drc
Image courtesy www.123rf.com

The Extractives Industries Transparency Initiative (EITI) has made headway in ensuring improved transparency in the DRC since the country first joined the EITI over a decade ago in 2007.

CHANTELLE KOTZE spoke to EITI Africa director BADY BALDÉ and DRC country manager INDRA THÉVOZ about the country’s progress towards improved transparency.

At the height of the commodity boom before the 2008 financial crisis, the mining sector, which used to be the backbone of the DRC’s economy, was in a dire state.

This article first appeared in Mining Review Africa Issue 8, 2019
Read the full digimag here or subscribe to receive a print copy here

Decades of conflict, political instability, corruption, looting and mineral smuggling had decimated the mining sector and had left the government with large liabilities for its state-owned enterprises that had become practically insolvent.

This is despite the extractives sector’s significant contribution to the Congolese economy – accounting for at least one fifth of government revenue and almost 98% of exports.

In this context, the government of the DRC committed to implementing the EITI as a means to attract foreign direct investment and through this investment revive its mining sector and ensure that revenues going forward are well managed for the benefit of all citizens.

Read more about mining in central Africa

To date, the DRC has published nine EITI Reports for the financial years 2007 to 2016. It achieved compliance under the 2011 EITI Rules and the EITI 2013 Standard.

The country began its latest Validation process under the broader 2016 EITI Standard on 1 October 2018 – a process which is still under way.

“Because the extractives sector has been prone to allegations of mismanagement and corruption, the importance of implementing the EITI and further improving transparency in the country is of utmost importance,” says Thévoz.

EITI successes in the DRC

The idea behind implementing the EITI in the DRC is to encourage debate and discussion between stakeholders that do not traditionally speak to each other. One of the successes so far has been the discussion facilitated through the EITI’s forum and platform, says Thévoz.

“As a result of the discussions, we have seen significant progress around disclosing the terms of infrastructure agreements with Chinese companies as well as how revenues from the mining sector can contribute to the development of infrastructure,” she says.

“There has also been a lot of progress around contract disclosure, which is now mandated by law in the DRC,” Thévoz notes.

EITI stakeholders have added value to this transparency process by identifying which contracts have not been disclosed as yet, as well as reviewing joint venture contracts involving state owned enterprises and foreign companies, with the aim of understanding how the DRC is benefitting from these agreements.

The EITI has also made significant headway in understanding how state-owned enterprises are collecting revenues, how these revenues are being transferred to treasury and how the revenues are being managed.

“In recent years there has been a breakthrough in how these companies have been disclosing information through the EITI and how they can better report on the revenues they have been collecting from their joint venture partnerships,” Thévoz explains.

The latest report published by the EITI in December 2018 (2016 DRC EITI Report) provides a more comprehensive report on the role state-owned enterprises play in managing the mining sector, their mandate, and how they operate, Baldé adds.

“While the report shows weaknesses in state-owned enterprise transparency, accountability and financial reporting – the report is clearly an attempt at providing a comprehensive picture and is a good first step towards state-owned enterprise transparency,” Balde notes.

He adds that the 2016 EITI Report showed that while 67% of total revenues generated by the sector were transferred to the Treasury, the remaining 33% were withheld by state-owned enterprises and tax-collecting agencies. 

Moreover, the DRC EITI stakeholders were instrumental in including provisions related to transparency in the revised Mining Code, published in March 2018.

Read more about the revised Mining Code

The new Mining Code includes several provisions related to the traceability of revenues and transparency of the sector.

It introduced high fines for companies that do not respect these provisions, with routine disclosures through improvements in government systems, especially in the mining sector, says Baldé.

By way of example, the Ministry of Mines’ website provides links to over 140 contracts, as well as detailed production and export data for 2011-2018, while the Ministry of Finance publishes quarterly reports monthly revenues collected by the government from the exploitation of natural resources.  

Challenges remain

According to Baldé, despite the significant progress made towards improved transparency in the DRC, the country is still dealing with several legacy issues of a fragmented extractives sector with no clarity on who should regulate what.

With nine state-owned enterprises managing different commodities in different regions of a very big country – which adds layers of complexity in regulating the country’s fiscal regime.

Mitigating the risk of corruption when revenues are paid to treasury and ensuring that the revenue goes to the treasury remains a big challenge in the DRC, with a constant battle against rent-seeking by the agents collecting the tax revenue.

Thévoz says there is a need to improve the quality of data disclosed by government institutions and companies.

“Improvement in the state’s auditing capacity to ensure that data is comprehensive and reliable is of the utmost importance yet remains a challenge, especially now while transitioning to systematic disclosures, where it is expected that information is published at the source by government entities and companies,” she explains.

“Without this comprehensive picture of the sector as of today, it will be very difficult to develop reforms for tomorrow,” says Thévoz.

Aiming for accountability

Moving from transparency to accountability in the DRC remains a huge problem, says Baldé, who encourages civil society to play an even larger role in advocacy regarding this.This will, however, require additional capacity within these organisations for their advocacy campaigns.

There is room for improvement in holding to account political players in the DRC, who from time to time oppose recommendations, or prefer to focus on holding mining industry actors accountable, despite conflicts of interest.

Transparency, and the subsequent move to accountability, is integral in making meaningful changes in the way the sector is managed. According to Baldé, fighting corruption must become a priority in order to ensure the sector is better managed and benefits all citizens.

Evolution of the EITI Standard

Since its inception, the EITI Standard has evolved to meet the needs of stakeholders and to further the realisation of the EITI Principles and has therefore continually been refined throughout the years.

While the EITI Standard has traditionally required the disclosure of financial data and information along the extractive industry value chain, from how extraction rights are awarded, to how revenues make their way through the government and how they benefit the public; the Standard has since evolved.

It now includes a wide array of new reporting requirements regarding laws, contracts, license allocation, state participation, beneficial ownership, exploration and production and exports data, and commodity trading transparency.

The most recent refinement to the EITI Standard took place this year and was launched at the 8th EITI Global Conference in Paris in June.

The 2019 EITI Standard, which represents a further evolution in transparency and contains new requirements on contract transparency (contract transparency will be mandatory from 2021 onwards); state participation and commodity trading (strengthening the disclosure requirements regarding state participation, transactions related to state-owned enterprises and quasi-fiscal expenditures); as well as new requirements on environmental reporting (companies’ environmental payments to governments and environmental monitoring information) and gender (taking gender considerations and inclusiveness by EITI members into account), says Baldé.

But perhaps the biggest change in the 2019 Standard is the focus on governments and companies disclosing data through their own systems, rather than EITI reports, hopefully giving civil society more time for analysis and advocacy.