Defining the Governance Deficit: the RGI's Four Components

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The four components of the Index evaluate different aspects of the oil, gas and mineral sector governance. Does the prevailing legal and institutional framework support transparency and accountability? What information is published about the complex and lucrative resource sector? What safeguards are in place to promote integrity in its governance? Finally, is the broader institutional environment conducive to accountability in the extractive sector? Changes in one component can affect governance as a whole. As areas of analysis and policy reform, they should be considered individually as well as collectively.

For each of the components, the following sections summarize best practices, identify what countries fail to achieve, and illustrate the findings with examples. For a discussion of the overarching findings, analysis of national oil companies and natural resource funds, a summary of the methodology and recommendations, see the full Resource Governance Index available here .

Institutional and Legal Setting: The degree to which the laws, regulations and institutional arrangements facilitate transparency, accountability and open/fair competition.

Many countries lack laws and institutional frameworks that encourage integrity and openness, including basic transparency guidelines. Even though only 19 countries score in the satisfactory range (above 70), on average countries score higher on this component than on the other three (see Figure 1). Top performers in this component, such as Norway and Peru, have adopted freedom of information laws and their mining legislation provides comprehensive information on their mining or petroleum sector fiscal terms. Most satisfactory performers also follow an independent licensing process and collect resource revenue in a clear, traceable way.

Figure 1: Institutional and Legal Setting: ranking and scores

   For more detail, go to the RGI Data Tool

 

In most countries, the RGI findings identify specific legal and institutional shortcomings that represent concrete opportunities for reform. For instance, 38 of the 58 surveyed countries lack a freedom of information law. Some of the most resource-dependent countries such as Angola and Saudi Arabia lack any reporting requirements that pertain to the oil, gas or mining sector. The Extractive Industry Transparency Initiative (EITI) can be an important vehicle for the release of revenue data. However, 38 countries have not signed up to the EITI yet.[i]

The licensing process presents a governance challenge for many countries as they decide how to develop their resources and who gets access to petroleum and mineral reserves. The clear division of roles and responsibilities in the award of licenses—as observed in Brazil or Chile, for instance—helps curb political influence over licensing decisions. Yet in 14 countries, including Azerbaijan and Bahrain, the licensing process is not independent from the state-owned company, raising the potential for conflicts of interest.

Equally important for resource governance is the clarity of the revenue collection system. When revenues bypass the normal budgetary process, the accountability around the use of those public funds can suffer. In 20 countries, including Cameroon and Venezuela, substantial resource revenues bypass the treasury and are not reported to the legislature. Often, revenue flows associated with natural resource savings funds or state-owned companies escape adequate scrutiny. The absence of these flows from the public sector balance sheet leaves information gaps, curtails oversight, and creates opportunities for corruption and mismanagement. Of the 45 countries with state-owned companies, 33 (including Iran and Nigeria) exclude the financial flows associated with these companies from their public sector balance sheet, failing to provide a comprehensive view of their public assets and liabilities. Likewise, 13 out of 23 governments which operate natural resource funds treat them apart from their national budget.

 


i Azerbaijan, Ghana, Iraq, Liberia, Mongolia Mozambique, Nigeria, Norway, Peru, Tanzania, Timor-Leste and Zambia are EITI compliant. Afghanistan, Cameroon, the DRC, Gabon, Guinea, Kazakhstan and Sierra Leone have published EITI reports but are not yet compliant. Note that at the time of research in early 2012, Iraq and Tanzania had not yet become compliant countries. Sierra Leone and Yemen were candidate countries but were suspended in February 2013.