ACHIEVEMENTS AND CHALLENGES OF EXTRACTIVE INDUSTRY TRANSPARENCY INITIATIVE IN ALBANIA

ACHIEVEMENTS AND CHALLENGES OF EXTRACTIVE INDUSTRY TRANSPARENCY INITIATIVE IN ALBANIA

February 15, 2019
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Prof.Dr. Perparim Alikaj

Member of MSG, ALBEITI

Chairman of the Mining, Oil and Gas Committee of the Foreign Investors Association of Albania (FIAA)

 

Transparency is the showcase by which a society allows appreciation of one of the fundamental human rights and freedoms, as it is the right to be informed. As such, it has been constantly in the focus of public opinion request to become familiar with the creation and distribution of material goods at national level.

The extraction industry of a country’s natural resources (oil & gas, minerals, water, etc.) while this country is blessed (or cursed?) by nature with these assets, is constantly in the focus of public attention and pressure, regarding the income and the manner of their allocation. In many underdeveloped countries, such natural resources are a curse to them, because they are the cause of internal or international wars, associated with unimaginable crimes and massacres of the innocent population, as well as the distribution of these assets under the law of force and fraud.

The “Extractive Industry Transparency Initiative” (briefly EITI in English) was first proposed in September 2002 by Tony Blair, Prime Minister of the United Kingdom at that time, during the World Sustainable Development Summit in Johannesburg, after years of academic debates, as well as lobbying of civil society and business companies on the management of state revenues from extractive industries. The official establishment of the EITI took place on June 17th, 2003 in London, through 140 delegates, representatives of governments, business associations and civil society, who agreed to establish a high level of transparency, based on some basic principles, transparency on payments and revenues in the sectors of extractive industries.

EITI is organized as a non-profit platform under the Norwegian state law. It has three institutional components: the Members’ Meeting, the EITI Board and the EITI International Secretariat with headquarters in Oslo, Norway. The EITI Leadership Group conducts EITI Global Conferences, which are held every two to three years.

Each country with extractive industry sectors can join EITI by applying certain set of transparency standards. Currently, there are 52 global-scale countries implementing these standards, including member states of the Organization for Economic Co-operation and Development (OECD) such as Norway, the United Kingdom and the United States, as well as countries from Africa, East Asia, Europe and Latin America. Each of these countries is required to publish an annual EITI report to provide information on: Contracts and Licenses, Production, Revenue, Distribution of Income and Social and Economic Expenditures.

Each EITI member country is subject to a quality assurance mechanism called “Validation” (assessment), at least once every three years. Validation serves to assess the level of performance of the EITI Standards and to promote relevant dialogue and knowledge at the country level. It also maintains the integrity of EITI by keeping all EITI implementing countries at the same global standard.

The Albanian government supported the EITI initiative and was seriously engaged in its implementation in March 2009 and in May of that same year, Albania became an EITI candidate country (ALBEITI). With the decision of the Council of Ministers in July 2010, the Secretariat of ALBEITI was established, while with a decree of the Prime Minister in July 2011 was established the Inter-Institutional Group (MSG) with participation from civil society, operating companies of extractive industries in Albania and representatives by the Government. The Chairman of this Group is the Deputy Minister of the Ministry covering the extractive industry.

The EITI’s International Board declared Albania as a country compatible with EITI Standards in May 2013. This means that, the country has an effective process for annual declarations and reconciliation of all incomes from members of the EITI extractive industries. This process offers citizens the opportunity to see incomes from oil and gas companies, mining and hydropower sectors.

Through the serious engagement and dedication of the Secretariat and members of MSG, Albania has published to date, in time and quality, the annual reports on the fulfillment of the EITI Standards, as of the first report in April 2011 for the financial year 2009, to the latest report published in February 2018 for the financial year 2016. The recent reports prepared by “Deloitte Audit Albania” have also made the first steps on the voluntary inclusion of the Declarations on “Beneficial Owners” and “Commodity Trading “.

In August 2011, Albania successfully passed its first International Validation Report, subject to the status of EITI member country, while in September 2017 was completed the second Validation Report, completed by the company “Adam Smith”, Independent International Validators, which stated that Albania has made significant progress in implementing the EITI Standards. The report states that in 55% of chapters, Albania has a very satisfying performance (including Government engagement, Business Engagement, Legal Framework, Contribution to Economy, Public Debate, etc.); in about 45% of the chapters there are significant progress (MSG management, Civil Society Engagement) and only 5% are evaluated as without progress.

Albania is a country with the tradition of exploring and exploiting useful minerals such as oil & gas, chrome, copper, iron-nickel, coal, bauxite, bituminous gravel, quartzite, titanomagnetite, phosphorite, marine and river placers, gypsum, decorative stones, industrial materials, etc.

The hydrocarbon, mineral and hydropower industries have been consistently contributing to the national income and development of the country. With national policies, the Albanian Government has aimed at developing these industries through investments from the private sector, mainly foreign, but also domestic, for their own high economic risk they carry and the considerable amount of financial resources they need. To this end, the Government and Parliament of Albania have drafted and approved the relevant legislation of these industrial sectors and have upgraded it in accordance with the requirements of the time. The government is also aware of the importance of the fair management, transparency and accountability of these sectors and fully supports the recommendations of EITI reports, as an effective way for sustainable economic development.

However, I think that ALB-EITI can raise its recommendations to the Albanian Government at a higher level, for a number of problems that have been encountered in different directions of the emerging activity in Albania. Below are listed some of these problems/issues that require fast solutions:

1.      The issue of distribution of Mineral Rent revenues to the communes and municipalities, in the territory where the activities of extractive industries are being developed. This is a problem that has not yet found its final solution, since in practice there are various difficulties in the distribution and control of these incomes. Not only CSOs, but also ALBEITI’s MSG Businesses have repeatedly raised this problem, but no definitive and definite solution has been found yet. The delay in finding this final solution is not a major concern only to the public of the extractive activity areas, but also to the investors operating in these areas. By not seeing the benefits of the mining rent of the extractive industries, this public in general will not be in favor of extractive activities in its area. Consequently, the climate of conflicts between investors and residents of the extractive activity areas will be increasingly aggravated and will also create difficulties for foreign direct investment in Albania. Without the final solution to the issue of mining rent, the extractive companies will always be left with a lesser argument in the ongoing debate between them and the local population or environmentalists.

2.      The issue/problem of seriously consideration of the opinion of interest groups (business and civil society) by the Government, in particular by the Ministry of Finance and Economy (MFE), to make necessary changes to the Legislation and the decisions that regulate the activity of extractive industries. As a first example, we can take the proposals by ALBEITI on Amendments to Mining Law no. 10304, date 15.072010 and accompanying DCMs. There have been several discussions at the MSG meetings on these changes, but they are not yet finalized by MFE. The changes are related to mandatory per square kilometer costs and a high bank guarantee of investment (75% of the investment) during the prospecting and exploration period.

It is accepted that the necessary amendments to these issues will make Albania more attractive and competitive in approaching foreign investors in the Mining industry, but they have not yet been done. The fact that the Mining industry does not only include the process of minerals exploitation, but also their prospecting and exploration, without which the exploitation itself has numbered years, must be well understood. The present concept that Albania has studied and discovered all useful minerals, is as naive and harmful to the Mining industry. As a second example, we can take frequent and economically unadulterated changes to Mining Rent, as it was now the case for chromium and bituminous gravel. Even on this issue, the MFE should better understand the business arguments before making the relevant decisions, which may have undesirable consequences.

3.      Broad public awareness on the concepts and implementation of EITI Standards in Albania is a very important challenge for ALBEITI. Besides the work accomplished by the Secretariat and MSG members of ALBEITI for this purpose, it would be of interest to formalize the inclusion of these standards on higher education in some faculties, such as the Faculty of Geology and Mining of the Polytechnic University of Tirana, Faculty of Law and Economics of the University of Tirana, and in analogous faculties of private universities.

For this purpose, following a very positive process initiated by the National Secretariat EITI, a materialized coordination between ALBEITI and these Universities would be needed to definitively institutionalize this demand and to realize it in interest of knowledge, information and academic debate.

Tirana, 04/02/2019