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
Deciding to extract
Getting a
good deal
Ensuring
revenue
transparenc
y
Managing
Volatile
resources
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.
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
countries
sustainable
development
in
resource
rich
Key actors at Value Chain
Governments
Citizens
+Local and international civil society
International organizations
Companies
Investors
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
Licensing
Fiscal regimes
Collect
the
revenues
EITI
Contracts
Legislation
Spend the
revenues
correctly
Natural Resource Funds
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!