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LATIN AMERICA: Digging Deep for Transparency in Oil and Mining

Gonzalo Ortiz

QUITO, May 23 2011 (IPS) - Oil and mineral resources are abundant in several Latin American countries but will not last forever, and should be used to fuel the transition to a more diversified economy.

The warning comes from María del Carmen Pantoja, head of “Extrayendo transparencia” (Extracting Transparency), a programme promoting information and good use of the earnings from non-renewable natural resources, with the participation of the state, civil society and private enterprise, created by the Grupo Faro in Ecuador.

The highest degree of transparency is required for payments made by transnational corporations to the state, and for how this money is used, Pantoja told IPS.

“In Ecuador, oil has been the government’s chief source of revenue for four decades, and we are about to enter a new phase with large-scale mining,” Pantoja said.

“Latin America is the region with the world’s second-largest oil reserves, and several countries in the region depend heavily on fossil fuel extraction,” Akram Esanov, senior economist at the Revenue Watch Institute (RWI), told IPS.

“Oil provides 50 percent of government income in Venezuela, 57 percent in Trinidad and Tobago, and nearly 40 percent in Mexico,” Esanov said. “And the recent offshore oil finds in Brazil may place it among the countries with the largest oil reserves in the world.

“Therefore, transparency in the management of natural resources is essential to ensure that the earnings are used efficiently to boost development in our countries,” he said.

Civil society organisations are attempting to exercise influence on this process in various ways.

In Peru, one of the largest mineral producers in the world, the Propuesta Ciudadana group is pushing for accountability by means of regular reports and monitoring of oil and mining production, the revenue generated and how the government uses such income at national, regional and local levels, Epifanio Rivas told IPS.

They also work with local leaders. “Extractive industries operate in 10 out of Peru’s 25 departments (provinces),” he said, so it is important for local leaders to know about their rights to a share in the income, and plan its use more effectively.

Propuesta Ciudadana also seeks to exert political influence, by proposing laws or tax mechanisms, such as a tax on windfall earnings brought by soaring oil and mineral prices.

To foment regional debate and exchange information and ideas, Grupo Faro held a week of events on transparency of information in extractive industries May 10-13, which drew experts from Latin America and other regions.

RWI grew out of a programme to monitor the income of Central Asian extractive industries, and became an independent organisation in 2006.

Financed by millionaire George Soros’ Open Society Foundations, RWI “has evolved into an organisation with offices in Latin America, Africa, Central Asia, Southeast Asia, as well as New York and London,” Esanov said.

In the Revenue Watch Index for extractive industries developed by RWI, some Latin American countries, like Brazil, Chile, Colombia, Ecuador, Mexico and Peru are placed in the upper third, among states that tend to provide public information about the management of their oil, gas and mining sectors.

Bolivia, Trinidad and Tobago and Venezuela are in the middle one-third of the index, where states do disclose some information to their citizens but there are significant gaps in public access to data.

“Ecuador used to publish the texts of oil contracts in their entirety, but it may drop down in the index now that all companies are on compulsory service contracts, and contract documents and the criteria for re-negotiation are no longer published,” Katarina Kuai of RWI’s training and capacity building programme told IPS.

A reform of the country’s oil law, approved in July 2010, replaced the current production-sharing agreements with a flat tax per barrel of oil produced, which considerably increased state revenues from the industry.

An analysis by U.S. market research firm Bank of America Merrill Lynch (BofAML), released by the Ministry of Non-Renewable Resources, ranks Ecuador fifth in the world for state participation in oil rents (80 percent), after Libya (94 percent), Russia (91 percent), Angola (86 percent) and Nigeria (84 percent).

Ecuador is followed by Bolivia (76 percent), Norway (74 percent) and Peru (64 percent). The Latin American country with the lowest state participation in oil rents is Chile (40 percent), according to the BofAML analysis.

“It’s not just about how much income is derived from the extractive industries, but what is happening to these funds. There are huge gaps in the information some countries provide,” Esanov said. Sharing experiences among different countries is a key to knowing what has worked and to finding ways of empowering civil society to undertake its own investigations, he added.

RWI also promotes the Extractive Industries Transparency Initiative (EITI), made up of governments, oil and mining companies, and multilateral organisations and non-governmental organisations.

EITI provides public information and works to reduce the risk of corruption, but only two Latin American countries – Guatemala and Peru – have joined it.

Both “are on the list of 24 nations committed to implement EITI, while 11 countries are fully compliant,” said Kuai.

“We must continue to work with all stakeholders while getting ready for the transition to a society no longer dependent on the extractive industries, by developing other sectors of the economy,” Pantoja said.

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