The Extractive Industries Value Chain A Framework for Managing non-renewable resource Does local / sub-national priorities really matter? Eleodoro Mayorga Alba EI week, 3-5 March, 2009
Background Extractive industries (EI) should contribute to sustainable development and effective poverty reduction. This presentation describes a Framework to achieve this coordinated approach by (i) defining critical issues and (ii) outlining good international practices at each step of the EI value chain to protect the interest of the local and sub-national communities.
Basic Principles To contribute to sustainable development, the development of EI should be guided by sound governance and transparency principles - from the awarding of contracts and licenses, through the oil fields operations, until the collection and final use of generated rents. Governments political determination to implement governance and transparency principles is key. Resource rich countries should have a long-term development strategy, a sound macro-fiscal framework and adequate public finance management practices to avoid the resource curse. In all EI project from design to decommissioning due attention should be paid to the mitigation of environmental and social impacts. This is particular critical to protect the rights and interests of local communities.
An effective management of EIs calls for sound governance and transparency principles throughout the value chain
Local communities should be informed by the government prior to contract award of the EI project potential environmental impacts and expected economic benefits.
Representatives of local communities should be offered the opportunity to monitor environmental and economic impacts and should be training accordingly
In addition to an EITI national process, where appropriate, a subnational EITI component should be encouraged to ensure transparency in rent transfers through local tripartite framework
4Revenue Distribution and Management EI revenues should be administered in the context of an overarching macro-fiscal framework that recognizes their price volatility and cyclical nature; and, over time, the exhaustibility of the resources. Consistent links should be established to annual budgets and the medium-term macro-fiscal framework, based on realistic and transparent prices and volumes assumptions. Transparent decisions should be made based on: (1) how much revenue is used for current spending priorities or debt reduction and how much is set aside for stabilization, expenditure smoothing, or saving for future generations; and (2) how to design revenue saving mechanisms including institutional arrangements to foster their transparency and sound governance. Revenue sharing between the central government and the sub-national governments is generally established in the country s constitution and/or bylaws. This measures needs to be supported by complementary public finance reforms and institutional capacity building efforts.
Tri-partite partnerships have proved to be an effective mechanism to protect fragile environments and execute sustainable projects to the benefit of local communities
Cross-Cutting Issues Throughout the value chain it is essential to have: A transparent and competitive legal, fiscal regulatory and contractual regime Capacity in the states oil and mining, and economy and financial sectors commensurate to the tasks A state oil or mining company that systematically add value Social and environmental policies geared to facilitate a sustainable development process A solid commitment, from inception to project closure and beyond, to understand the interests of the local communities and to work with them towards the improvement of their life conditions.