That natural resources create national wealth sounds like a reasonably obvious statement, but that may not always be the case. To hold true, there has to be present a human element, and that human element is called good governance. A paradox in some countries has been that mineral wealth has left its people poor and its societies in turmoil.

Clearly, natural wealth of itself is not the problem. It is the human intervention in the extraction and development of those natural resources – in the absence of good governance – that may create unrest and perpetuate poverty. Unfortunately, natural resources and good governance do not always go hand-in-hand.

A New Milestone on the Road to Change

Since this resource paradox results from human intervention, its elimination must come through human effort, and that is the raison d’être for the new international body called the Extractive Industries Transparency Institute (“EITI”), which formally opened its office in Oslo, Norway in the fall of 2007.

EITI has been in the making since 2003, when that initiative was launched by Tony Blair, the then British Prime Minister. EITI’s sole objective is to ensure that a country’s natural resource revenues end up in economic development and poverty reduction in the country itself, and not in private bank accounts. In other words, EITI encourages natural resources and good governance to coexist, where previously they have not.

The Objective: Transparency

The first and basic step towards achieving such good governance in natural resource exploitation is transparency. And transparency begins with disclosure of payments made and of revenues generated. What the EITI seeks to achieve is greater disclosure and openness in these matters.

But there may be a reluctance and hesitancy to enter into a regime of public disclosure of payments and revenues. There are many practical and pragmatic reasons for this. First and obviously, the disclosure regime must be agreed to by both the “payer” (the resource-seeker) and the “payee” (the resource-owner). Secondly, there could be fear that the introduction of the new disclosure regime may lead to questions about past behaviour, to which both parties have to be prepared to respond. Thirdly, demands for restitution of past wealth may arise. Next, the “payer” may well become exposed to legal risk in its home jurisdiction, particularly if it is based in a country which is bound by the anti-bribery convention of the Organization for Economic Co-operation and Development (“OECD”). Then, for a natural resource company operating in several jurisdictions, there could be a dilemma in introducing the disclosure system with regard to its operations in one jurisdiction (where the host government, the “payee,” is EITI-friendly), but not with regard to its operations in other countries (where the host government is not). Last but not least is the political risk of a future change-of-heart by the host nation – a new government (elected or otherwise) may choose to withdraw from the EITI disclosure regime.

Actual Progress

EITI is now an established fact. Mineral-development companies and related associations are indeed taking note and are discussing implementation of the new disclosure regime. EITI’s progress has been slow, but its message is being heard and implemented. Festina lente – make haste, slowly – seems to be an apt description.

Being a purely voluntary organization, EITI does not have the power of an international treaty or convention. Its role does not go beyond providing incentive and, of course, guidance and direction. EITI’s real power is through peer pressure, and what may be described as “public exposure” of the non-conforming governments and companies.

Wide and Influential Support

The G8 countries (of which Canada is one), Australia, Netherlands and Norway are providing EITI with financial and other support. More than 20 countries have agreed to implement the EITI’s “Principles and Criteria” and, of those countries, many have actually started implementation.

Several major multinational companies in the resources business (to name a few: Alcoa, Anglo American, Barrick, BHP Billiton, BP, CVRD, DeBeers, Exxon, Norsk Hydro, Rio Tinto, Shell, Talisman, Total, Teck Cominco and Xstrata) are actively supporting EITI objectives.

Some of the largest international institutions (such as the World Bank, the International Monetary Fund, the OECD and the European Bank of Reconstruction and Development) are also working with EITI.

Canada’s Contributions

In February 2007, Canada joined the EITI-supporting countries when Ottawa announced a $750,000 initial contribution to EITI and a further $100,000 in annual funding. In a public statement, Ottawa said that Canada supports “accountability, transparency, fairness … designed to increase the disclosure of resource revenues in developing countries … [to ensure] that citizens, not just governments or foreign companies, share in their nation’s prosperity.”

Canadian companies engaged in the natural resources business abroad are, obviously, taking notice of the EITI movement, particularly where the host government itself has turned EITI-friendly.

Good governance in the same sector domestically in Canada has not been an issue, but globalization may well require Canadian companies to adopt the new disclosure regime with regard to their domestic operations, particularly if their foreign operations are made subject to disclosure.