Plan can confirm that all grant

applications (or approved grants) were filed by the individual named

in the application.

√ The EC need to develop

40

guidelines for the Coordinator

and Plan staff so that they are perceived as strictly following

governance body dictates and

performing their duties in a neutral manner. This can be

accomplished by citing Governance Body regulations or

decisions, as necessary.

√ The EC and the GB should

consider ways to bolster the capacity of the SDF Council and

the TEASP Committee to carry out

their own secretarial functions, thus reducing the burden on the

Plan Coordinator.

√ The EC and the GB should

consider clarifying the

interpretation of SIMDP 2 section 4.4.2 to remove any doubt as to

when and under what circumstances SDF Council and

TEASP Committee decisions can

be overturned by the EC.

√ The Executive Committee

should discuss with the Coordinator her suggestions to

ensure that in both word and

actions the Coordinator makes clear that she does not represent

the Company alone but the SIMDP and the three SIMDP

partners.

√ The EC should consider proposing to the GB:

• the inclusion of “employment relationship” or

membership in the same organization” along with “close

kinship tie” in a definition of “vested interest” in grant/loan

application decision-making in

Section 7 of the “Regulation of Coordinating Bodies within the

Management Framework of the SIMDP 2 for 2011-2015.”

• a Terms of Reference be developed for SDF Council and

TEASP Committee members which would include such an amended

41

definition of “conflict of interest.”

• at the beginning of the

grant decision-making meeting of

both the Council and Committee that all members be required to

make a formal “transparency statement” of any conflicts of

interest

• new Council and Committee

members be required to sign a statement of agreement with such

conflict of interest provisions of their ToR.

• During general discussion and voting on an application for

which a member has declared a conflict of interest, they should

leave the room (although they may be permitted to respond to

direct questions the body may

have regarding their proposal).

√ The EC and GB should consider

whether or not returned principal

and interest from paid-off loans should come under the control of

the TEASP Committee to decide on their reallocation, stay under

the jurisdiction of the BF, or be subject to another procedure.

√ Action Items should be

reviewed by each of the indicated groups, discussed, and responded

to in writing copying the Plan

Coordinator, the Chair of the Governing Board and the External

Monitor.

√ The structure and terms of reference of that Working Group

should be decided upon by the GB during their December 2014

meeting. The EC should oversee preparation of a draft Working

Group ToR.

TEASP Action Items Matrix (As of [Date]) Recommendation Response Status

√ The TEASP Committee and

42

the EC should include in the

TEASP 2015 Concept Paper a clarification of mutual

obligations of an applicant and

the partner-organization.

√ Both the SDF Council and the

TEASP Committee should consider requiring all of their

members to hold timely public

meetings prior to grant application deadlines and timely

public meetings to report on the result of approval decisions by

the Council/Committee after

they are made.

√ Given the high demand and

limited funds for the Business Plan component, the TEASP

Committee should consider

establishing SIM employment enhancement as one additional

criterion for providing Business Plans or microloans.

√ Recognizing that it’s quite

difficult for entrepreneurs with only a primary school education

to prepare a competitive Business Plan, TEASP should

continue to support capacity-

building training initiatives for would-be BP applicants.

√ The TEASP Committee and

Coordinator should reinforce the message among grant

recipients that there is a five-year waiting period before they

can reapply for a grant.

√ The TEASP Committee should also consider a mechanism to

restrict applications to one per family per year.

√ The TEASP should review the

microloan application forms to ensure that the proper level of

attention to loanworthiness is

paid, while realizing that some adjustments might be

appropriate for a microloan programme serving SIM.

√ External and internal Plan

monitors (and any other Plan auditors) should receive a list of

active and closed microloans

43

prior to their commencing their

work.

√ Action Items should be reviewed by each of the

indicated groups, discussed, and responded to in writing

copying the Plan Coordinator, the Chair of the Governing

Board and the External Monitor.

SDF Action Items Matrix (As of [Date]) Recommendation Response Status

√ The SDF Council should make training a key priority and

conceive of viable long-term training projects

√ Capacity-building programs to

assist rodoviye hozyaistva / rodoviye obschiny in report-writing and accounting should be

a priority of the SDF in setting its capacity-building priorities for

2015

√ Both the SDF Council and the

TEASP Committee should

consider requiring all of their members to hold timely public

meetings prior to grant application deadlines and timely

public meetings to report on the

result of approval decisions by the Council/Committee after

they are made.

√ The SDF should revise its

yearly Concept to spell out the

mutual responsibilities of an SDF partner organization to the

SIMDP.

√ The SDF should consider inviting one member of the

Experts Group to join the SDF meeting when they decide on

applications. They would do so

as an observer with the right of voice but not vote to respond to

any questions which arose regarding the Group’s

recommendations. An alternative approach would be

to have the SDF Chair attend

the meeting of the EG experts

44

similarly as an observer.

√ The SDF should consider

whether or not a conflict of interest exists when the EG

needs to review an application from a Plan partner.

√ The SDF should consider

including in its 2015 Concept Paper the requirement that

applicants need to follow EG recommendations to improve

their proposal prior to final SDF

approval (similarly to the recent TEASP Committee innovation).

√ Action Items should be reviewed by each of the

indicated groups, discussed,

and responded to in writing copying the Plan Coordinator,

the Chair of the Governing Board and the External Monitor.

RCAR Action Items Matrix (As of [Date]) Recommendation Response Status

√ RCAR, as the SIM partner in the

SIMDP, should develop a long-term strategy for how to use the

capacity-building component of the SIMDP to help develop a

reservoir of needed skills among

the SIM population to support SIM capacity for self-management

and community development.

√ Action Items should be

reviewed by each of the indicated groups, discussed, and responded

to in writing copying the Plan Coordinator, the Chair of the

Governing Board and the External

Monitor.

√ All three partners should

prepare to select the social

science professional and the RCAR to select the indigenous

representative of the PCE team by February 2015.

√ All three partners should

prepare to select their representatives to a Working

Group to prepare the SIMDP 3