The Extractive Industries Value Chain Dr. Ingilab Ahmadov World Bank Annual Conference for Parliamentarians Baku, May 23, 2013

Outline  What is Extractive Industries (EI) Value Chain?  Why value chain approach?  EITI in value chain  Who are the actors and how they can be engaged in EI development?  What could be the role of MPs in value chain?

What is EI Value Chain?

EI value chain Getting a good deal Ensuring revenue transparenc y Managing Volatile resources Deciding to extract Investing in sustainable developmen t

Advantages of Value Chain Approach -diagnostic tool for governments and civil society to assess policy options and trade-offs for managing their natural resources -advocacy tool to pin-point the challenges and prioritize places for engagement. Non-renewable resources Sustainable development

History In 2007, in his book The Bottom Billion, Paul Collier told about Value Chain approach to stress the key steps in ensuring that natural resource wealth transforms into citizen wellbeing.The Bottom Billion This framework has since been used as a reference for other organizations working on natural resource governance, such as Revenue Watch Institute, the World Bank, and EITI.

Components of EI Value Chain Deciding to extract Getting a good deal Ensuring revenue transparency Managing volatile resourc es Investing for sustai nable devel opment

Decision to extract Making correct decision whether to extract or not Being transparent on possible environmental and social impacts Explaining how the project will work

Getting a good deal Open tender process Getting the best deal Being transparent and responsible for present and future of contracts Ultimate result – signing the contract providing maximum benefit for country and society

Ensuring revenue transparency Transparency of payments from EI companies to the Government EITI fully covers this stage through disclosure of systematic, regular and qualitative reports of companies and government An independent administrator (reconciler) checks the payments by companies with receiving of Governments, to make sure the credibility of this process

Managing volatile resources Oil & gas and mining revenues are volatile by nature Solution of volatility problem; mitigate a fluctuations and ensure more or less smooth public expenditures Deciding on optimal proportion between saving and spending - What is fiscal regime? Sovereign Wealth Fund and its role in public finance structure

Investing for sustainable development Taking into account the fact that natural resources are non – renewable From subsoil resources to sustainable development and prosperity Diversification of economy Identifying priorities of national economy beyond the extractive industry? Achieving sustainable development in resource rich countries

Key actors at Value Chain + Local and international civil society International organizations Governments Companies CitizensInvestors

Endnote The EI value chain is not a theory, but practical tool to improve EI management The success of each EI value chain component cannot guaranty a desirable sustainable development The overall performance through Value Chain is measured by the level of its worst implemented component.

Parliaments and Extractive Industry Parliamentarians as a law makers Parliamentarians as an Oversight Body over Oil & Gas and Mineral extraction Paying attention to specifics of Extractive Industries: finite, generate rent, huge & volatile revenues Opportunity: How can oil & gas mining sustain national development?

The Sequence of Government Decisions Get a good deal Collect the revenues Spend the revenues correctly Licensing Fiscal regimes EITI Natural Resource Funds Legislation Contracts

How to oversee? Access to contracts for exercising duties effectively Ratification by Parliament Possible influence to contract terms Participation at EITI Pushing for broader EITI Questioning the government on how findings and recommendations are being addressed Passing an EITI law Passing good revenue management law Monitoring use of oil revenues Watching the Natural Resource Funds Budget process; selecting correct priorities Watching budget execution effectiveness of budget spending Getting a good deal Ensuring revenue transparency Managing Volatile resources Investing in sustainable development

Thank you!