The EIFPE Concept Note

Proposal for Houston to Set the Tone for America’s Moral Leadership in Addressing Key Issues Fuelling Violent Conflicts in the Extractive Sector

Concept Note

Background:
Since oil began to flow from the first successful well in the U.S. in 1859, the American oil and gas industry has promoted itself as an egalitarian engine of the country’s economy, a driver not only of industry and innovation but a path to financial security for almost anyone, regardless of background, who is willing to put in the work.

As fracking and horizontal drilling in the last decade transformed the U.S. into the world’s largest oil and gas producer, Houston stands apart from other oil-producing cities in the U.S. and around the world.  

Though the nine-county Houston metro area is now a relic of the past - accounting for only 0.8% of Texas oil production, and 0.9% of natural gas output, modern Houston is a headquarters city and the chief technical center for the global oil industry. 

It is very clear that the more difficult and complicated the drilling job, the more likely that a phone call for technical help will be placed to Houston from somewhere around the world. The city’s daily oil operations are dominated by executives, geoscientists and high-end engineers.  

There are 175,000 Houston-based employees working directly in production, oil services and machinery and fabricated metals, and tens of thousands more serve as suppliers or contractors. The compensation rates paid by the oil industry in Houston versus the rest of Texas or the U.S. clearly reflect these differences in skills.   

Measured state-wide, oil-extraction workers based in Houston earn 64.5% of the sector’s payroll in Texas, and almost half of the U.S. total. For oil services, Houston’s share of Texas extraction payrolls is 45.3% and 32.0% for the U.S.

According to data from the Texas Oil & Gas Association (TXOGA), the Texas oil and natural gas industry paid $9.4 billion in state and local taxes and state royalties in the fiscal year 2016, the equivalent of $26million a day to state and local revenue.

With this legacy, subject to data and statistics, Houston is the heavyweight in extractive sector reform discussions, but the city has managed to do little with that power thus far. 

Despite being a giant in the ‘extractive club’ there is a growing recognition by campaigning organizations that Houston is languishing on the corners of the Oslo based Extractive Industries Transparency Initiative (EITI), a global standard for the good governance of oil, gas and mineral resources - and exiled from decisions that affect billions of people in the extractive sector.  

In 2011, the United States entered into the EITI. It was a watershed moment for American leadership on transparency and accountability measures.  EITI was established in 2002 as an answer to the “Resource Curse” public outcry. It is a voluntary initiative through which countries commit to publishing reports on how the government manages the oil, gas, and mining sectors. These reports include information from when the resource is extracted, to “how the revenue makes its way through the government, to how it benefits the public.” It also includes how the licenses and contracts are allocated and registered, who the owners of those operations are, how much is produced, how much is paid, where are those revenues allocated, and what the contribution to the economy, including employment is.

The main purpose of EITI was to help fight corruption, provide more transparency between government and company systems, and inform the public on their interactions. EITI combines more than 53 countries, more than 80 large corporations, and more than 30 civil society groups and international organizations like the World Bank. U.S. participation was both bipartisan and welcomed by private industry and civil society. It demonstrated that Americans ‘walk the talk’ of good governance. 

Rationale:
It was hoped that increased transparency around payments made to governments in oil, gas and mining activities will expose and eradicate the endemic corruption that keeps too many millions of innocent people trapped in a vicious cycle of poverty and underdevelopment worldwide. However, after close to twenty years of the EITI machinery, it became clear that even though EITI has made significant contributions to improve governance of the extractive sector in some countries, its impact has been less impressive in many others. 

Based on statistic and data, over 80% of EITI member countries - where economies are built on oil, gas, minerals, and other natural resources - are still subjected to what is known as the ‘resource curse’. In these countries, poverty is a political construct. The people are poor because of decisions made by the politically powerful (autocrats who use the wealth in the ground to enrich themselves and crush opposition). 

A central tenet in the EITI process is that the EITI Standard is developed and overseen by an international multi-stakeholder Board, consisting of representatives from governments, extractive companies, civil society organisations, financial institutions and international organisations. Also, each EITI implementing country has its own national secretariat and multi-stakeholder group which makes decisions on how the EITI process is carried out in the country. In addition, decisions are supposed to be made, collectively, by government, activists, and extractive industries. 

Unfortunately, in many resource rich developing countries, autocratic governments act unilaterally, without input from the other stakeholders. These dictatorial governments harass and sideline genuine civil society organisations that are made up of activists representing the indigenous communities that own the natural resources, while fake civil society organisations created and sponsored by government agents are allowed in the multi-stakeholder. These dictatorial governments also ensure that their country’s representative on the international multi-stakeholder Board is drawn from the ruling party, to cover up for the regime

The situation is even worst in some EITI national secretariats where many of the staff members are usually the relatives of ruling elites, or the minister in charge of the extractive sector, with virtually no say from the marginalised communities where the actual extractive activity takes place. 

At face value this dubious, covert practice tend to be viewed as a country’s commitment to good governance and transparency – thereby paving the way for greater inflows of aid, foreign direct investment, improve international credibility and a number of other benefits available to the various stakeholders engaged in the EITI process. 

A country’s natural resources, such as oil, gas, metals and minerals, belong to its citizens, but unfortunately, huge payments from oil, gas and mineral companies, together with foreign investments, and other resource wealth ends up enriching a small group, rather than promoting broader economic development. This ill explain why in countries where EITI is seen as the cornerstone of reform and a major tool against corruption, it is impossible to combat the “resource curse, and revenue from the extractive sector which is supposed to be an important source of economic growth and social development in the lives of ordinary citizens has little or no effect. 

Resource rich indigenous communities receive few tangible benefits from their natural resources and suffer the most. Right in the backyards of many multi-million dollars multinational mining operation sites in places like Niger, Myanmar, Peru, Yemen, Nigeria, Chad, Central African Republic, Sudan, South Sudan, Liberia, Sierra Leone, Cameroun, Afghanistan, Syria, Guatemala, Guinea, Honduras, and the Democratic Republic of the Congo (not exclusively), local people live in extreme poverty; mud-brick, thatched-roof houses with little or no access to education, clean water, electricity, and hospitals. In fact, many locals suffer and die from preventable, treatable diseases, while their government benefit enormously from the EITI process, using extractive revenues meant for the alleviation of poverty to extend their grip on power. 

In spite of the fact that extractive companies are key stakeholders involved at the national level in countries implementing the transparency standard, often handing over numbers on payments as part of the reporting process under the EITI standard, autocratic regimes have shaped and normalized spectacular misappropriation of state funds. In Africa for example, billions of U.S. dollars leaves the continent each year in capital flight, routed through offshore financial centers before ending up in secret jurisdictions overseas. Through a whole menagerie of tax havens senior government officials siphon extractive revenues under multiple bank accounts. These offshore sources of slush funds are used notably to acquire vast patrimonies abroad, including expensive real estate, capital, luxurious villas, and cars that cannot be justified by official income.

This shameful situation has led to extreme poverty and a propensity for hostilities, as many marginalised local communities fight back for control, often blaming both their government and extractive companies for conniving to access the fossil fuels or minerals in their backyard while they are kept in the dark. Not surprisingly, the combination of a dramatic increase in environmental contamination and little improvement to the provision of public goods tend to provoke resentment, anger, protests and riots from resource rich, yet impoverished local communities. 

According to a 2018 Washington Post article - “A new ‘resource curse’ is fueling riots around the world,” there have been more than two thousand active social conflicts in recent years tied to natural resource extraction worldwide. The phenomenon is quite common in countries implementing the EITI transparency standard, and the costs of local mining conflicts are high on all sides. Protesters and security forces risk injury or death during clashes. For large mining firms, a social conflict can generate an upward of $20 million in weekly production losses. More broadly, ongoing conflict and negative media coverage can deter investment and lower productivity, creating ripple effects through the entire local economy. There is also the risk of lost national and local tax revenues if mines or local businesses shut down. In other instances, community protests resulting from endemic corruption, wanton unemployment and dire poverty has led to violent conflicts, some attributed to 21st-century energy wars in places like Iraq, Syria, Nigeria, South Sudan, Cameroun, Ukraine, Central African Republic, and Democratic Republic of the Congo (not exclusively).  

In many resource rich, yet poverty stricken communities, there is a well-established link between global terrorism and extreme poverty. Extreme poverty has stripped citizens of their dignity, deprived them of hope, and caused many to fall prey to extremist groups. Fuelled by the desire to control valuable oil and natural gas assets, various marginalized, resource rich - poverty stricken communities have become the ideal havens for some of the most dangerous terrorist groups in Africa; Al-Shabaab in East Africa, Boko Haram in the Lake Chad Basin region and al-Qaeda in the Islamic Maghreb, all U.S-designated foreign terrorist organizations. In the Middle East, most susceptible to extractive-industry corruption, money from oil-and-gas wealth in Saudi Arabia, Iraq, Iran, and Libya (not exclusively) played a pivotal role in the establishment of the Islamic State of Iraq and Syria (ISIS).  

According to the World Bank, about 3.5 billion people live in countries rich in oil, gas, or minerals. With good governance and transparent management, revenues from extractive industries could have an impact on reducing poverty and boosting shared prosperity, while respecting community needs and the environment. But, all too often, under EITI watch, extractive revenue has become a source of conflict rather than opportunity. 

Amidst violent extremism, political repression, and brutal energy wars, millions of refugees – men, women and children were recently condemned to a life of misery in the worst displacement impasse since the upheavals of World War II. 

The world watched shocking images of a drowned Syrian boy on a Turkey beach, overcrowded, shabby boats of thousands of hungry haunted Rohingya refugees stranded at sea, and outrageous videos of Africans being auctioned in Libyan slave markets (not exclusively), that has outraged the conscience of mankind. 

In a bid to survive, millions of refugees have used and continue to use the dangerous sea route across the Mediterranean into Europe, with as many as 20.000 dead at sea according to Migration charities. The United Nations called the Mediterranean crisis “a tragedy of epic proportions.”

In Latin America, endemic corruption, wanton unemployment, dire poverty and conflict stemming from weak governance and extractive revenue mismanagement recently led to a caravan of more than 7,000 Central American migrants heading to the United States for a better life. 

Originating from EITI signatory countries Honduras, Guatemala and Mexico with some of the participants from resource rich Venezuela, the river of people have been making their way to the U.S. border in spite of exhaustion, heat, hunger and opposition from the Trump administration. 

Campaigning organisations have criticised the EITI, arguing that EITI was established to work towards an international transparency norm that will eradicate extreme poverty and the sufferings of indigenous communities rich in natural resources, but EITI has since shifted its mandate beyond the promotion of transparency, and ignored the local communities that own the natural resources. 

As the only functioning global mechanisms to inform and channel debate in resource-rich countries, it is now quite clear that the EITI process is insufficient to fix the problems of misuse of extractive revenues, as it have been ineffective in institutionalizing transparency—including strong reporting and auditing standards in many rogue states. In fact, although some of these rogue regimes say they support EITI, they don’t want to actually support their own transparency. 

There is overwhelming evidence that due to regular crackdown on civil society groups, citizens under dictatorial regimes cannot demand that their government publicly explain how it used the funds that extraction companies paid to them. Many activists have expressed skepticism about the EITI’s impact in laying the groundwork for more transparency in developing countries, and the quantitative empirical assessments so far been mostly inconclusive. This explains why it is paramount for extractive companies not to channel some of the funds meant for the local communities through corrupt central governments, because it ends up enriching a small group of elites, rather than promoting broader economic development in the impoverished indigenous community where the oil, gas and mining companies operate.

With many EITI member countries mysteriously-fraudulently stifling civil society, literally silencing dissent in open forums, meticulously cutting off contact with the public and quietly sidelining an agreement meant to make government relationships with oil-and-gas companies more transparent, it is now well understood that the international community cannot continue to turn a blind eye to the plight of millions of impoverished indigenous communities who  cannot partake of their own natural resources. 

Consequently, on November 2, 2017, the United States withdrew from the EITI. In the letter from the Director of the U.S. Office for Natural Resource Revenue to the EITI Board of Directors, the Director stated the withdrawal would be effective immediately. The EITI issued a statement shortly after receiving the letter saying, “[t]his is a disappointing, backwards step. It’s important that resource-rich countries like the United States lead by example. This decision sends the wrong signal.”

 

The EIFPE Approach:

Although proponents of EITI holds that the Trump Administration’s retreat from the EITI is a front meant to mask huge oil and gas money and influence, and a painful abdication of American leadership on transparency and good governance, some campaigning organisations argue that such a retreat is for the values that give America its strength and its moral leadership in the world. That is, the moral authority to end the abuse of indigenous rights; reconcile extractive companies with local communities, and help extractive industries develop good reputations by directly empowering locals to pioneer groundbreaking educational, healthcare, and relevant developmental amenities that will contribute to their economy, provide employment and reduce environmental impact.   

 It was in line with those values that in response to the 2018 Washington Post article “A New ‘Resource Curse’ is Fueling Riots Around the World,” the public charity - Extractive Industries for Poverty Eradication (EIFPE) was duly registered with the State of Texas, as a proposed addition to the EITI system. EIFPE would allow for American leadership in setting an International Benchmark for extractive industries to obliterate extreme poverty in the local communities where extractive activities take place. 

The EIFPE International Benchmark is a set of basic requirements that extractive industries - regardless of their activities, size, or location, are morally bound to contribute to the local communities where they operate, as part of their corporate social responsibility, and in a bid to forge a harmonious relationship that is good for business.  

These requirements include relevant developmental amenities that will boost the local economy, provide employment, and directly empower grassroots to pioneer groundbreaking educational, healthcare, and environmental sustainability – all geared at improving basic living conditions and promoting dialogue.

With a Board of Trustees that will be drawn from EIFPE membership (the largest major oil, gas and mineral companies to the smallest of independents), and an international Secretariat that will be headquartered in Houston-Texas, EIFPE will have the daunting task of evaluating extractive industries’ performance against the EIFPE requirement (global standard). 

The Board and the international Secretariat, will oversee, support and encourage meaningful benchmarking process wherever EIFPE member companies operate around the world, and ascribe the extractive industry’s performance (degrees of progress) as Satisfactory, Meaningful, Inadequate, or No Progress.   

While “No Progress” may lead to the delisting of the extractive industry from EIFPE membership, “Satisfactory” performance will lead to the nomination of the extractive industry for an EIFPE Award. 

The Award will take place at an annual EIFPE banquet in Houston - that will bring together extractive industries from around the world to work in synergy to honor their commitment to corporate social responsibility and commitment to obliterate global poverty. 

EIFPE will liaise with key U.S. stakeholders, and bring together representatives from firms in the extractive sector, as well as activists and government representatives to encourage bi-partisan legislation that will empower extractive industries to directly invest in the development of impoverished indigenous communities where they operate, without the interference of corrupt government officials at the national level.  

The bill will include a provision instructing the Securities and Exchange Commission to promulgate a rule for foreign extractive industry companies to annually publish – per the EIFPE International Benchmark - what they have done to boost the local economy, provide employment; and promote educational, healthcare, and environmental sustainability in the local communities where they operate.  

The latter section of the bill will recommend sanction for corrupt officials, and oblige extractive industries in synergy with marginalized indigenous communities to disclose state officials that try to divert funds meant for communities that own the natural resources.

In memory of countless victims of conflict minerals, and in solidarity with millions of refugees, migrants and internally displaced people in resource-rich countries who have seen their lives devastated by the mishandling of vast natural resource revenues - from the diamond mines of South and West Africa to the oilfields of Libya, Iraq and the timber-rich forests of the Amazon, we call on all the relevant stakeholders to join hands on deck and appeal to the U.S. government to set the tone for Corporate Social Responsibility, and champion the EIFPE approach to finally tackle the resource curse.

 

References:

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