Transparency in Oil Industry: Extractive Industry Transparency Initiative and its Impact
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Added on 2019-09-16
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This paper analyzes the role of Extractive Industry Transparency Initiative in bringing transparency in the oil industry. It studies the impact of EITI on the transparency of oil industry in different countries. The paper also analyzes the level of transparency in Azerbaijan and Liberia oil sector.
Transparency in Oil Industry: Extractive Industry Transparency Initiative and its Impact
Added on 2019-09-16
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Running Head: Transparency in Oil IndustryEnvironmental EconomicsTransparency in the oil industry
Transparency in Oil Industry1Table of ContentsIntroduction.................................................................................................................................................1Extractive Industry Transparency Initiative and the Resource Curse...........................................................2EITI in Azerbaijan.......................................................................................................................................5EITI in Liberia...........................................................................................................................................11Conclusion.................................................................................................................................................15References.................................................................................................................................................17
Transparency in Oil Industry2IntroductionThere 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 twoyears, 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 therole 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
Transparency in Oil Industry3level of its existing companies. In the same manner, EITI also plays an important role in bringingsuccess 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. Extractive Industry Transparency Initiative and the Resource CurseExtractive 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 initiativewhich 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.
Transparency in Oil Industry4During 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 receivedby the governments from these organizations. It is the responsibility of the EITI to disseminate
Transparency in Oil Industry5that 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
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