Ukraine has recently celebrated the 10th anniversary of joining the Extractive Industries Transparency Initiative, or EITI for short.
The EITI is an international standard aimed at improving transparency and accountability in the management of natural resources such as oil, gas, coal, minerals, etc. The EITI was launched in 2002 with the assistance of the Open Society Foundations and set standards for disclosure of information about the revenues governments receive from the exploitation of natural resources.
According to this initiative, governments, companies and civil society cooperate to ensure transparency and openness in the field of natural resource extraction. Participating countries commit to publishing information on revenues from the exploitation of natural resources and engaging with civil society to ensure effective monitoring.
EITI aims to reduce corruption, increase transparency in the management of natural resources and ensure that revenues from extractive industries are used for the common good and development of the country.
In this article, we will tell you about the long road to the Initiative, the difficulties in its implementation and the Foundation’s role in making the Ukrainian extractive industry transparent and ensuring that the proceeds from extraction go to community development.
The way to the Initiative
Formally, Ukraine joined the EITI in 2013. However, for IRF, the history of promoting, launching and supporting the Initiative has been going on for more than 15 years.
It all started in late 2007 with a visit of the Kazakh National Foundation of the Open Society Foundations network to Kyiv. The EITI was being implemented in their country and they told Oleksiy Orlovsky, Director of the Democracy and Good Governance Program, about the Initiative and saw it as an anti-corruption tool. At that time, Ukraine was suffering from Russian gas pressure, and the extractive sector in general was plagued by corruption and lack of transparency.
“We saw this initiative as anti-corruption from the very beginning. For us, it was a key tool to increase transparency in this sector. I am a lawyer and a constitutionalist, and the Constitution says that subsoil belongs to the Ukrainian people. The EITI helps us all, as representatives of the Ukrainian people, to benefit from the extraction of what is under our feet,” explains Oleksiy Orlovsky, explaining his motivation.
To learn more about the Initiative, a delegation from the Foundation and Ukrainian CSOs traveled to Azerbaijan, which was one of the first countries in the world to join the EITI.
Having realized how all this could benefit Ukraine, the Foundation joined the promotion of this Initiative in Ukraine. We helped organizations such as Nomos Center, DIXI Group and Q-club to communicate with government officials, explain the benefits and look for ways for Ukraine to become a full member of the EITI. Everything changed on the eve of the 2010 presidential campaign.
At that time, Yulia Tymoshenko supported Ukraine’s accession to the EITI to demonstrate her honesty and transparency. “This decision was contrary to the government’s rhetoric. At that time, there were no European countries in the EITI, no USA, and the Initiative was dominated by countries from the African continent. We were told directly: are you offering us African integration instead of European integration? However, at some point it became politically advantageous for the then Prime Minister and the Government made the decision necessary for accession. It was a purely political decision, but it was the beginning,” says Oleksiy Orlovsky.
After the 2010 presidential elections and the election of Viktor Yanukovych, the process was again halted for a long time and resumed only after Ukraine joined the Open Government Partnership. Thanks to the Foundation’s pressure, Ukraine’s accession to the EITI was included in the Open Government Partnership Action Plan. Although the Government was in no hurry to implement this Action Plan, the political motives of the Prime Minister, Mykola Azarov, came to the rescue again.
Azarov was in charge of the Transparent Government Partnership implementation and at one of the meetings Oleksiy Orlovsky said that in addition to Ukraine, the United States and Colombia had applied for EITI membership. This means that if we hurry, we can “overtake America” and be the first to join the Initiative. The pro-Russian prime minister was eager to “show the US the ropes” and the process started moving again. In October 2013, on the eve of the Revolution of Dignity, Ukraine joined the EITI, indeed doing so faster than the United States.
10 years of implementing the Standards
In 2014, a multi-stakeholder group was established, which included representatives of the government, extractive companies, and civil society. This, in turn, led to the creation of the EITI National Secretariat. The head of the secretariat was Dina Narezhneva, who is now a manager at the International Renaissance Foundation.
“It was a challenge for me to launch such a process. The topic of transparency is very close to me. For me, the EITI is initially about accountability and about creating a platform between the government, companies and civil society, where the latter has been and is the driving force,” says Dina Narezhneva.
The World Bank supported the Secretariat’s functioning, and the Renaissance Foundation continued to support civic initiatives related to EITI.
“At that time, the Ministry of Energy was a rather conservative structure, so we had to make a lot of efforts to promote the full implementation of the EITI,” says Dina Narezhneva, “We formed a synergistic cooperation: “Renaissance and DIXI Group acted on behalf of the public, and our team at the Secretariat acted on behalf of the Secretariat, respectively, so we managed to accomplish a huge number of tasks and achieve all the goals set.”
The first challenge was to work on the legal framework: it was necessary to transfer EITI implementation from the level of international obligations to the level of law and bylaws. At the same time, work was underway to collect data for the preparation of the first EITI report. “At first, most of the reporting entities did not provide us with information, to put it mildly. They said it was not spelled out in the law, so why should I disclose anything to you? The authorities were giving us excuses, and the Tax Service was also reluctant to disclose information due to the lack of relevant legislation. But by the end of 2015, we worked together to prepare and advocate for a Cabinet of Ministers Resolution and collected the information step by step. The first report was released on time,” recalls Dina Narezhneva.
The war that began in 2014 was a huge challenge for the Initiative. The government could not control some of the territories where extraction took place. Realizing this, the EITI Global Board allowed Ukraine to provide adapted information, which would cover only those territories from which it was possible to collect information.
Since the start of the EITI Secretariat’s work, the work on the draft law on Transparency of Extractive Industries has been ongoing, which was finally adopted by the Verkhovna Rada in 2018. The law put all companies on an equal footing and formed a clear list of what was required of companies, both state-owned and private. This created predictable rules of the game and made further work of the Initiative easier. Ukraine continued to implement new standards and prepare reports.
In addition to preparing reports, both the EITI Secretariat and the Fund worked to increase transparency in the energy and extractive industries: they helped to disclose information on ultimate beneficial owners, digitalize information in the extractive sector, and improve EITI processes at the global level. For example, they managed to change global approaches to transparency of hydrocarbon transportation.
From 2016 to 2023, Oleksiy Orlovsky was a member of the EITI Global Board, where he chaired one of the three key committees – the Governance and Oversight Committee. This helped to influence the development of the Initiative around the world, promote Ukrainian interests on the global stage and share Ukrainian transparency experience, which was often cutting-edge. The EITI Board met twice in Ukraine: in 2015 and 2019.
Another area in which the Foundation has been actively working is the involvement of communities where extractive activities are carried out in the EITI. “We strive to bring the Initiative down from the level of large aggregated figures to the level of communities, so that it becomes understandable and can help a particular city or village, region. At the level of extractive regions, there should be discussion platforms where stakeholders can discuss the spending of extraction funds and thus improve the lives of the communities themselves,” says Oleksiy Orlovsky.
In 2022, the restrictions in Ukraine that appeared in 2014 became more severe and deeper. Some extractive regions came under occupation, much of the information became unavailable, and the government closed another part for security reasons. This was also the case with the EITI portal, which contains summarized information on the work of the extractive sector. It resumed its largely public work only in early October 2023, although companies continued to provide information for it throughout the year.
What’s next?
In the past, the EITI paid more attention to formal indicators. “In fact, it was a financial reconciliation, something similar to what auditors do. Gradually, civil society started to put forward more and more requirements, and the EU norms were added. Today, countries are obliged to disclose information about beneficial owners and payments made by extractive companies in favor of communities. Gender equality issues have also been added. Now EITI is working to develop transparency and create platforms for communication at the level of extractive regions,” explains Oleksiy Orlovsky.
Today, EITI continues to develop and adapt to the changes in the modern world. In addition to transparency and accountability, which were the main principles of the Initiative, considerable attention is paid to engaging civil society, increasing socio-economic benefits for communities, promoting sustainable development of extractive regions, and dealing with environmental and social challenges.
“The EITI is an area that deals with accountability, environmental protection, and restoration. Therefore, it will remain in the field of view of the Foundation in the future. I am sure that we have not yet exhausted all the opportunities offered by the Initiative and there is still work to be done. The key role in this should again be played by civil society,” says Oleksiy Orlovsky. “If you take up a cause knowing that it can be beneficial and there is a dynamic of development, not only the process but also the result, it is worth doing it for 15 years.
According to Dina Narezhneva, the Initiative will continue its work because it brings benefits to all parties involved. “Everyone benefits from the initiative. Authorities receive more structured information and can make decisions based on data. The reports contain a lot of information, and looking at them retrospectively today, we can see how, for example, the market situation has changed. This is the data that decision-makers need,” explains Dina. “Communities in whose territory mining is carried out receive a certain percentage of taxes paid by mining companies to their budgets. So it is important for the community to understand what funds it can count on. This knowledge gives people on the ground an incentive to talk to their authorities about how these funds will be used in the future.”
