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Assignment based on Global Politics of Energy and Environmental Change
Environmental Economics
Transparency in the oil industry
Solution
Introduction
There has been a great recognition from the last decade of the significance of transparency. It is required for the economic growth and the social development, especially for oil-producing organizations. The continuous enhancement in the prices of the international oil over the last two years, bring large benefits for different oil manufacturing countries. This also demands a greater range of accountability and transparency from the broad range of stakeholders (Van Alstine, 2014). In this paper, we will study about the transparency level in the oil industry by studying the role of extractive industry transparency initiative. This will help us in measuring the impact of EITI on the transparency of oil industry in different countries. The Extractive industry transparency initiative is work as a standard for bringing transparency in oil industries of different countries. More than 50 countries work under the standards formulated by the EITI for managing their oil industries. It provides international support in both consumer countries and oil-producing countries (Obeng-Odoom, 2014). Its purpose is to enhance the level of voluntary cooperation between civil society, private oil organizations, and governments to increase transparency in the mining and oil sectors. In this paper, we analyze the level of transparency in Azerbaijan and Liberia oil sector. It represents that while various efforts have already been taken to strengthen the level of transparency, sustained and continued action is required to identify the remaining gaps in these areas. Transparency is an essential task for the success of an organization. Transparency is required to enhance accountability and to improve the use of oil revenue or also strengthen the fiscal policies to meet the different development priorities of the countries. Bringing transparency proves helpful in development and poverty reduction in a country. Thus, it can be said that transparency is considered an important function in a particular industry. Economic development and growth of a country mainly depend on the transparency level of its existing companies. In the same manner, EITI also plays an important role in bringing success and growth in the oil industry. The prevalence of corruption and poor transparency in public management is not limited to oil-producing countries, but oil-rich economies appear to be in this respect particularly vulnerable (Mahdavi, 2014). Efforts are made to enhance the transparency level in the oil industry can, therefore, be instrumental in changing the complete perceptions about governance in the different countries. Therefore, it is the responsibility of the government of the countries to pay more attention towards the exhaustible nature of oil.
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Extractive Industry Transparency Initiative and the Resource Curse
Extractive industry transparency initiative is considered as a global standard to promote the accountable and open management of extractive resources. It mainly focuses on addressing the main issues in the mining, oil and gas sectors (Azerbaijan Validation, 2016). On the other hand, resource curse is considered as a paradoxical situation in which countries with non-renewable resources experience large growth or even economic contraction. It can be said that resource curse in a country occurs when they focus their energies on a single industry such as mining and ignores the other available major sectors. The EITI is considered as a multi-stakeholder initiative which involves different state-owned and multinational extractive organizations, home governments, international financial institutions, civil society groups and investors, host governments, and industry or business associations, which have formulated different means or ways of revenue transparency (VALIDATION REPORT, 2015). It mainly concentrates on the prudent utilization of natural resources wealth and concludes that the management of such wealth should be exercised in the national development interests. It can be said that the EITI mainly operates on the principle of independent, full, active and free measurement of the ways that extractive organizations interact with government and influence society and communities. During 2015, the 49 countries were reported to be in the process of implementing the EITI (https://eiti.org/implementing_country/35#extractive-industries-contribution). Among these countries, 33 are considered EITI compliant. Rest countries were known as the candidates of the EITI. Due to the resource curse, a particular nation becomes completely dependent on the gross domestic product or prices of different commodities. Mainly corruption in a particular country occurs when the framework of income distribution and resource rights are not established in the society. This will bring unfair practices and regulations in a particular industry.
The main proposal of the EITI is to publish revenue data to hold governments accountable. This will motivate it to establish good practices to regulate the environment of different oil industries in a significant manner (AZERBAIJAN EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE 2014). EITI adopt efficient standards which state that wealth from a country's natural resources should provide benefits to every citizen. Due to this reason, all standards are developed by the EITI with more efficiency because it requires high standards of accountability and transparency. Generally, the idea of EITI was initiated during 2002, but it was officially established in 2003. It was established during the high-level meeting of different representatives, industries, society groups and governments in the United Kingdom. This meeting was mainly occurring on the formulation of different principles of EITI which will guide an oil and gas industry in performing their day to day functions. It is mainly considered non-profit organizations.
There are different drivers for compliance which helpful in bringing transparency in the oil and gas industry. One of them is the regular publications of all necessary material of gas, oil and mining payments by different organizations to governments and all types of revenue are received by the governments from these organizations. It is the responsibility of the EITI to disseminate that publication to a large number of potential audience and public. Second, when the wide publications and such reporting is insufficient, revenues and payments are made to be a credible or independent audit of reputable international standards. Another one is the international recognition which enables EITI to bring such standards which prove its efficiency (VALIDATION REPORT, 2015). There are different countries which want to be the part of the EITI. Due to the international recognition, it needs to focus more on the efficiency of its standards because they play an important role in the success of oil and gas industry of a particular country. The fourth driver for compliance is investment attraction. Its efficiency enables it to be the investment attraction of different countries. Most of the countries want to invest in it so that they can take its membership, but only some countries are able to do so. Due to high investment attraction capability, it is considered the very popular standard for success of oil and growth industry. This success enhances the GDP of a particular country. Another important driver is business environment improvement. Standards of the EITI brings transparency in different functional activities of a particular country which ultimately leads improvement in the business environment of different oil and gas organizations. Improvement in the business environment brings various growth opportunity to get success in future (https://eiti.org/sites/default/files/documents/2014_azerbaijan_eiti_report.pdf ).
There are approximate 51 implementing countries which try to become the member of the EITI. It operates in fulfilment of its various objectives. The prime objective of the EITI is to grow the demand-side of the social accountability by offering the public insight into revenues. All these revenues are mainly generated from the exploitation of different mineral resources of different countries. Another objective of the organization is to build a platform for the public debate by focusing on the spending efficiency of extractive sector revenues. This can also be done by measuring weaknesses and gap in resource revenue management. To maintain the efficiency of the platform EITI provide various recommendations to stop any type of revenue leakage (Sovacool, 2015). It also focusing on enhancing the efficiency in communication level of GHEITI and also ensure that all information on mineral expenditure and revenue are provided on a timely basis and in comprehensible and accessible format. All these objectives enforce it to come up with latest and efficient standards with which it can accomplish its overall objectives and ensuring long-term growth of different oil industries. It is continuously progressing day by day and enforcing oil industry to gain long-term success in their countries. It established different types of associations in different countries such as international development association, an organization for economic cooperation and development, and international bank for reconstruction and development. All these acts work as a positive sign in growth and development of different countries (García?Rodríguez, 2013). EITI proves helpful in uncovering the financial irregularities and also provide a roadmap for different reforms of the mining, gas, and oil industry sector. It also establishes the different stages for wider sector reforms like institutional reforms and financial management reforms. The active participation of the civil society organization also considered as important criteria and a condition for the success of the standards enforced by the EITI to bring transparency in different functions of the oil and gas industry sector. Thus, it can be said that resource curse and extractive industry transparency initiative play an important role in bringing transparency in oil and gas industry of different countries.
EITI in Azerbaijan
Azerbaijan is considered as the oldest oil producing nation of the world with natural gas reserves of 1300 billion cubic meters or crude oil reserves of 7 billion barrels (Papyrakis, 2016). The gross domestic product of the Azerbaijan is growing recent years, driven by growth in gas and oil production through the current global price decline of oil influenced the overall economy of the nation. The timeline of the Azerbaijan can understand with the help of below mentioned figure:
The key projects of the Azerbaijan are the country's largest oil field Azeri-Chirag-Guneshli, Baku-Tbilshi-Ceyhan oil pipeline to turkey, and the largest field of the natural gas Shah Deniz contributes efficiently to the different profits of the government. Extractive industry plays an efficient role in the growth of GDP of the country. The presence of EITI will lead 34.6% growth in its GDP and also create 41,500 jobs opportunities to their citizens (B. K., 2016). Azerbaijan joined the membership of EITI in 2003 and volunteered it wants to become a pilot country in the implementation of the initiative. It is regularly managing a process of reconciling, disclosing, and publishing payments of extractive sector organizations to the government and government receipts from those organizations. The first EITI report of the Azerbaijan was published during 2005. In 2014, the EITI reported mainly focusing on implementation of the different initiative so that report can be published as per the determined standards of EITI. Reconciliation is a process led by the EITI initiatives. It brings recommendable growth in the economy of the country.
From the above-mentioned table, the significant difference between the oil and gas industries can understand in an effective manner. Furthermore, it also contributed largely towards the development of human.
The coalition for improving the level of transparency in extractive industries was established in 2004 and Azerbaijan play an important role in the adoption of UN General Assembly resolution on EITI in 2008 (Corrigan, 2014). EITI of Azerbaijan establish its objective every year in its annual work plan. Its main focus has been on the disclosure and preparation of the annual EITI report. In addition, it also focuses more on bringing awareness regarding EITI and exchange experiences with other countries. Azerbaijan is producing good outcomes with the combination of the EITI initiatives.
The presence of EITI influences the development and governance of the country in a significant manner. Availability of EITI helps the government of the country in collecting the necessary information required for publication of payments from IOCs (Hawker, 2014). This will bring positive outcomes for its success. It also enables the country in developing more government accountability. This will reduce the transparency level of the expenditures which will significantly influence its performance. It is necessary for a country to monitor its political accountability which helpful in reducing the significant influence of different unforeseen factors. On the other hand, social engagement of the country also created with the help of EITI. Generally, it is said that presence of socio-political mischief works as a hurdle in building the social engagement by implementing EITI (Hystad, 2014). It portrayed as an attempt to represent the status quo and win the win the regime of an external respectability. On the home page of the EITI, its president gives a statement that says "transparency will become one the important ground for their success. All this brings efficiency in the management of different future revenues of gas and oil and permits every citizen of the country to feel it in her or his daily life. All this seems unclear because the country will not be able to reap the combined social, political and economic beliefs regarding transparency. According to the independent evaluation of the World Bank, it rates the EITI in Azerbaijan as highly effective in terms of profit transparency measures. All these brings various growth opportunities for the oil and gas industry of the country which ultimately enhance the GDP growth rate of the country.
The significant influence of the EITI of the Azerbaijan from last twelve years is that it provided required and credible data, which further helpful in understanding the most important sector of the Azerbaijan economy and is an important tool for the policy debate and analysis of macro-environment (García?Rodríguez, 2013). The main motive of the EITI in Azerbaijan is to bring transparency to the nature of the extractive revenue processes. President Aliyev of the country said that transparency is the main focus of their oil and gas industry because it plays an important role in forming different types of oil strategies. Furthermore, EITI in Azerbaijan brings considerable success in the form of a genuinely multi-stakeholder dialogue process, and also brings lots of opportunities for the government of the country as well as its civil society organizations. During October 2016 the board of the EITI found that Azerbaijan had made recommendable progress with the implementation of the different EITI standards with considerable improvements across its different requirements (Otusanya, 2014). Thus, it can be said that EITI standards play an important role in bringing significant improvements in the oil and gas industry performance of Azerbaijan country. This development will bring significant growth opportunities in its near future which ultimately enhance its GDP productivity.
EITI in Liberia
Liberia is considered as a candidate of the Extractive Industries Transparency Initiative candidate since and was the first African country to become EITI compliant in 2009. The process of the Liberia EITI mainly covers the four important areas which are mining, agriculture, forestry, and petroleum. The main objective of the Liberia EITI is to assist in ensuring that all benefits due to the people of Liberia and government on account of the exploitation or extraction of the mineral and other resources of the country. EITI of the Liberia manages a broad coalition of stakeholders and also manages a body of multi-stakeholders by keeping in mind all the rules and regulations fixed under the LEITI Act 2009. The republic of the Liberia is considered a west African country which is surrounded by Ivory Coast, Guinea, and Sierra Leone. It is the only African country to have been colonizing by the United States. The government of the Liberia takes various steps to improve the transparency level among the industries as well as the other business organizations. Improvement in transparency level can bring various growth opportunity for the country as well as to its citizens. For this purpose, the government of the country launched the international donors and various other governance programs in 2005. All these programs are launched with the partnership of some international donors and the government institutions. But during the 14 years of the war, all big mines are shut down by the government and the contribution of the mineral sectors was reduced to a negligible level. During 2010, Liberia shows an attractive progress in reviving the mining sectors. This is the sector which gives more than 65% contribution towards the export earning of the country and also represented 25% of the GDP of the country (Stephens, 2013) . The progress of the mining sector is enhanced after the expansion of the iron ore production. Furthermore, it also contributed largely towards the development of human.
Liberia has been the member of the EITI since 14 October 2009 after completing its validation in 2009. Now, Liberia has published more than 4 reports for its different fiscal years. EITI of Liberia is running by a government body known as the Multi-Stakeholders Steering Group (LIBERIA EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE, 2009) The EITI act of the Liberia formulated a structure mandate for the every function of the EITI at the national level. This group includes different members such as minister of finance, energy, lands, mines, internal affairs, and the different types of civil societies. Minister of finance is considered as the head of the group who is responsible for every decision of the group (Strauss, 2015). The EITI of Liberia also has some different secretariat that is formulated, supported and associated with the group. the members of the group mainly serve only for three years. The sector which is under the scope of the group is natural gas, oil, forestry, and agriculture sectors. All these sectors are determined by the government of the country.
Development and governance of the country have a significant influence on the EITI performance of the Liberia. With the help of EITI, the country can easily access to all necessary information which helps them in making different types of decisions. It mainly includes publication of contracts, the inclusion of different sectors like agriculture, and oil sector, or agreements and concessions on the EITI website of the Liberia. Furthermore, it also influences the accountability of the government towards its different decisions like EITI in the national legislature and the mechanisms of enforcement. All these facilitates fruitful benefits in the economy of the country as well as its future economic growth. The foremost and significant impact of the EITI on the country is its civil society engagement. It helps the government in the diffusion of anti-corruption norms.
It can be said that transparency in a country brings various opportunities for the growth of the country. But, it also has some limitations which work as a hurdle in the way of the success of a country such as transparency mainly focuses on the extractive revenues which are not sufficient to measure the success of the country. Furthermore, it is considered as a voluntary mechanism which brings various problems in the success of a country. In addition, the data produced by the transparency level of an organization is poor in quality which sometimes misleads the government of the country about the financial outputs of different sectors. This will create misunderstanding in the mind of ministers as well as the citizens.
In spite of such limitations, it also brings various achievement opportunities for the country such as it enhance the level of interaction and dialogue between different stakeholder group which leads better decision and better outcomes in the near future (LIBERIA EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE, 2009) In addition, it is also strengthening the civil society which gives ultimate benefits to the country and it can grow continuously in its near future.
Conclusion
After studying all this, we can conclude that EITI brings significant growth opportunities for the success of both countries as well as the other countries. It can be said that the EITI affirms the import and power of information. EITI also ensure that there should be complete participation from the civil society of the country so that it can implement with the desired motive (Mahdavi, 2014). One of the foremost weakness is that the different available stakeholders are expected to work in such type of countries where civil society is not firmly established. It is required to change the inertia of the status quo for both countries. Thus, it can be said that having transparency in the different functions of the organization proves very beneficial for the success of every country. It not only brings growth opportunities but also improves the performance level of the GDP of countries.
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