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EITI Report Analysis

EITI Report Analysis. Baku, Azerbaijan 15-17 June 2012. Welcome and introduction. Welcome!. Motives for this workshop. We need reliable data and strong understandings of the extractives sector in order to do good oversight. EITI can service this purpose, if: Reports are high quality

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EITI Report Analysis

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  1. EITI Report Analysis Baku, Azerbaijan 15-17 June 2012

  2. Welcome and introduction Welcome!

  3. Motives for this workshop We need reliable data and strong understandings of the extractives sector in order to do good oversight. EITI can service this purpose, if: Reports are high quality Reports are actively used

  4. Objectives Better understanding what makes a good EITI report Readiness to analyze the EITI report and use its data to learn about oil and mining sector operations. Better prepared to push for the improvement of EITI reports. Have concrete ideas about how to use EITI reports in future advocacy work

  5. Program Analyzing Report Data- Answering 5 key questions using EITI reports

  6. Analyzing Report Data- Answering key questions using EITI reports

  7. Using EITI data Questions that EITI reports can help to answer IMPORTANT to remember: EITI data quality is weak; limited comparability Findings are suggestive only, especially about whether government gets a good deal They identify important further questions (not many answers)

  8. Using EITI Data Gathering complementary information PRICE data EITI reports Country specific prices Global prices (oil, gold, copper; less so with gas) PRODUCTION and EXPORT data Quite easy to find ECONOMIC data GDP, total government revenues, financial flows Internal and external sources

  9. Checking EITI Data: Where to look? National budget reports EITI country websites thru EITI Secretariat IMF country reports for Article IV consultations Publish What You Pay coalition country websites World Bank EITI MDTF country progress reports State-owned companies (financial statements and audits where available) Reports from the Supreme Audit Authority (e.g. Auditor General) Multinational companies (financial statements as well as reports to society) BP Statistical Reviews (for production quantities and prices in oil and gas sectors) US Energy Information Administration (for prices in all sectors) UNCTAD(for export data) Platts and Argus for price and export data

  10. 5 questions to answer using EITI reports For each: 5 minute introduction 30 minute groups 10 minute discussion

  11. Q 1. Does Government get a good deal? EITI numbers can give a very rough calculation of government “take” Total net EI revenues (earnings minus costs) / Total value of production (production x price)

  12. Q 1. Does Government get a good deal? Example. Ghana & Mali. Gold. 2006 • Need to ask more questions! • Does Mali’s EITI report cover more than Ghana’s? • Are Ghana’s costs higher or mines at a different stage of production? • Do the contract terms differ?

  13. Q 1. Does Government get a good deal? Most differences can be explained. • Comparing Oil Producers (average of all EITI data years)

  14. Question 1. Does Government get a good deal? Exercise In groups (30 minutes) Review the worksheet for Question 1 Discuss and answer questions

  15. Q 2. Where do EI revenues come from? Use revenue stream data to determine: Which revenue streams are largest? If possible, which agencies collect these revenues? Findings Understand the fiscal regime Observe changes in fiscal regime over time Observe differences in fiscal regime across contracts Identify oversight priorities

  16. Q 2. Where do EI revenues come from? Use analysis to identify oversight priorities.

  17. Q 2. Where do EI revenues come from? Need to scrutinize the associated transactions Often barely covered by EITI Domestic refineries Export Oil PRICE? $ $ Profit Oil National Oil Company $ National Treasury and/or Oil Savings Fund

  18. Group Exercise:Question 2. Where do EI revenues come from? In groups (30 minutes) Review the worksheet for question 2 Discuss and answer questions

  19. Question 3. How do in-kind revenues become financial revenues? Some important questions to ask….. How do governments end up with oil? Profit oil. In production sharing contracts, governments and companies agree to split the profit oil. Government Profit Oil taxes, royalties, fees, etc Cost Oil Operating Company

  20. Question 3. How do in-kind revenues become financial revenues? 2. Equity oil – oil that is owned and sold by the state JV share E.g. Nigerian national oil company NNPC holds 55% share in producing joint venture, receives 55% of production. Produced itself E.g. Saudi Aramco owns and produces oil from most fields in Saudi Arabia. Service contracts E.g. Iraqi state owns the oil and hires companies to produce it. It then receives all production. 3. Tax or royalty oil Sometimes companies pay taxes or royalties with crude instead of money.

  21. Question 3. How do in-kind revenues become financial revenues? How do national oil companies sell their oil? Spot contracts. Sale of individual cargoes at prevailing market price or Term contracts. Identify a list of buyers over a set period of time Who buys their oil? Traders. The middle-men of the oil world, usually used by NOCs that lack a trading desk or End-Users. Entities capable of refining the crude. or Domestic users, often government owned refineries, etc.

  22. Question 3. How do in-kind revenues become financial revenues? How is the price determined? Iraqi export price usually equals: international benchmark Europe: Dated Brent US: WTI, now ASCI Asia: Dubai/Oman + differential (difference in quality, market factors) set monthly by government Term contract holders can usually alter their volumes to a limited degree based on these changes. Domestic prices often much lower due to subsidies!

  23. Question 3. How do in-kind revenues become financial revenues? Example Iraqi oil sold to the Europe, Dated Brent + differential June ‘11 July ‘11 Basrah Light -2.10 -2.00 Kirkuk +0.25 +0.00 ---------------------------------------------------- Dated Brent $113.76 $116.46 So, selling price is: June ‘11 July ‘11 Basrah Light $111.66 $114.46 Kirkuk $114.01 $116.46

  24. Question 3. How do in-kind revenues become financial revenues? Where do sale revenues go? National oil company finances are crucial! How much money do they transfer to the state? Direct transfers (e.g. Iraq) Dividends Transparency and reporting annual reports with full financial statements audit reports

  25. Question 3. How do in-kind revenues become financial revenues? Exercise In groups (30 minutes) Review the worksheet for question 3 Discuss and answer questions

  26. Question 4. How dependent is the country on oil? Calculate total revenues Be sure to include physical receipts Use reconciled figures Trace changes from year to year Can these be explained by price and production changes? Assess resource dependency EI Revenues as % of total government budget EI revenues as % of GDP

  27. Question 4. How dependent is the country on oil? Cameroon oil receipts over time, 2002-2008. • Period of sharply rising prices, slowly declining production • What explains the drop in 2006?

  28. Question 4. How dependent is the country on oil? • EITI Report says 2008 oil revenues = $1.3 billion • How dependent is Cameroon on EI revenues? • 1. EI revenues as a % of GDP • $1.3 billion / $23 billion (IMF) = 5.6% • 2. EI revenues as a % of total government revenues • $1.3 billion / $4.9 billion (IMF) = 27% • 3. EI revenues per capita • $1.3 billion / 19 million = $68 per person

  29. Oil receipts growing, but declining as % of GDP…. so economy is growing? • 2006 – what happened? Oil revenues stay stead but total government revenues skyrocket (IMF: $2.9 billion in 2005; $8.5 billion in 2006; $4b in 2007)…. Why? • Oil provides big share of public revenues….what happens when oil runs out?

  30. Question 4. How dependent is the country on oil? How does Cameroon compare?

  31. Question 4. How dependent is the country on oil? Exercise In groups (30 minutes) Review the worksheet for question 1 Discuss and answer questions

  32. Q 5. Where do EI revenues go? Once collected, do the revenues end up in the budget? Compare EITI revenue numbers with other revenue numbers: Government budget documents Natural resource savings funds IMF and World Bank reports Relies on the availability of other information. EITI not enough!

  33. Q 5. Where do EI revenues go? Company Company Company Collecting Agencies Company Collecting Agencies Company Collecting Agencies Company Gov’t Collecting Agencies Company Extra-budgetary transfers EITI Services InfrastructurePublic goods Spending Budget

  34. Q 5. Where do EI revenues go? Where might EI revenues go, other than the budget? Natural Resource Funds (e.g. Sovereign Wealth Fund) Retained by the State-Owned Company for their operations or equity obligations Profit oil can be sold to national refineries at a discount, or given for free Extra-budgetary accounts held by the executive or the SOC “Front-line” charges, such a fuel subsidy Stolen or misappropriated ADVOCACY and OVERSIGHT PRIORITIES

  35. Group Exercise:Question 5. Where do EI revenues go? In groups (20 minutes) Review the worksheet for question 5 Discuss and answer questions

  36. Other questions to ask using EITI data Discrepancies What is causing discrepancies? What’s done about them? Do they improve over time? Volatility How volatile are EI revenues? How do changes in global commodity prices affect government revenues? Does the fiscal regime increase or decrease the country’s vulnerability to volatility?

  37. Other questions to ask using EITI data How much does each company pay? Which companies pay the most? Are the fiscal regimes the same? Do payment levels correspond with production levels? Do the differences make sense?

  38. Other questions to ask using EITI data Mysteries…. EITI reports contain confusing information, things that don’t make sense Seek out explanations! Examples: Cameroon royalties in 2006-08 were negative; government paid royalties to the oil companies. Ghana’s and Sierra Leone’s mining revenues appear lower than expected. Azerbaijan’s royalty receipts: $400 million in 2004; $52.6 million in 2005. Why the drop?

  39. Final thoughts on analyzing EITI data Analyze with other relevant data, such as IMF reports, national budgets, publicly-available production data, etc. Use reports to identify questions for further investigation and establish oversight priorities Vital importance of IMPROVING REPORT QUALITY! EITI data is not comparable across countries. Should it be?

  40. Evaluation Thank you!

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