    [Senate Prints 110-49]
    [From the U.S. Government Publishing Office]

    110th Congress
     2d Session                 COMMITTEE PRINT                     S. Prt.
                                                                     110-49
    _______________________________________________________________________

                                 THE PETROLEUM

                              AND POVERTY PARADOX:

                        ASSESSING U.S. AND INTERNATIONAL

                           COMMUNITY EFFORTS TO FIGHT

                               THE RESOURCE CURSE

                                   __________

                             REPORT TO THE MEMBERS

                                     OF THE

                         COMMITTEE ON FOREIGN RELATIONS

                              UNITED STATES SENATE

                           One Hundred Tenth Congress

                                 Second Session

                                October 16, 2008

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                     COMMITTEE ON FOREIGN RELATIONS

                JOSEPH R. BIDEN, Jr., Delaware, Chairman
    CHRISTOPHER J. DODD, Connecticut     RICHARD G. LUGAR, Indiana
    JOHN F. KERRY, Massachusetts         CHUCK HAGEL, Nebraska
    RUSSELL D. FEINGOLD, Wisconsin       NORM COLEMAN, Minnesota
    BARBARA BOXER, California            BOB CORKER, Tennessee
    BILL NELSON, Florida                 JOHN E. SUNUNU, New Hampshire
    BARACK OBAMA, Illinois               GEORGE V. VOINOVICH, Ohio
    ROBERT MENENDEZ, New Jersey          LISA MURKOWSKI, Alaska
    BENJAMIN L. CARDIN, Maryland         JIM DeMINT, South Carolina
    ROBERT P. CASEY, Jr., Pennsylvania   JOHNNY ISAKSON, Georgia
    JIM WEBB, Virginia                   DAVID VITTER, Louisiana
                   Antony J. Blinken, Staff Director
            Kenneth A. Myers, Jr., Republican Staff Director

                                  (ii)

                                C O N T E N T S

                                  ----------
                                                                       Page
    Letter of Transmittal............................................     v

    Introduction.....................................................     1

        Fighting the Oil Corruption Curse............................     1

    Findings.........................................................     2

    Recommendations..................................................     5

    Discussion.......................................................     9

        Resource Curse...............................................     9

        The Transparency Cure........................................    12

        Extractive Industry Transparency Initiative..................    13

        United States................................................    17

        Mandatory Securities Reporting...............................    20

        Additional Multilateral Efforts..............................    21

            Extractive Industry Transparency Initiative Plus Plus....    21

            G-8......................................................    21

            International Monetary Fund..............................    22

            World Bank and Regional Development Banks................    24

        Extractive Companies.........................................    25

        Resource Revenue and Sovereign Wealth Funds..................    26

    Country Reviews..................................................    28

        Africa.......................................................    28

            Angola...................................................    28

            Chad.....................................................    31

            Equatorial Guinea........................................    33

            Ghana....................................................    36

            Nigeria..................................................    38

        Asia.........................................................    42

            Cambodia.................................................    42

            China....................................................    44

            Indonesia................................................    47

            Timor-Leste..............................................    49

            Vietnam..................................................    51

        Europe and Central Asia......................................    54

            Azerbaijan...............................................    54

            Kazakhstan...............................................    56

            Norway...................................................    58

            Russia...................................................    59

            United Kingdom...........................................    62

                                     (iii)

    Country Reviews (continued)......................................

        Latin America................................................    63

            Brazil...................................................    63

            Chile....................................................    65

            Peru.....................................................    67

        Middle East..................................................    70

            Iraq.....................................................    70

            Saudi Arabia.............................................    73

            United Arab Emirates.....................................    75

                                   Appendixes

    Appendix I: Administration Responses to Questions from Senator
      Lugar..........................................................    79

    Appendix II: U.S. Legislation Pertaining to EITI and Related
      Extractive Industry Issues.....................................    85

    Appendix III: Summary of G-8 Commitments on Extractive Industry
      Transparency...................................................    93

    Appendix IV: Excerpt from Accountability Report: Implementation
      Review of G-8 on Anti-Corruption Commitments...................   103
    Appendix V: Extractive Industry Transparency Initiative U.N.
      Resolution.....................................................   111

    Appendix VI: World Oil Consumption and Production, by Country....   113

    Appendix VII: Origins of U.S. Imports of Crude Oil...............   115

    Appendix VIII: Acronyms..........................................   117

                             LETTER OF TRANSMITTAL

                                  ----------

                                  United States Senate,
                                Committee on Foreign Relations,
                                      Washington, DC, October 16, 2008.
        Dear Colleagues: I recently directed minority staff of the
    Senate Committee on Foreign Relations to travel to a number of
    natural resource-rich developing countries to assess U.S. and
    international efforts to address the ``resource curse,'' the
    phenomenon whereby large reserves of oil or other resources
    often negatively affect a country's economic growth, corruption
    level and stability. Overcoming the impacts of this curse helps
    promote U.S. policy goals of poverty alleviation, good
    governance and energy security.
        With the soaring price of oil inflicting economic pain on
    American consumers, creating vast pools of sovereign wealth
    controlled by often authoritarian regimes, and jeopardizing
    gains we have made in poverty alleviation worldwide, the
    prudent management of energy flows and their revenues has
    formed a critical nexus of U.S. foreign and domestic policy:
    failure to secure our interests abroad has threatened
    prosperity at home.
        Paradoxically, history shows that rather than a blessing,
    energy reserves can be a bane for many poor countries, leading
    to fraud, corruption, wasteful spending, military adventurism
    and instability. Too often, oil money that should go to a
    nation's poor ends up in the pockets of the rich, or it may be
    squandered on the trappings of power and massive showcase
    projects instead of being invested productively and equitably.
    In some countries, national poverty has actually increased
    following the discovery of oil.
        This ``resource curse'' affects us as well as producing
    countries. It exacerbates global poverty which can be a seedbed
    for terrorism, it dulls the effect of our foreign assistance,
    it empowers autocrats and dictators, and it can crimp world
    petroleum supplies by breeding instability. The ongoing rebel
    attacks on Nigeria's oil facilities, for instance, are a factor
    in today's record high crude prices.
        This report argues that transparency in revenues,
    expenditure and wealth management from extractive industries is
    crucial to defeating the resource curse. Achieving transparency
    requires a higher profile in U.S. diplomacy and foreign policy.
    When oil revenue in a producing country can be easily tracked,
    that nation's elite are more likely to use revenues for the
    vital needs of their citizens and less likely to squander
    newfound wealth for self-aggrandizing projects. When financial
    markets see stable economic growth and political organization
    in oil-rich states, supplies are more reliable and risk
    premiums factored into prices at the gas pump are diminished.
    And as official corruption tempted by oil wealth abates, our
    foreign assistance dollars can find more fertile ground to
    alleviate the suffering of the world's most needy.
        I hope you find this report helpful as the U.S. Congress
    contends with the complex challenge of securing stable,
    affordable energy sources for our constituents, while curbing
    petro-authoritarianism, corruption, and privation abroad.
                Sincerely,
                                              Richard G. Lugar,
                                               Ranking Minority Member.

                       THE PETROLEUM AND POVERTY PARADOX:
                        ASSESSING U.S. AND INTERNATIONAL
                              COMMUNITY EFFORTS TO
                          FIGHT THE RESOURCE CURSE\1\
    ---------------------------------------------------------------------------

        \1\ This Senate Foreign Relations Committee minority staff study
    was coordinated by Nilmini Gunaratne Rubin and includes significant
    contributions from Bradley Bowman, Jay Branegan, Neil Brown, Brooke
    Daley, Patrick Garvey, Keith Luse, Carl Meacham, Alison McCormick, Ken
    Myers III, Michael Phelan, and Marik String. The report includes
    substantial input from Congressional Research Service staffers Danielle
    Langton and Nicolas Cook.
    ---------------------------------------------------------------------------
                                  ----------

                                  Introduction

                       FIGHTING THE OIL CORRUPTION CURSE

        At present, about 3.5 billion people live in countries rich
    in extractive natural resources such as oil, gas, solid
    minerals and timber. With good governance, these resources can
    generate vast sums to foster growth and reduce poverty.
    However, many of these countries have weak governance and the
    revenues have resulted in corruption and conflict.
        At the direction of Ranking Member Richard G. Lugar, the
    minority staff of the Senate Foreign Relations Committee
    undertook a study of transparency in extractive industries as
    part of the committee's oversight responsibilities.
    Transparency is a key issue for promoting United States foreign
    policy and security interests, including energy security,
    combating corruption, and delivering the benefits of natural
    resources production for development. The effort is similar in
    scope to the ``Embassies Grapple to Guide Foreign Aid'' study
    issued in November 2007 and the ``Embassies as Command Posts''
    study completed in December 2006.
        Through meetings, site visits and document reviews, staff
    members tested the viability and efficacy of policy
    recommendations for improving three levels of transparency: in
    revenues earned by resource rich countries; in expenditures
    made by those countries; and in their investment strategies.
    Staff also examined the impact of international transparency
    efforts such as the Extractive Industry Transparency Initiative
    (EITI), the G-8 initiatives, the IMF Resource Revenue Guide,
    the World Bank Anti-Corruption and Governance Strategy, and
    others.
        Staff drew on information gathered on travel to countries
    in: Africa (Angola, Chad, Equatorial Guinea, Ghana, Nigeria);
    Asia (Cambodia, China, Indonesia, Timor-Leste, Vietnam); Europe
    and Central Asia (Azerbaijan, Kazakhstan, Norway, Russia,
    United Kingdom); Latin America (Brazil, Chile, Peru); and the
    Middle East (Iraq, Saudi Arabia, United Arab Emirates).
    Overseas, staff met with foreign government officials,
    international organizations, members of the business community,
    and representatives of civil society.
        In Washington, D.C., committee staff met with officials
    from the National Security Council, State Department, U.S.
    Agency for International Development, Treasury Department, U.S.
    Trade Representative, Commerce Department, Bureau of Land
    Management, Mineral Management Service, U.S. Forest Service,
    U.S. Geological Survey, World Bank, International Monetary Fund
    and Inter-American Development Bank, as well as representatives
    from non-governmental organizations, advocacy groups, industry
    organizations, energy, extractive and financial companies, and
    academics.

                                    Findings

        The soaring price of oil is dramatically shifting the
    global economic landscape. In many countries, including the
    United States, it is hurting growth and inflicting great
    economic pain. By the same token, it is rapidly increasing the
    nominal wealth of the oil-exporting nations, including many
    still classified as underdeveloped (see Appendix VI for graphs
    of leading oil producers and consumers). Unfortunately, there
    is no guarantee that these countries will enter into a new
    period of prosperity. In fact, the opposite may well happen.
        Paradoxically, history shows that rather than a blessing,
    oil or natural gas reserves can be a bane for many poor
    countries, leading to fraud, corruption, wasteful spending,
    military adventurism and instability. Too often, oil money that
    should go to a nation's poor ends up in the pockets of the
    rich, or it may be squandered on grand palaces and massive
    showcase projects instead of being invested productively. A
    classic case is Nigeria, now the world's eighth largest oil
    exporter, where despite half a century of oil production and
    half a trillion dollars in revenues, poverty has actually
    increased,\2\ corruption is rife and violence persists in the
    oil-rich Niger Delta. Having endured some of the worst
    consequences of oil wealth, Nigeria is now taking some of the
    most deliberate steps to correct the problem.
    ---------------------------------------------------------------------------
        \2\ CIA World Factbook.
    ---------------------------------------------------------------------------
        The Netherlands found its economy sliding instead of
    soaring after it discovered natural gas in the early 1960s,
    thanks to a rising exchange rate and a fall-off in
    manufacturing, a phenomenon now known as ``Dutch disease.''
    Even the states of the Organization of the Petroleum Exporting
    Countries (OPEC) are not immune: as a group, their per capita
    GNP actually dropped from 1965 to 1998, according to one study.
    The influx of ``easy money'' from other extractive natural
    resource industries, like gold, copper, or gems, can similarly
    thwart economic reform and devastate economies with primitive
    fiscal regimes. Governments with authoritarian tendencies can
    be insulated from domestic and international pressure by the
    steady stream of extractive revenues, sometimes leading to
    worse governance over time.
        While the ``resource curse'' damages U.S. foreign policy
    and humanitarian interests abroad, it also negatively impacts
    Americans at home. Social unrest, buoyed by perceived injustice
    in expenditure of oil revenue and use of oil as a currency of
    conflict, destabilizes the reliability of oil supplies.
    Resulting tightening of global markets and attachment of a risk
    cost premium to oil price inflate prices at U.S. gas pumps and
    result in a massive wealth transfer out of the United States
    (see Appendix VII for the composition of U.S. crude oil imports
    by country). Instability in the Niger Delta, which has shut-in
    nearly as much oil as there is existing spare capacity in the
    world, is a case in point of organized criminal and militant
    activity weighing heavily on global oil prices. Actions to
    support accountability, transparency and anti-corruption
    efforts in developing countries with extractive industries such
    as oil and gas could have a significant impact on the energy
    market. Where there is instability, there are higher prices.
    Foreign aid investments to support development in oil exporting
    regions can help quell discontent and help assure a stable
    energy supply.
        The link between energy security, energy prices, and
    transparency appears underappreciated within U.S. policy.
        Because the resource curse threatens our own security,
    economic and humanitarian interests, Senate Foreign Relations
    Committee staff assessed the efforts to help remove it. Looking
    at more than 20 countries around the world, staff found that
    while there is greater awareness of the potential dangers from
    sudden oil and other extractive industry wealth, progress has
    been spotty at best. Ghana, a recent addition to the list of
    resource rich countries with the discovery of significant oil
    reserves beneath its coastal waters in 2007, is a country with
    a clear view of the potential outcomes of such a discovery. The
    situation in Ghana will be watched closely around the world to
    see if forewarning of the pitfalls can serve to effect better
    governance and cooperative international support in defense of
    domestic development and economic growth.
        To be sure, there is no simple cure, and without political
    will by the exporting country, little can be achieved. The
    hurdle for effecting change in several natural resource rich
    countries is high. Governments flush with cash from spiking
    commodity prices can be emboldened against reform. But where
    leaders are ready to face the problem, outsiders can offer
    important incentives and advice. One key prescription is to
    promote strong anti-corruption measures and to press for more
    openness or transparency in how much revenue extractive-rich
    countries are receiving, and how they're spending it.
        The World Bank and the International Monetary Fund have
    both launched efforts to improve accounting and transparency of
    extractive industry revenues, to make it harder for government
    officials to hide corruption--and easier for citizens to demand
    that the money be spent wisely.
        Separately, a number of countries,\3\ led by Norway and
    Britain, along with energy and mining companies and civil
    society groups, have formed the Extractive Industries
    Transparency Initiative (EITI), a voluntary program which aims
    to certify that natural resource-rich countries, as well as all
    the companies operating there, are honestly accounting for the
    funds flowing into their coffers. The leaders of the G-8
    industrialized countries at their July meeting in Japan
    strongly endorsed EITI, as they have nearly every year since
    2003.
    ---------------------------------------------------------------------------
        \3\ EITI's 11 supporter countries (Australia, Belgium, Canada,
    France, Germany, Italy, the Netherlands, Norway, Spain, the United
    States, and the United Kingdom) that have provided political, technical
    and/or financial assistance and EITI's 23 candidate countries
    (Azerbaijan, Cameroon, Cote d'Ivoire, Democratic Republic of Congo,
    Equatorial Guinea, Gabon, Ghana, Guinea, Kazakhstan, Kyrgyzstan,
    Liberia, Madagascar, Mali, Mauritania, Mongolia, Niger, Nigeria, Peru,
    Republic of the Congo, Sao Tomee Principe, Sierra Leone, Timor-Leste,
    and Yemen) intend to implement EITI criteria and await validation.
    ---------------------------------------------------------------------------
        Yet action falls short. In Vietnam, where 30% of the budget
    comes from oil, the World Bank, the United States and other
    major donors have made little effort to support extractive
    industry transparency. Peru and Equatorial Guinea have signed
    up for EITI, but major-country donors are not stepping forward
    to strengthen those nations' capacity to manage massive oil
    wealth. In Angola, which has the world's highest infant
    mortality rate, the United States is terminating an assistance
    program to help the country administer its oil billions.
    Skeptical Indonesians asked why the United States has not
    signed up for EITI.
        Staff found an urgent need for concerted diplomacy and
    assistance targeted at budget management, expenditure
    accountability and reserves fund management. Donor coordination
    in these areas is rare and current efforts focused at improving
    economic performance frequently ignore the governance
    implications of volatile resource income. And China, whose
    state-backed companies have a large footprint in many
    developing countries, has not yet engaged on these issues.
        U.S. diplomats in several of the countries most threatened
    by the resource curse are often starved for personnel and
    resources. These limited means are often directed by Washington
    toward humanitarian needs, leaving resource management issues
    on the back burner.
        Over time, extractive revenues will level off and
    eventually dry up. For some small producers that drop in
    revenue is in the near- to mid-term. It is critical that these
    countries, with our help, act today to ensure that the revenues
    are managed and invested wisely so that the people and their
    future are not impoverished after earning billions in this time
    of high energy prices. Based on the findings of their work,
    staff has made a number of recommendations for action by the
    various parties. Among them:

       The United States should demonstrate leadership
            internationally. It should sign up for EITI and provide
            additional financial assistance to that organization's
            international trust fund. This low-cost move would pay
            large benefits by encouraging more developing countries
            to follow. It should explicitly seek to engage China
            and India.

       The G-8 countries should require that their oil, gas and
            mining companies publish country-by-country data on
            their royalty, tax and other payments as part of
            routine financial reporting, and encourage influential
            credit rating agencies and commercial banks to take
            explicit account of a country's transparency record.

       The international donors who give aid to resource-rich
            countries should focus their efforts on improving
            revenue management and fighting corruption. Relatively
            small amounts of aid money could thus help channel
            large amounts of a country's own funds toward poverty
            reduction.

       The World Bank and the IMF, which make regular assessments
            of country performance, should consistently reinforce
            the importance of transparency and good governance. The
            regional development banks should step up their efforts
            on governance and anti-corruption in countries with
            significant extractive industries.

       The Extractive Industries Transparency Initiative's
            secretariat, building on the lessons learned so far,
            should provide more technical assistance to
            underdeveloped countries that need help in implementing
            anti-corruption measures. It should also be more active
            in promoting and demonstrating the benefits of
            transparency to both countries and companies.

       Oil, gas and mining companies, which often express support
            for the transparency agenda, should match their anti-
            corruption rhetoric with action by voluntarily
            disclosing more of their payments to countries where
            they operate.

       Most importantly, the United States, whose attention to
            extractive industry transparency often appears sporadic
            and half-hearted, should make this a top priority
            throughout the administration, with the State
            Department as the lead agency, coordinating closely
            with Treasury and USAID. Embassies should develop
            country-specific transparency advocacy strategies.

        Minority staff found many encouraging anecdotes on the
    benefits of improved transparency. However, there is not yet a
    compelling body of evidence to prove the case that improved
    transparency will bring improved governance and economic
    development. Yet the negative impacts of lack of transparency
    with the accompanying corruption and ineffectual usage of funds
    are clear. It is also clear that the United States Government's
    integration of transparency into foreign policy is in it's
    initial stages. Innovative public-private partnerships and co-
    funding with host governments show promise. Initial efforts
    have been impinged by lack of personnel resources in several
    embassies, inflexibility in funding, and insufficient
    coordination among agencies. The potential of U.S. moral
    support, bilaterally and in multilateral fora, is substantial
    and will yield results only with the backing of diplomatic
    resources.

                                Recommendations

        Committee staff developed recommendations for the next
    administration, Congress, the international community and
    extractive companies to help nations fight the ``resource
    curse'' and advance the U.S. policy aims of reducing poverty,
    improving governance and securing our energy interests.

              1) The President should put greater emphasis on
            promoting extractive industry transparency by
            developing a clear strategy and designating
            responsibility for implementation of that strategy.

                      a) The President should outline a clear
                    strategy to drive our government's push for
                    extractive industry transparency from bidding
                    and contracts, through company payments to
                    governments, to budget transparency and
                    accountability of spending. Such a strategy
                    will necessarily draw upon expertise spread
                    across government agencies. The strategy should
                    identify the State Department as the lead
                    coordinating agency and the Bureau of Economic,
                    Energy and Business Affairs as the lead bureau
                    responsible for promoting extractive industry
                    transparency.

                      b) The President should lead by example and
                    have the United States become an implementing
                    country of the EITI. This move would pay large
                    benefits by encouraging more developing
                    countries to follow.

              2) The Secretary of State should exercise more effort
            on transparency issues, and build on international
            momentum for extractive industry transparency at the
            United Nations, at the EITI secretariat and through our
            embassies.

                      a) The Secretary of State should elevate U.S.
                    representation to the EITI Executive Board to
                    the Under Secretary for Economic, Energy and
                    Agricultural Affairs. The U.S. has capable
                    representation but at a rank much lower than
                    the representatives from other countries, which
                    limits the ability of the U.S. to secure
                    change.

                      b) The Secretary of State should clearly
                    inform embassies of the importance of
                    transparency efforts and more vigorously
                    support such efforts in international fora. For
                    instance, besides simply voting for the
                    recently-passed EITI United Nations regulation,
                    the U.S. should have been a co-sponsor.

                      c) The Secretary of State should develop a
                    tailored extractive industry transparency
                    advocacy strategy, according to the conditions
                    in the host-country. Where appropriate, U.S.
                    Government representatives need to engage
                    directly with extractive country governments to
                    explain the benefits of increased transparency,
                    identify opportunities to promote change, and,
                    where appropriate, encourage them to sign onto
                    EITI.

                      d) The Secretary of State should review
                    personnel capabilities at embassies in natural
                    resource rich states and fill current lapses in
                    embassy staffing.

                      e) The Under Secretary for Economic, Energy
                    and Agricultural Affairs should regularly lead
                    coordination meetings of U.S. Government
                    agencies involved with extractive industry
                    transparency and should track agency actions
                    and results.

                      f) The United States should bolster its
                    support for EITI by immediately depositing its
                    $3 million contribution to the Multi-Donor
                    Trust Fund.

              3) U.S. bilateral assistance in extractive countries
            should be focused on good governance, transparency and
            building civil society.

                      a) Our Ambassadors and country teams should
                    review their portfolios for critical
                    opportunities to build capacity in governance,
                    especially in revenue management, thus
                    leveraging the most valuable additional asset--
                    technical know-how--the U.S. can bring to bear
                    where financing is not the problem.

                      b) USAID, along with the Treasury Department
                    and other agencies, should emphasize technical
                    assistance for extractive industry transparency
                    in relevant countries, and EITI implementation
                    in countries that have signed up for the
                    initiative.

                      c) Coordination between country teams and
                    technical agencies in Washington should be
                    improved and mechanisms put in place so that
                    U.S. Government agencies are able to respond
                    promptly and effectively to requests for
                    technical assistance.

                      d) As Overseas Private Investment Corporation
                    (OPIC) is already doing, all U.S. foreign
                    assistance agencies (USAID, Millennium
                    Challenge Corporation, ExIm, etc.) should
                    integrate transparency promotion into their
                    oil, gas, minerals and timber programs,
                    projects and policies.

                      e) U.S. agencies should use public-private
                    partnerships to provide information technology
                    and training for platforms, such as
                    geonavigator and mineral mapping software, to
                    distribute information so that there would be
                    ``no excuses'' for countries that profess to
                    want to disclose.

                      f) U.S. bilateral assistance should also
                    expand upon public-private partnerships to
                    engage experts in the private sector for
                    technical assistance.

                      g) U.S. bilateral assistance should build
                    upon co-funding arrangements for technical
                    expertise where host governments rich in
                    extractive revenues pay the bulk of costs for
                    such arrangements.

              4) The Secretaries of State and Treasury should
            engage China, India and Russia on transparency issues
            generally and encourage them to become supporting
            countries of EITI. Indian and Chinese companies are
            securing extractives contracts around the world,
            particularly in Africa. If they do not integrate
            transparency into their operations, they could
            undermine other international efforts.

              5) The Securities and Exchange Commission and the
            Treasury Department should encourage the International
            Organization of Securities Commissions (IOSCO) to
            develop consistent requirements for disclosure of
            extractive payments by companies to governments so that
            all the major stock exchanges require the same
            information. They should also support an International
            Accounting Standard for disclosure of extractive
            payments to governments.

              6) The international donors who give aid to resource-
            rich countries should focus their efforts on improving
            revenue management and fighting corruption. Relatively
            small amounts of aid money could thus help channel
            large amounts of countries' own funds toward poverty
            reduction.

                      a) The World Bank and the International
                    Monetary Fund, which make regular assessments
                    of countries' performance, should be consistent
                    in assessment of countries' progress on
                    transparency compared to their own professed
                    benchmarks. They also should ensure that their
                    staffing at key posts reflects commitments made
                    to those governments in technical assistance on
                    improved financial governance.

                      b) The regional development banks should
                    integrate EITI into their operations. Not all
                    of the regional development banks have endorsed
                    EITI and, of those that have, few have fully
                    applied EITI principles in their projects. The
                    regional development banks should condition
                    loans on revenue disclosure and contract
                    transparency.

                      c) The International Monetary Fund should
                    consistently examine the transparency of
                    extractive industry revenues for all resource
                    rich countries in its Article IV reviews.

                      d) The International Monetary Fund should
                    actively engage and provide technical
                    assistance to resource rich countries to
                    implement the IMF sovereign wealth fund
                    guidelines.

              7) The G-8 should show commitment to transparency in
            action, not just words.

                      a) The 2008 G-8 report on its anti-corruption
                    accomplishments was a good start but it needs
                    to be done every year at a higher standard of
                    disclosure and contain commitments to improved
                    activity during the next disclosure period.

                      b) The U.S., in conjunction with the other G-
                    8 nations, should require that oil and mining
                    companies listed on their stock exchanges
                    publish country-by-country data on their
                    royalty, tax and other relevant payments as
                    part of routine financial reporting, and ask
                    credit rating agencies and commercial banks to
                    take explicit account of a country's
                    transparency record.

                      c) G-8 countries with significant extractives
                    industries should sign up for EITI which would
                    enhance the credibility of the initiative and
                    encourage other countries to join.

              8) Congress should support mandatory financial
            reporting requirements on a multilateral basis. This
            could be done through the G-8, where repeated
            endorsements of EITI and revenue transparency have not
            been followed up with concrete action. The SEC could
            seek to harmonize such reporting requirements among
            major global stock exchanges through the International
            Organization of Securities Commissions.

              9) Congress should pass legislation requiring that
            U.S. foreign assistance to extractive industry
            dependent countries include significant support for
            transparency.

              10) Extractives companies, which have taken the
            initiative in some countries but not others, should
            step up their engagement to promote transparency and be
            more proactive in public disclosure of revenue payments
            to foreign governments. Oil and mining companies should
            voluntarily disclose their extractives payments to
            foreign governments. They should publicly endorse
            transparency in bidding and contracts.

              11) Oil and other extractives companies should
            develop a reporting template for standardized
            disclosure of payments to be adopted as a global
            standard. Such a template could usefully be developed
            in conjunction with the EITI Secretariat.

              12) The EITI Secretariat should ensure clear criteria
            at each stage of progression to avoid the appearance of
            political favoritism in the implementation of EITI.

                      a) The EITI board should have a mechanism to
                    issue reports to the UN Security Council and
                    other appropriate bodies.

                      b) EITI should improve its efforts to clearly
                    delineate, to countries and companies, the
                    benefits of participation.

                      c) EITI needs to focus more on technical
                    assistance and make available to countries that
                    sign-up for EITI a package of technical
                    assistance to show good will and international
                    support for the countries' success through
                    EITI.

                      d) EITI must redouble its focus on
                    implementation. While much effort has been
                    dedicated to expanding the roll of EITI
                    countries, a few successful countries could
                    serve as concrete models for the gains EITI
                    could bring.

              13) EITI certification criteria should resolutely
            include reporting by state-owned extractive industries
            companies. Credit rating agencies should make more
            explicit the importance of transparency as part of
            governance structures for indicating credit worthiness.

                                   Discussion

                             the resource curse \4\
    ---------------------------------------------------------------------------

        \4\ The ``resource curse'' section draws heavily on a background
    memo entitled ``The `Resource Curse': Literature Survey Paper Summary''
    prepared by Danielle Langton and Nicolas Cook from the Foreign Affairs,
    Defense, and Trade Division of the Congressional Research Service.
    ---------------------------------------------------------------------------
        Large amounts of national revenues accrued from the sale of
    natural resources\5\ theoretically should generate wealth for
    an economy, promote economic progress, and reduce poverty by
    providing a source of investment capital for socio-economic
    development. According to many studies, however, a majority of
    countries that are rich in natural resources and highly
    dependent on revenues from such resources, notably those in the
    developing world, have experienced negative economic, social
    development, and political trends. Surprisingly, they have
    worse economic growth and poverty reduction records than many
    peer countries that lack concentrations of natural resource
    wealth. Furthermore, multiple empirical studies have documented
    a wide range of negative correlations between development and
    resource abundance, which collectively have been dubbed the
    ``resource curse.''\6\ The resource curse is the product of
    multiple factors\7\ including:

        \5\ See Mitchell Rothman, ``Measuring and apportioning rents from
    hydroelectric power developments,'' World Bank Discussion Paper No.
    419, July 2000; Lars Lindholt, ``On Natural Resource Rent and the
    Wealth of a Nation A Study Based on National Accounts in Norway 1930-
    95,'' Discussion Paper 281, Statistics Norway, August 2000; and Ahmad
    Komarulzaman and Armida S. Alisjahbana, ``Testing the Natural Resource
    Curse Hypothesis in Indonesia: Evidence at the Regional Level,''
    Working Paper in Economics and Development Studies, No. 200602
    Department of Economics, Padjadjaran University, August 2006, inter
    alia.
        \6\ Sometimes more generally known as the ``curse of plenty'' or,
    in a term originated by academic Terry Lynn Karl, the ``paradox of
    plenty,'' (The Paradox of Plenty: Oil Booms and Petro-States,
    University of California Press, 1997.)
        \7\ Sources consulted for the following summaries, which do not
    reflect any of the country cases studies that are common in the
    literature on the resource curse, include Paul Stevens, ``Resource
    Impact: A Curse or a Blessing? A Literature Survey,'' International
    Petroleum Industry Environmental Conservation Association (IPIECA),
    March 2003; Jeffrey D. Sachs and Andrew M. Warner, ``Natural resource
    abundance and economic growth,'' NBER Working Paper 5398, 1995; Indra
    de Soysa, ``Empirical Evidence for the Resource Curse,'' Conference on
    Transforming Authoritarian Rentier Economies, September; John James
    Quinn, ``The effects of majority state ownership of industry or mining
    on corruption: A cross-regional comparison,'' CSAE Conference Growth,
    Poverty Reduction and Human Development in Africa, March 22, 2004; John
    Bray and Leiv Lunde, ``Oil And Mining Revenues: From Curse To Blessing
    For Developing Countries?,'' Challenges to Governments, Companies and
    NGOs Occasional Paper No. 3/04; Thorvaldur Gylfason, ``Natural
    Resources and Economic Growth: From Dependence to Diversification,''
    CEPR Discussion Paper No. 4804, December 2004; Thorvaldur Gylfason and
    Gylfi Zoega, ``Natural Resources and Economic Growth: The Role of
    Investment,'' CEPR Discussion Paper No. 2743, March 2001; and
    Thorvaldur Gylfason, ``Natural Resources and Economic Growth: What is
    the Connection?,'' CESifo Working Paper No. 530, 2001, inter alia.
    ---------------------------------------------------------------------------
       Dutch Disease,\8\ an economic scenario in which revenue
            inflows from a dominant export commodity cause the
            exchange rate to appreciate, making imports cheap, and
            undermine domestic production and economic growth by
            decreasing relative competitiveness
    ---------------------------------------------------------------------------
        \8\ Dutch Disease is an economic problem named after a decline in
    the Dutch manufacturing sector in the 1970s following a rise in gas
    exports beginning in the 1960s.

       Crowding out of factors of production (land, labor,
    ---------------------------------------------------------------------------
            capital) by a dominant commodity export industry

       Enclave development, in which a dominant industry, such as
            an oil or mineral sector, develops independently of the
            wider economy, and does not breed cross-sectoral
            growth, diversification, or investment.

       Long term declines in national terms of trade due to
            dependence on revenues from a dominant export commodity
            in a context of static or declining prices for the
            commodity, or declining production yields.

       Attempts to boost ailing domestic industries in commodity-
            dependent countries with low levels of economic
            diversification by enacting uncompetitive or otherwise
            ineffective industrial policy responses using such
            tools as import substitution, subsidies and trade
            protectionism. These policy responses cause domestic
            industries to become even less competitive and decline
            further.

       The negative effects of commodity price and revenue
            volatility on incentive structures related to policy
            and investment decision-making and consumption
            patterns.

       Increases in state borrowing using future national natural
            resource wealth as collateral, often involving the
            expenditure of disproportionately large amounts of
            credit to meet short term needs.

       Growth of often ineffective, state-centric economic policy-
            making when there is access to large extractive
            industry revenues.

       Increases in incentives for corruption and political rent-
            seeking when large commodity revenue streams are
            available.

       Opaque contracting and market processes in extractive
            industries, especially in the oil sector, spur and
            enable corruption and political rent seeking related to
            natural resource revenues.\9\
    ---------------------------------------------------------------------------
        \9\ See Terry Lynn Karl, ``Transparency of Extractive Industries:
    High Stakes for Resource-Rich Countries, Citizens and International
    Business,'' Testimony before the House Committee on Financial Services,
    October 25, 2007; Ian Gary and Terry Lynn Karl, Bottom of the Barrel:
    Africa's Oil Boom and the Poor, June 2003; Global Witness, Time for
    Transparency: Coming Clean on Oil, Mining and Gas Revenues, March 2004
    and A Crude Awakening: the Role of the Oil and Banking Industries in
    Angola's Conflict, December 1999; Save the Children, Beyond the
    Rhetoric: Measuring Revenue Transparency--Home Government Requirements
    for Disclosure in the Oil and Gas Industries, March 2005; and Revenue
    Watch, Following the Money: A Guide to Monitoring Budgets and Oil & Gas
    Revenues, November 2004, inter alia.

        Political commentators in the media have also identified
    undesirable consequences of resources wealth. Many, for
    instance, partially attributed Russia's August 2008, military
    incursion into Georgia to Moscow's new-found ability to act in
    defiance of international opinion thanks to its oil and gas
    revenues. Thomas Friedman of the New York Times has argued that
    there is an inverse correlation in developing countries between
    oil income and democracy. He wrote that ``a whole group of
    petrolist states with weak institutions or outright
    authoritarian governments will likely experience an erosion of
    freedoms and an increase in corruption and autocratic,
    antidemocratic behaviors. Leaders in these countries can expect
    to have a significant increase in their disposable income to
    build up security forces, bribe opponents, buy votes or public
    support, and resist international norms and conventions.'' \10\
    ---------------------------------------------------------------------------
        \10\  Thomas L. Friedman, ``The First Law of Petropolitics,''
    Foreign Policy May/June 2006.
    ---------------------------------------------------------------------------
        While the proportion of countries experiencing such a curse
    is high, a small number of natural resource-rich countries have
    successfully been able to use natural resource revenues for
    social investments and policy initiatives that have generated
    markedly positive socio-economic development, which some have
    dubbed the ``resource blessing.'' Those countries typically had
    a strong government structure, oversight mechanisms, rule of
    law and active civil society before discovering or exploiting
    their natural resource.
        The oil shock of the early 1970's focused attention on the
    development prospects of oil exporting countries in a context
    of high oil prices and demand. Later research focused on the
    impact that large windfall revenues from oil, gas, and mineral
    revenues had on governments' behavior. When such windfall
    revenues were available, governments often appeared to take
    actions that damaged growth and development prospects, and
    produced regressive public resource allocation outcomes. In
    many poor, developing countries, such negative effects appeared
    pervasive and strong, and were often accompanied by
    increasingly authoritarian and elite-controlled governance,
    state ineffectiveness, rises in military spending, and in some
    cases increased conflict, sometimes including civil
    conflicts.\11\
    ---------------------------------------------------------------------------
        \11\ Such conflicts were alleged to be spurred by contestation over
    control of national resource wealth; by suppression of political
    opposition by elites currently in control of the state and its
    revenues; by discontent over environmental damage caused by resource
    extraction activities; and by opposition by indigenes of regions where
    the resource is extracted to the transfer of resulting earnings to
    other parts of the producing country or to its political elites. Such
    conflicts are seen as undermining development because they tend to be
    economically regressive and absorptive of resources that might
    otherwise be invested in economic development and poverty reduction.
    ---------------------------------------------------------------------------
        Increasingly, concern over resource curse effects became
    the focus of policy reform research and advocacy efforts aimed
    at assessing the impact of large extractive industry projects
    on host countries and identifying ways to mitigate potential
    negative macro-economic and development consequences. With
    attention to such issues on the rise, many firms began to seek
    to ensure that their investments and reputations would be
    viewed as ethical, and to assess whether resource curse effects
    might pose an inherent threat to the economics of their
    investment projects. In light of the recognition that the
    resource curse was either possible or likely in countries on
    the brink of receiving large-scale extractive industry
    revenues, the international financial institutions (IFI's) and
    donor governments began to support various institutional,
    legal, and other measures to prevent or mitigate the resource
    curse effects in such countries. These measures also aimed to
    prevent or mitigate potential damage to or poor returns for
    donor-backed investment projects.

                             THE TRANSPARENCY CURE

        There is no simple cure for the resource curse, and absent
    political will by the government of the exporting country,
    little can be achieved. But if leaders are willing, or can be
    persuaded, to address the issue, economists, policy reformers
    and the international financial institutions have offered a
    number of promising prescriptions, most of them based on the
    principle of transparency. Azerbaijan and Nigeria serve as
    examples of the importance of political commitment to improved
    transparency. Political commitment of their presidents has
    facilitated institutionalization of organizations having
    positive impacts.
        Extractive industry transparency runs from the issuance of
    contracts to extract oil, gas and minerals, through payments
    from companies to governments, and on to transparency of
    government management of the proceeds. The premise of
    transparency promotion is that a small amount of money can be
    leveraged by donor governments to ensure that large amounts of
    money in government coffers are used prudently.
        In several countries that staff visited, the rewards of
    donor-driven transparency efforts were evident. For example in
    Peru, USAID and the World Bank have partnered in a $450,000
    program to bolster technical capacity for EITI and the broader
    transparency agenda; with the recent availability of Ministry
    of Finance budget figures online, a wellspring of support was
    created for a massive crackdown on public corruption.
        Since the passage of the Foreign Corrupt Practices Act,
    transparency in the dealings of U.S. businesses abroad has been
    seen to be aligned with long-term U.S. national security and
    economic interests. Likewise, transparency in extractive
    industries abroad is in our interests because mineral wealth
    breeds corruption, which dulls the effects of U.S. foreign
    assistance; inequitable distribution of mineral revenues
    creates civil unrest, threatening political and energy
    instability and adding a price premium to commodities such as
    oil and gas; and energy rich countries can become emboldened
    militarily.
        Staff found that a strong case can be made that
    transparency is in the interests not only of the donor
    community but also of international companies operating in
    developing countries and of the developing countries
    themselves. U.S. energy companies benefit when contract and
    revenue transparency is required in countries of operation.
    American oil companies often have the best technical
    capabilities and operate most efficiently. With a level and
    transparent playing field, they will have an advantage over
    firms that resort to shadowy accounting or corrupt practices to
    gain a foothold in a country of operation. In fact, corrupt
    firms not subject to international accounting standards have
    the most interest in maintaining non-transparent operating
    environments. Moreover, civil unrest can pose a serious threat
    to the profits of international and national oil companies, as
    has happened in the Niger Delta for years.
        For resource rich countries, a transparent operating
    environment should also be a matter of self-interest. A good
    business climate attracts foreign direct investment and can
    lower the cost of market capital. These countries will also be
    eligible to secure attractive project financing from the World
    Bank. Most of all, transparency helps diminish the chances of
    civil unrest. However, host governments are often unfamiliar
    with what is required to ensure extractive industry
    transparency. As staff witnessed, some resource rich developing
    countries are not stepping up to the plate for EITI. In fact,
    several countries that seem to have the highest risk are the
    most reluctant to sign-up. Staff repeatedly heard country
    officials cite their lack of capacity to implement transparency
    reforms as their reason for avoiding the EITI program.
        For example, transparency may be the single most powerful
    weapon the Government of Iraq has to combat its pervasive,
    systemic corruption. Stability in Iraq depends on denying
    terrorists safe haven, strengthening the institutions of state
    to ensure territorial and regional stability, and uniting and
    reconciling the country's internal divisions. Oil is an
    absolutely essential lynchpin in reaching these objectives.
    But, it must be shared equitably and used to the benefit of all
    Iraqis or it will cause further strife.
        In principle, better governance and less corruption thanks
    to greater transparency should result in a more favorable
    investment climate, improved fiscal management and ultimately
    better economic performance. While some interlocutors offered
    anecdotal evidence to support such reasoning, at this early
    stage in the progress of extractives transparency, it is
    difficult to find conclusive empirical data showing that
    greater transparency for resource rich countries leads to
    higher GDP growth. However, it is clear that transparent
    countries have better credit ratings and pay lower interest
    rates as a result. Staff noted that anecdotal evidence
    indicates that transparency is positively correlated with
    development indicators such as life expectancy and infant
    mortality.

             THE EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE \12\
    ---------------------------------------------------------------------------

        \12\ Most information from EITI documents or website, except for
    that on the U.S. role in EITI, which is based on previous CRS research
    and a conversation with a State Department official.
    ---------------------------------------------------------------------------
        The major international transparency effort is the
    Extractive Industries Transparency Initiative (EITI) which aims
    to strengthen governance by improving transparency and
    accountability in the extractives sector. The EITI sets a
    global standard for companies to publish what they pay and for
    governments to disclose what they receive.\13\
    ---------------------------------------------------------------------------
        \13\ EITI website http://eitransparency.org/
    ---------------------------------------------------------------------------
        EITI is an effort initiated by the United Kingdom in 2002
    following advocacy efforts by a non-governmental effort called
    the Publish What You Pay campaign. This campaign seeks the
    mandatory disclosure of taxes, fees, royalties and other
    payments by oil, mining and gas companies to governments. The
    objective of EITI is to encourage and aid efforts by
    governments to require the public release of accurate
    information regarding all types of such extractive industry
    state revenue receipts. EITI efforts seek to achieve that goal
    for all countries rich in extractive industry commodities like
    oil and gas, particularly those in the developing world. EITI
    also seeks to encourage other countries to endorse, fund, or
    otherwise support such efforts.
        Key EITI goals are to promote public fiscal transparency
    and political accountability; prevent revenue-related
    corruption; promote the prudent use of national natural
    resource wealth to support sustainable economic growth,
    development, and poverty reduction; and avoid negative socio-
    economic impacts resulting from mismanagement of such wealth.
    EITI's revenue data release requirement is intended to provide
    citizens and civil society groups with basic but crucial
    information necessary to effectively monitor government
    stewardship of natural resource revenues; hold decision-makers
    accountable for the use of public funds; prevent various
    ``resource curse''-related phenomena; and signal investors that
    a given country offers a transparent, rule of law-based
    business environment. EITI also supports efforts to establish
    and foster partnerships between governments, civil society, and
    the private sector in EITI signatory countries in order to
    ensure cooperation and effective, shared efforts by these
    stakeholders to achieve accountability.

        Operation. Members of the EITI are governments, companies,
    civil society groups, investors and international
    organizations. The primary mechanism for implementing EITI is a
    voluntary agreement signed by a country to abide by EITI
    principles and criteria contained in the EITI Validation Guide.
    Once a country voluntarily signs on, reporting by all
    extractive companies operating in that country becomes
    mandatory.
        A signatory country must implement four sign-up criteria as
    certified by the EITI Board. It must formally commit to
    implement EITI goals, work with civil society, and private
    sector stakeholders to meet those goals, and appoint an EITI
    country implementation leader. It must also produce an
    implementation Work Plan approved by a country's EITI
    stakeholders and issue certain other documents. It then becomes
    a Candidate country. There are currently 23 EITI candidate
    countries: Azerbaijan, Cameroon, Cote d'Ivoire, Republic of
    Congo, Democratic Republic of the Congo, Equatorial Guinea,
    Gabon, Ghana, Guinea, Kazakhstan, Kyrgyzstan, Liberia,
    Madagascar, Mali, Mauritania, Mongolia, Niger, Nigeria, Peru,
    Sao Tome and Principe, Sierra Leone, Timor-Leste, and Yemen.
        A Candidate country has two years to fully implement all
    EITI requirements and processes listed in the Validation Guide.
    Core requirements are that a Candidate country government
    appoint a credible, independent administrator; publish and
    disseminate information on all state revenues from the oil, gas
    and mining sectors; and substantively engage with its national
    stakeholder group. If it is certified or ``validated'' by an
    EITI Validator\14\ as having fulfilled these goals, it then
    becomes an EITI Compliant country. To remain compliant, it must
    continue to implement EITI validation procedures and attempt to
    improve its EITI and resulting transparency processes by
    implementing lessons learned during validation.
    ---------------------------------------------------------------------------
        \14\ A firm selected from a small pool of qualified firms that were
    chosen by the EITI Board through an international competitive bid
    process in 2007. There are currently seven qualified Validators.
    ---------------------------------------------------------------------------
        No countries have been validated by EITI yet, though there
    is expectation that Azerbaijan and Nigeria will be validated in
    the next year.

        Organization and Funding. The EITI process is supported by
    a small Secretariat headquartered in Oslo, Norway and is
    accountable to the EITI Board. It is made up of a head, four
    policy advisers, a communications manager, an executive
    secretary, and a three person administrative support staff. The
    Secretariat oversees implementation activities generally and
    provides advice to and consults with implementing countries;
    houses and disseminates information about EITI, country
    compliance activities, and the implementation process; and
    promotes revenue management and transparency practices. In
    September 2006, an ad hoc entity, the EITI International
    Advisory Group (IAG), presented a range of policy
    recommendations on promoting EITI, assessing EITI country
    compliance, and creating EITI processes and organizational
    structures and functions. One recommendation was that the
    initial Secretariat staff serve for up to three years, for a
    term ending in October 2009. If taken up, it is unclear what
    will happen to the Secretariat.
        EITI is financed, in part, through a World Bank-
    administered, primarily donor government-supported Multi-Donor
    Trust Fund (MDTF). The activities funded by the MDTF are
    approved by a Management Committee made up of the World Bank
    and DTF-funding governments that have provided over $0.5
    million to the MDTF. The MDTF supports efforts by implementing
    countries to meet the EITI criteria, although such countries or
    their bilateral donors must fund their own EITI activities
    wherever possible. EITI principles are also being promoted in
    World Bank country programs generally. The EITI Board meets
    several times a year to consider and recommend EITI procedures
    and strategies for consideration by the biennial EITI
    Conference. The Board also oversees and directs the Secretariat
    and assesses the EITI compliance status of implementing
    countries and firms. Its members are chosen by the EITI
    Conference based upon proposals from EITI implementing and
    donor countries, and civil society groups and private sector
    entities party to EITI.
        United States support for EITI has included repeated pushes
    for it to be taken up in G-8 forums (on G-8 commitments, see
    below) and in bilateral diplomatic engagement advocates that
    countries participate, endorse, or fund EITI. On occasion, the
    U.S. helps countries undertake steps to comply with EITI
    requirements. The United States also participated in the EITI
    International Advisory Group (IAG).
        The United States is an active member of the EITI Board,
    but has not funded the activities of the EITI secretariat or
    contributed to the MDTF. Thus, it is not a member of the MDTF
    Management Committee and has no influence over the distribution
    of the trust's funds. That may change in FY 2008 because the
    State Department plans to provide $3 million in Economic
    Support Funds (ESF) to the MDTF, in compliance with the joint
    explanatory statement accompanying P.L. 110-161.
        In FY 2006 and FY 2007, respectively, the United States
    allocated $1 million in bilateral economic support funds (ESF)
    for use in assisting countries to implement EITI. The United
    States also funds a wide range of other transparency and
    accountability efforts that may support EITI goals, but are not
    necessarily dedicated specifically to EITI implementation.
        Within the Board, key U.S. goals are to ensure that the
    Secretariat focuses on assisting Candidate countries to undergo
    EITI validation and become Compliant counties and that it not
    engage in ``mission creep'' activities, such as broadening the
    types of commodities (e.g., tropical forest wood) covered under
    EITI. A second goal is to work with the Secretariat to define a
    set of recommended legal documents and structures that would
    govern and more clearly define the roles of various EITI
    entities.
        EITI currently lacks a charter and formal legally binding
    rules. This makes it difficult for the U.S. delegate to the
    Board to formally undertake some functions, such as
    participating in the ``direction'' or governance of the
    Secretariat when acting as a member of the EITI Board, due to
    U.S. legal requirements that govern U.S. participation in
    international organizations. Establishing a charter would also
    clarify the roles and relative powers regarding EITI governance
    matters held by the Board and the Secretariat. Also, U.S.
    representation at the EITI board is at a lower level than other
    board members. These factors give the U.S. an arms-length
    relationship to EITI that contributes to the perception that
    the United States is a reluctant participant in the extractives
    transparency movement generally.
        A common criticism of EITI is that it only addresses
    revenues from extractive companies to governments and is not
    useful in ensuring that revenues are not lost to corruption or
    ineptitude after they are received by the government. Staff at
    the EITI Secretariat are sensitive to this criticism but say
    that, while their program may not be the full answer to
    extractive industry transparency, it is a critical part of the
    solution.
        Now that a number of countries have signed up for EITI,
    committee staff believe that the EITI Secretariat should focus
    more on the actual implementation of EITI. Staff recommends
    that the Secretariat develop a standardized disclosure
    procedure so that EITI country information is comparable. This
    would enable international companies to set up consistent
    systems and would prevent resource-rich countries from having
    to ``reinvent the wheel'' by setting up country specific
    disclosure procedures.
        In general, staff was surprised that in a number of
    resource-rich countries, there was not enough information about
    the benefits of extractive industry transparency and little
    awareness of EITI within governments, some U.S. embassies, and
    with bilateral donors. A senior minister in one country
    remarked that he thought G-8 members had given up on EITI since
    they did not talk about it anymore.

                                 UNITED STATES

        The United States government, at the G-8 and in other fora,
    formally supports the EITI and other transparency and anti-
    corruption measures, such as the OECD anti-bribery convention
    and the U.N. Convention Against Corruption. One of the five
    ``key objectives'' for U.S. foreign assistance is to ensure
    that recipient countries are ``governing justly and
    democratically,'' which for developing countries means that
    foreign aid is directed to ``support policies and programs that
    accelerate and strengthen public institutions and the creation
    of a more vibrant local government, civil society, and media.''
    Through USAID and other agencies the U.S. funds programs
    related to good governance, rule of law, capacity-building for
    fiscal management, etc. And the United States has for 30 years,
    under the Foreign Corrupt Practices Act, outlawed bribery of
    foreign officials by American corporations even while, for much
    of that time, European firms were allowed to write off bribes
    as a regular business expense. Most recently, in the summer of
    2008 the State Department, under a provision of the FY2008
    State appropriations bill, issued new guidance to embassies to
    revoke or deny visas to high-level foreign officials involved
    in extractive industries corruption. In September 2008, the
    U.S. voted for a pro-EITI resolution at the United Nations.
        Nonetheless, staff found that U.S. Government attention
    overseas to ``resource curse'' matters is sporadic, and that
    support for extractives transparency measures often appears
    half-hearted. At the State Department, there is no clear
    direction from the top to make the issue a priority. Staff
    found, for instance, that in some countries, including
    Cambodia, and Nigeria, U.S. embassy and AID personnel were
    actively promoting EITI and other anti-resource curse measures,
    while in other countries U.S. engagement on these specific
    issues was absent. For example, transparency is critically
    important in Equatorial Guinea, yet the United States has
    extremely limited personnel and financial resources dedicated
    to the issue. Meanwhile, directed funding--often to specific
    programs--reduces flexibility to respond to transparency-
    promoting opportunities and frequently distracts the attention
    of our embassies.
        The U.S. representative on the EITI board is the State
    Department's Director of the Office of International Energy and
    Commodity Policy while other countries send representatives two
    or more ranks higher, at the level of deputy assistant
    secretary. Rank matters in international diplomacy, as does
    ability to demonstrate management authority over a breadth of
    issues in the area, such as budgeting and revenue management.
    Staff found unpersuasive State's argument that a higher-level
    official would not give EITI sufficient attention. At the EITI
    board, the U.S. has concentrated on what outsiders consider
    arcane legal issues rather than more substantial matters, such
    as technical assistance for countries seeking to implement the
    reporting and accounting requirements.
        The U.S. only recently committed to donate to the EITI
    Multi-Donor Trust Fund at the World Bank, and there is some
    perception that until 2005, the Bush administration was
    dragging its feet on EITI because of oil company opposition.
    Following a legislative directive to deposit $3 million with
    the EITI Multi-Donor Trust Fund, the Senate Foreign Relations
    Committee received a notice on July 31, 2008 from USAID stating
    its intention ``to obligate $2,976,000 in FY 2008 ESF to
    contribute to the Extractive Industries Transparency Initiative
    (EITI) Trust Fund.'' The committee has expressed strong support
    for this funding.
        Similarly, the U.S. appeared reluctant at the United
    Nations, where a resolution was introduced in support of EITI,
    which its backers hope will have a similar impact to the U.N.
    resolutions supporting a certification system for ``blood
    diamonds'' that helped lead to the successful Kimberley
    Process. The U.S. voted for the resolution in September 2008,
    when it was passed, but did not join Britain, Italy, Germany
    and France (among others) as a co-sponsor. Deputy Secretary of
    State John Negroponte, in an earlier communication informing
    the committee that the U.S. would vote in favor, gave no
    specific reason for declining co-sponsorship. In a separate
    communication with the committee, State officials called the
    resolution ``premature'' and not ``useful.''
        The U.S. has supported the repeated G-8 endorsements of
    EITI, but follow-up has been weak. The recent ``Accountability
    Report: Implementation Review of G-8 Anti-Corruption
    Commitments'' details U.S. support for a number of good
    governance and transparency initiatives at the World Bank and
    other development banks, and notes the anti-corruption
    component in many of the Millennium Challenge Corporation's
    activities. But with respect to EITI, it states only, ``The
    United States provided a total of $990,000 in FY06 funds to
    support civil society participation in EITI implementation in
    Peru, Nigeria, and the Democratic Republic of Congo, and FY07
    funding provides for approximately the same level of support.''
        Some elements of the government have wholly embraced
    extractives transparency. The Overseas Private Investment
    Corporation (OPIC), for instance, signed on to EITI principles
    in 2006 and incorporates EITI into its project selection and
    design. It will not, for example, finance a project if the host
    country prohibits disclosure of revenues and contracts.
    Although only a handful of OPIC's projects are in the
    extractives field, staff found OPIC to be an excellent example
    of how U.S. agencies should be integrating EITI.
        Staff found that the Treasury Department's Office of
    Technical Assistance (OTA) has made important contributions to
    transparency efforts and has potential for greater reach.
    Funded partially by Treasury funds and partially by other U.S.
    assistance programs, OTA helps host governments improve
    financial management, develop clear budgeting procedures, and
    in general build the populace's confidence in government fiscal
    processes. It sends resident advisors to work directly in a
    ministry of finance to develop the needed systems and
    procedures. Staff found that this could be highly useful for
    resource-rich developing countries needing assistance in
    managing and accounting for revenues. While OTA has worked in
    such countries as Chad, Nigeria and Azerbaijan, it does not
    have a specific focus for extractive industry countries. Staff
    found several constraints on OTA advisors doing more work in
    extractive industry countries, including a small budget and
    difficulty in finding countries with sufficient political will
    and commitment to undertake recommended reforms. The biggest
    single constraint appears to be that neither OTA nor the
    Treasury Secretary has made extractives transparency a
    priority. Doing so would raise the U.S. profile on the issue
    and contribute to U.S. policy objectives of reducing resource-
    related corruption, enhancing the effectiveness of U.S. foreign
    aid, and improving energy security.
        Staff identified a number of other government agencies that
    have international programs that could be brought to bear on
    various parts of the extractives ``value chain.'' For example,
    the U.S. Geological Survey helps assess world-wide deposits of
    non-fuel minerals, helping to make the global market more
    transparent; the Minerals Management Service provides foreign
    technical assistance on oil leasing procedures and revenue
    management; and the U.S. Forest Service provides assistance to
    countries combating illegal logging through such means as
    satellite monitoring and wood certification. However, staff
    found that these various programs are undertaken with little
    coordination or strategic direction, and few officials involved
    in them had even heard of EITI, much less used it to inform
    their policies. Staff found that neither the State Department
    nor USAID nor the Treasury Department nor the National Security
    Council has the lead on extractives transparency. Staff found
    that without more forceful and vigorous direction, U.S.
    progress in battling the resource curse, improving energy
    security and enhancing global stability will fall short of its
    potential.
        During their travels, staff also heard many foreign
    officials ask why the United States itself has not signed up to
    have its considerable oil and gas revenues (the U.S. is the
    world's third largest oil producer) ``validated'' by an outside
    party as the developing countries are required to do under
    EITI. Technically, the United States is not a ``resource rich''
    \15\ extractive industry country because extractives revenues
    make up a relatively small part of its government revenues and
    exports. Because EITI involves some infringement of
    sovereignty, such skepticism is to be expected. Staff were
    further told that even some countries which have signed up for
    EITI feel it is being imposed upon them by the West, which
    doesn't play by the same rules.
    ---------------------------------------------------------------------------
        \15\ Definition of Resource Rich: 1) average share of hydrocarbon
    and/or mineral fiscal revenues in total fiscal revenues at least 25%
    over the period or 2) average share of hydrocarbon and/or mineral
    export proceeds in total export process of at least 25%. Source IMF
    (2007) Guide on Resource Revenue Transparency, Appendix I
    ---------------------------------------------------------------------------
        Staff found that compliance with EITI's reporting
    requirements should be fairly easy because the U.S. Government
    already collects and publishes nearly all the required data.
    Bureau of Land Management and Minerals Management Service (MMS)
    officials said that all the terms of leases are published,
    including royalty release clauses, all bids, including losing
    ones, are released, flow data is published, and even
    proprietary seismic studies are made public after 25 years.
    Compared to other countries, very little is kept secret in U.S.
    oil leasing, MMS said. Providing that the agencies involved
    would not have to change any of their procedures, submitting
    tallies in EITI's revenue categories would be inexpensive. By
    voluntarily agreeing to go through the EITI validation process,
    the U.S. could take a very low-cost step that would pay large
    transparency benefits. It would be an important example to
    developing countries, demonstrate that the U.S. is willing to
    do what it is asking of others, defuse the charge that it is
    discriminating against poor countries, raise the U.S. profile
    regarding the transparency agenda, enhance EITI's credibility,
    and ultimately support reformers in developing countries who
    want to bring their nations under the EITI regime.

                         MANDATORY SECURITIES REPORTING

        United States and multilateral efforts to promote
    extractive industries transparency are intended to work within
    the bounds of the political will and technical capacity of the
    resource-rich countries. With their revenue windfall, some of
    these nations are increasingly intransigent in resisting
    outside pressure. This has led some to urge that the U.S.
    should take steps domestically to promote transparency
    overseas, much as the Foreign Corrupt Practices Act was U.S.
    domestic legislation to thwart corruption abroad. One such
    proposal is to mandate revenue reporting for companies listed
    with the Securities and Exchange Commission and working in
    extractives abroad.\16\
    ---------------------------------------------------------------------------
        \16\  In mid-2008, members of the Publish What You Pay Coalition
    proposed to "strengthen" the voluntary element of extractive industries
    revenues reporting with a mandatory reporting requirement on oil
    companies. Under legislation they helped draft which was introduced in
    the House by Rep. Barney Frank (D-MA) as H.R. 6066 and in the Senate by
    Senator Charles Schumer (R-NY) as S. 3389, all oil, gas and mining
    companies, American and foreign, with securities listings in the United
    States would be required to report their payments to foreign
    governments as part of their regular filings with the Securities and
    Exchange Commission.
    ---------------------------------------------------------------------------
        Backers of EITI, particularly the extractive companies,
    have long stressed the virtue of its voluntary nature.
    Countries are persuaded to join and to submit their books to
    outside review because it is in their self-interest to do so,
    not because the developed countries or the IFIs punish them if
    they do not. (EITI ``candidate'' countries require all
    extractive companies operating on their territory, including
    their own national oil companies, to report revenue, and so far
    no oil company has refused to comply.) A small number of
    international oil companies, notably BP and Norway's Statoil,
    report country-by-country payments even where it is not
    required.
        Those who support a mandatory reporting strategy argue it
    would expand the benefits of transparency and disclosure to
    countries currently outside EITI and other voluntary
    initiatives and would provide useful information to investors.
    These claims have some merit. Experience with the Foreign
    Corrupt Practices Act is instructive. After the U.S. Government
    issued written guidelines for company behavior under FCPA,
    industry representatives reported that it strengthened the hand
    of those firms who sought to resist pressure for payoffs or
    other corrupt acts from host governments and officials. And in
    general, host governments have not seen this U.S. domestic
    legislation as violating their sovereignty. In a global
    environment in which oil and gas resources are coming under
    increased state control, promoting revenue transparency as a
    key element of improved governance may also prove useful for
    investors, as evidenced by this being one component of credit
    rating scores. Proponents of the SEC approach also claim it
    would not be burdensome because the companies should have the
    data readily at hand, nor would it be competitively
    disadvantageous to U.S. firms since a large number of foreign
    energy and mining companies have or are seeking U.S. listings.
        However, staff found that others have reservations about
    the mandated SEC approach, and in some cases flatly oppose it.
    Two principal concerns emerged. First, the number of foreign
    companies covered is not as broad as supporters say, leading to
    a situation in which U.S. firms are at a competitive
    disadvantage. More important from an anti-corruption
    perspective, it could encourage corrupt governments to seek
    contracts with firms not covered by the legislation, in effect
    driving the more transparent companies from the field. Some
    foreign firms could simply delist rather than comply. Second,
    some believe that such a requirement would undermine rather
    than strengthen EITI (one interlocutor said it would ``kill
    EITI.'') They argue that producing countries would react
    negatively to this forced disclosure as an infringement on
    their sovereignty. They would see it as violating the voluntary
    aspect that is at the core of EITI and walk away from the
    initiative.
        Staff concluded that establishing mandatory reporting
    requirements on a multilateral basis would be preferable to the
    United States doing so unilaterally, providing it is clear that
    it would not undercut EITI. This could be done through the G-8,
    where repeated endorsements of EITI and revenue transparency
    have not been followed up with concrete action. The SEC could
    seek to harmonize such reporting requirements among major
    global stock exchanges through the International Organization
    of Securities Commissions.

                        ADDITIONAL MULTILATERAL EFFORTS

    Extractive Industries Transparency Initiative Plus Plus (EITI ++)
        Building on EITI's revenue transparency agenda, the World
    Bank has sponsored a program called EITI++ which is designed to
    cover the entire breadth of the resource chain, from
    extraction, to other stages such as processing, managing
    revenues, and promoting sustainable and efficient utilization
    of resource wealth. EITI ++ seeks to support committed
    governments, notably in Africa, in implementing good policy and
    practice throughout the whole process of natural resource
    utilization.\17\
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        \17\ http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/
    0,,contentMDK:21727813pagePK:64257043piPK:437376theSitePK:4607,00.html
    ---------------------------------------------------------------------------
        EITI++ would address criticism that EITI is focused on only
    one part of the revenue chain--company payments to governments.
    However, the name EITI++ has generated confusion about how it
    will work with EITI. Such confusion is understandable, since
    the World Bank's EITI++ program is not at all related to the
    EITI organization. Some countries have wondered if it is worth
    signing up for EITI given that EITI++ is being launched.
        Staff universally considered the revenue-reporting element
    of EITI as limited and the potential value of broadening EITI
    to include the elements of EITI++ as an essential next step in
    achieving the intended improvements in governance and outcomes
    for developing countries.
    G-8
        While the G-8 cannot directly impose honest government,
    their actions to support accountability, transparency and anti-
    corruption efforts in developing countries with extractive
    industries such as oil and gas could have a significant impact
    on the energy market. Where there is instability, there are
    higher prices. Foreign aid investments to support development
    in oil exporting regions can help quell discontent and help
    assure a stable energy supply. While the G-8 has made more than
    twenty transparency commitments over the past five years, there
    is a clear failure to implement. Rhetoric without action is not
    sufficient for responsible diplomacy or policy.
        In order to maintain credibility, the G-8 countries must
    meet the very standards that they press for the world. Russia
    is the only G-8 country reliant on extraction of oil and gas
    for a significant part of its economy. While Russia, as a G-8
    member, has supported the extractive industry transparency
    initiative (EITI), it has failed to enlist. Some in Russia have
    argued that the country does not participate in EITI because
    the initiative is mainly for developing countries while others
    note that, given Russia's status, EITI should be a reasonable
    standard that it could reach and surpass.
        In fact, the rest of the G-8 should also sign up for EITI
    and subject themselves to the transparency required. As
    discussed in the United States section of this report, given
    the level of disclosure already practiced in the United States,
    that would be an easily achievable goal.
        The G-8 issued an accountability report on their anti-
    corruption efforts following the 2008 Summit that serves as an
    initial step towards transparency, which should be expanded and
    given much greater detail in the future. It is hardly
    comprehensive, and its lack of detail makes it hard for
    parliaments and civil society to hold their leaders to task.
        As noted in the mandatory reporting discussion of this
    report, the G-8 countries should develop harmonized listing
    requirements for extractive companies to disclose their
    payments to governments. Also, G-8 financial regulators could
    encourage influential credit rating agencies and commercial
    banks to take explicit account of a country's transparency
    record in making their evaluations of credit-worthiness and
    sovereignty risk.
    International Monetary Fund
        The International Monetary Fund (IMF) first published the
    Guide on Resource Revenue Transparency (the IMF Guide) in 2004
    as a supplement to its other publications on fiscal
    transparency, the Code of Good Practices on Fiscal Transparency
    (the IMF Code) and Manual on Fiscal Transparency (the IMF
    Manual). The purpose of the IMF Guide is to provide more
    specific guidance to countries that are rich in natural
    resources so that they can implement the practices on fiscal
    transparency described more generally in the other volumes. The
    IMF Guide focuses on natural resource revenues because they
    tend to be large and more complicated than other types of
    revenue and are often associated with poor governance and weak
    economic growth. Furthermore, the IMF Guide is used as a
    framework for the IMF to assess fiscal transparency in
    resource-rich countries under the Reports on the Observance of
    Standards and Codes (ROSCs). The IMF and the World Bank
    undertake ROSCs, at the request of member countries, to
    summarize the extent to which they observe certain
    internationally recognized standards and codes. Fiscal
    transparency is one of twelve areas in which ROSCs are
    performed.
        The IMF Guide provides detailed fiscal transparency ``best
    practices'' for resource revenue management, including examples
    of national experiences. It also discusses work being done by
    other international agencies, including the EITI, and
    incorporates this work into its recommendations. It closely
    follows the format and prescriptions of the IMF Code. It is
    really an expansion of the Code as regards natural resource-
    specific issues.
        Like the IMF Code, the Guide is broken down into four main
    parts. These address: (1) clarity of roles and
    responsibilities; (2) open budget processes; (3) public
    availability of information; and (4) assurances of integrity.
    EITI figures heavily into the third part, public availability
    of information. The first part, clarity of roles and
    responsibilities, focuses on the legal framework governing the
    relationship between the government, national resource
    companies (NRCs), and international companies. It offers
    guidance for the basic legal framework, including the
    allocation of resource rights, tax and revenue issues,
    ownership of NRCs, and intra-government revenue sharing. In
    each case, countries are encouraged to proceed with the
    specific laws that work best under their existing legal
    framework, but they are also encouraged to make the laws
    transparent, simple, and leave little or no room for
    discretion. The second part, open budget processes, recommends
    transparency of budget processes, integrating any resource-
    related funds into the overall fiscal policy framework, and
    planning to smooth the impact of volatile revenue flows to
    ensure long-term fiscal stability.
        The IMF Guide is designed to be a key resource guiding
    governments' reporting on financial matters beyond current
    revenue transactions (the purview of EITI) including spending
    of such revenue, resource reserves, and debt against resource
    collateral. The Guide describes the EITI criteria and reporting
    requirements in this section, and also gives examples of
    countries that have adequate resource revenue transparency
    outside of the EITI, such as the Chilean mining industry. The
    fourth and final part, assurances of integrity, examines some
    requirements for establishing good practice in areas such as
    data quality, internal controls, and independent external
    audit.
        Adherence to the IMF Guide is tracked through the ROSCs on
    fiscal transparency. As of March 2007, the IMF had performed
    fiscal transparency ROSCs on 86 countries, or about half of its
    members. The following resource-rich countries\18\ have had a
    fiscal ROSC published on the IMF website: Algeria, Azerbaijan,
    Cameroon, Colombia, Equatorial Guinea, Gabon, Indonesia, Iran,
    Kazakhstan, Mexico, and Russia.\19\ Additionally, the following
    EITI candidate countries have had a fiscal ROSC published on
    the IMF website: Ghana, Mali, Mauritania, Mongolia, and Peru.
    The following EITI candidate countries have not had a fiscal
    ROSC published on the IMF website, although they may have had
    other ROSC reviews: Congo (Brazzaville), Democratic Republic of
    Congo, Guinea, Liberia, Madagascar, Niger, Nigeria, Sao Tome
    and Principe, Sierra Leone, Timor-Leste, and Yemen. Given the
    voluntary nature of the IMF resource revenue guidelines, there
    is no clear tool to encourage resource-rich countries to
    actually implement them.
    ---------------------------------------------------------------------------
        \18\ As defined by the IMF, based on exports and revenues from the
    years 2000-2005.
        \19\ For a complete list of fiscal transparency ROSCs, see http://
    www.imf.org/external/np/rosc/rosc.asp?sort=topic#FiscalTransparency.
    ---------------------------------------------------------------------------
        The IMF regularly evaluates member countries' economies and
    fiscal policies in Article IV consultations. Of concern to
    staff was the uneven examination of extractive industry issues
    in Article IV reports. In some resource rich countries
    consultation reports, extractive industry transparency issues
    were not mentioned at all. In others, the IMF board discussion
    was inconsistent with the reports. For instance, Angola ($40
    billion in oil revenues in 2007) was recently applauded by the
    IMF even though an IMF study showed major failures in good
    governance criteria.
    World Bank and the Regional Development Banks
        The World Bank Group undertakes various activities to
    prevent corruption in all of its projects, including those in
    the extractive industries. The Extractive Industries Review
    (EIR) is the World Bank's main tool to address all the
    potential problems associated with supporting projects in the
    extractive industries, and preventing corruption figures high
    on the list.
        The World Bank Group management initiated the Extractive
    Industries Review (EIR) after the Annual Meetings in 2000. At
    those forums, a group of nongovernmental organizations (NGOs)
    requested that the World Bank stop supporting extractive
    industries because they believed the resulting adverse impacts
    far outweighed any positive development impact. The EIR was an
    independent review process to evaluate the impacts of World
    Bank activities in the natural resource sectors, and make
    recommendations about the future involvement of the World Bank
    in these sectors. As part of the review process, research was
    commissioned, project site visits were made, and regional
    consultations were undertaken with industry, government, and
    civil society representatives. The EIR advisory group presented
    its final report to the World Bank in January 2004, and in
    September 2004 the World Bank Group management issued its final
    response to the EIR. The Board of Directors agreed that the
    Bank would conduct an annual review of progress toward
    achieving the objectives outlined in the management response.
    The last such review was published in February 2008.
        The basic question asked by the EIR was whether extractive
    industries projects could be compatible with the World Bank's
    goals of sustainable development and poverty reduction. The EIR
    found that there could be a positive role for the World Bank in
    the extractive industries, but only if it was possible for the
    World Bank to contribute to poverty alleviation through the
    extractive industries, which could only happen with certain
    conditions in place. The main conditions necessary for
    extractive industries to have a positive contribution to
    sustainable development found by the EIR are: ``pro-poor
    governance, including proactive planning and management to
    maximize poverty alleviation through sustainable development;
    much more effective social and environmental policies; and
    respect for human rights.''\20\
    ---------------------------------------------------------------------------
        \20\ Striking a Better Balance: The World Bank Group and the
    Extractive Industries. The Final Report of the Extractive Industries
    Review. December 2003.
    ---------------------------------------------------------------------------
        The World Bank and its private sector arm, the
    International Finance Corporation, do not finance extractive
    activities unless companies commit to making revenues paid to
    the government transparent. Despite endorsement of EITI from
    the Asian Development Bank and the African Development Bank,
    the European Bank for Reconstruction and Development is the
    only other MDB that requires such a commitment. The remaining
    regional development bank, the Inter-American Development Bank
    has not yet endorsed EITI. With the view that the international
    donors who give aid to resource-rich countries should focus
    their efforts on improving revenue management and fighting
    corruption, staff recommends that all regional development
    banks adopt the World Bank/IFC transparency requirement.
    Relatively small amounts of assistance could thus help channel
    large amounts of countries' own funds toward poverty reduction.
    Staff also recommends that, when possible, the multilateral
    development banks promote transparency before the resource
    revenues actually start flowing from extractive industries.
        Staff recommends that the multilateral development banks
    condition loans on progress on transparency. Staff also
    recommends that the multilateral development banks promote
    transparency before the resource revenues actually start
    flowing from extractive industries.

                              EXTRACTIVE COMPANIES

        Energy and mining companies expressed clear interest in
    supporting transparency in resource-rich countries. One
    investor noted that ``the lack of revenue transparency has
    translated into a lack of real governance and lack of delivery
    of services.'' Many businesspeople noted that stable governance
    and concrete improvement in the quality of citizens' lives led
    to stability which is critical for the business environment.
    One person noted ``what investors hate most is uncertainty.
    Transparency and certainty go hand in hand.''
        Staff heard from several extractive companies becoming
    weary of having to serve as de facto host governments,
    providing social services and looking after countries'
    populations, when the government's elites fail to use newfound
    wealth to provide social services.
        In some cases, extractives companies are being particularly
    pro-active. While still in nascent stages, Newmont Mining in
    Ghana has joined a public-private partnership with USAID to
    improve governance of extractive resources at the local level.
        Equatorial Guinea provides a stark example of how, under
    certain circumstances, private industry can markedly improve
    transparency promotion efforts, including signing up for EITI.
    ExxonMobil in particular played a pivotal role in advocating
    Equatorial Guinea's accession to EITI candidate country status,
    building knowledge of EITI within the government and civil
    society, and assisting in persuading officials to attend
    meetings.
        Some companies enjoy an enhancement in reputation,
    especially among socially responsible investors, when seen to
    push EITI; the role of reputation-conscious oil majors was
    cited as a major impetus for Azerbaijan signing up for EITI.
        International energy companies can face difficult choices
    in balancing a pro-transparency stance and potentially damaging
    their relations with host governments. Angola is a case in
    point. While companies have an interest in transparency as
    relates to bidding processes, contract enforcement, and wider
    certainty in doing business, Angola with all its flaws is still
    a relatively attractive investment destination. The 2001
    government rebuff of BP's transparency efforts continues to
    cast a shadow. These companies also face strong competition
    from a range of international and national oil companies. Yet
    it is also evident that extractive companies, particularly with
    backing from their home governments, could be more proactive in
    transparency promotion. The Foreign Corrupt Practices Act has
    proven useful. With U.S. Government guidelines for company
    behavior, the Angolan government has been responsive to this
    home country regulation.
        Some companies are reluctant to engage directly with
    countries on EITI specifically and even more concerned about
    raising concerns about government budget transparency, which is
    currently outside the EITI parameters. They told staff that
    they did not want to jeopardize their relationships with
    government officials since there were plenty of other companies
    without a ``transparency agenda'' waiting in the wings to
    secure extractive contracts.
        Several groups have called for public disclosure of
    contracts, and numerous U.S. Government officials and private
    industry representatives suggested they sawno reason why basic
    contractual information should not be made public. In some
    countries, certain information in contracts is understandably
    considered to be proprietary. Yet provisions related to
    transfer of funds to the federal government, payments to
    localities including in-kind contributions, and agreements for
    governments to take a specified amount of product all should be
    made public. An international standard for disclosing
    contractual information should be adopted.

                  RESOURCE REVENUE AND SOVEREIGN WEALTH FUNDS

        Significant oil revenues are both a burden and a blessing
    for oil producing nations. The burden is the necessity to
    manage and calibrate the proper use and investment of such
    revenues for the citizens of that country. Resource revenue
    funds can be a useful tool for countries to manage revenues in
    a manner that staves off ``Dutch disease.'' For some countries,
    the establishment of a resource revenue fund allows for more
    political transparency and third-party surveillance. It may be
    appropriate for those countries to segregate resource revenues
    for future generations, thereby insulating money from current
    political appeals for popular support that are often wasteful.
    In others, diversion of extractive revenues into a separate
    account can result in a political fund that is vulnerable to
    misuse since it is outside the normal budgeting process. What
    truly matters is that the resource accounts be designed and
    managed prudently. The IMF is expected to issue best practice
    guidelines for sovereign wealth funds during the fall of 2008
    which should establish how to design a fund to best benefit the
    citizens of a resource rich country and to ensure that the
    funds' external investments are based on economic, not
    political, considerations.
        Of the 21 countries examined by staff for this project, at
    least 12 had sovereign wealth instruments with various
    management strategies from conservative low-interest holdings
    to more outgoing investment strategies: Azerbaijan, Chile,
    China, Equatorial Guinea, Kazakhstan, Nigeria, Norway, Russia,
    Saudi Arabia, Timor-Leste, and United Arab Emirates. Many of
    the other countries had resource revenue funds at the state or
    community level. The size and management of many of these funds
    remain opaque and some predecessor instruments have collapsed
    with little indication of reform or improved management.
        Staff found that many burgeoning sovereign wealth funds and
    local resource revenue funds face absorption capacity
    problems--they are not equipped to effectively invest their
    sovereign wealth funds in their own country or abroad.
        In some countries, staff identified a lack of political
    will to successfully manage revenues for future generations.
    For example, in Chad, the government failed to implement the
    World Bank-supported Revenue Management Program, resulting in a
    vacuum of transparency and accountability for oil revenues. In
    contrast, Timor-Leste has established an Investment Advisory
    Board to advise the Minister of Finance on investment strategy,
    performance benchmarks, and performance for its Petroleum Fund,
    which is audited annually by an internationally-recognized
    audit firm.\21\
    ---------------------------------------------------------------------------
        \21\  Abraao Fernandes de Vasconselos, Banking & Payments Authority
    General Manager
    ---------------------------------------------------------------------------
        Staff observed, in countries such as Norway and Chile, that
    successful sovereign wealth funds were operating in countries
    with strong governance and prudent fiscal management and that
    transparency has shored up support for these funds' existence.
    Staff also noted that local resource revenue funds, in
    countries such as Chad, Nigeria and Peru, lacked the technical
    capacity to effectively spend their revenues in a transparent
    manner.
        Much attention has focused lately on the impact of
    sovereign wealth funds on international financial markets and
    geopolitics. The U.S. Treasury Department estimates that the
    number of sovereign wealth funds doubled between 2000 and 2005.
    As oil prices remain well above $100 per barrel, the incomes of
    oil exporting nations are soaring. By some estimates, these
    national investment reserves now hold close to $3 trillion.
    Russia has about $130 billion in its Stabilization Fund, and
    Abu Dhabi Investment Authority's value is estimated to be
    between $300 and $900 billion. According to Treasury Under
    Secretary David McCormick, sovereign wealth fund assets are
    ``larger than the total assets under management by either hedge
    funds or private equity funds and are set to grow at a much
    faster pace.''
        While aggressive investment strategies pose certain
    concerns, sovereign wealth funds have infused helpful liquidity
    into international financial markets and, in some cases,
    promoted beneficial local development. Yet they are not
    ordinary investors because their ties to foreign governments
    create the potential that they will be used to apply political
    pressure, manipulate markets, gain access to sensitive
    technologies, or undermine economic rivals. Some observers have
    argued that the primary goal of sovereign wealth fund managers
    will almost always be to produce a good return on invested
    assets. Consequently, they are unlikely to engage in political
    or economic manipulation. But we have witnessed, in recent
    years, numerous instances of nations using or threatening to
    use their energy assets for political purposes.
        As Professor Daniel Drezner testified before the Senate
    Foreign Relations Committee, ``the biggest effect of sovereign
    wealth funds on American foreign policy is their effect on
    democracy promotion efforts.'' He argued that ``democratization
    is a much more difficult policy for the United States to pursue
    when the target government is sitting on trillions of dollars
    in assets to buy off discontented domestic groups.
    Authoritarian governments in the Middle East and East Asia will
    be more capable of riding out downturns that would otherwise
    have threatened their regimes.'' Drezner added that ``looking
    at the long term, sovereign wealth funds are one component of
    an alternative development path, suggests a possible rival to
    liberal free-market democracy. In state-led development
    societies, governments could use sovereign wealth funds, state-
    owned enterprises and banks, national oil companies, extensive
    regulation, and other measures to accelerate economic
    development, buy off dissent and promote technology transfer.
    If this model proves sustainable over the long run--and this is
    a big if--it could emerge as a viable challenger to the liberal
    democratic path taken by the advanced industrialized states.''
    \22\
    ---------------------------------------------------------------------------
        \22\ ``The Foreign Policy Implications of Sovereign Wealth Funds,''
    testimony from Professor Daniel Drezner at June 11, 2008 Senate Foreign
    Relations Committee hearing entitled Sovereign Wealth Funds: Foreign
    Policy Consequences In An Era of New Money.
    ---------------------------------------------------------------------------
        The U.S. Treasury Department has responded to concerns
    regarding the potential political and economic power of the
    huge sovereign wealth funds by undertaking efforts to balance
    the country's need for foreign investment with prudent
    safeguards. Domestically, it has been working to improve
    accountability within the Committee on Foreign Investment in
    the United States for review of foreign government-controlled
    transactions, and it is creating a working group on sovereign
    wealth funds. Globally, the Treasury Department is supporting
    the International Monetary Fund and the World Bank in their
    development of voluntary best practices for sovereign wealth
    funds. It also has proposed that the Organization for Economic
    Co-operation and Development identify best practices for
    countries that receive foreign government-controlled
    investment. In addition, the Securities and Exchange Commission
    requires that sovereign wealth funds disclose holdings of 5% or
    more in a public company and the Federal Reserve imposes a
    number of regulations on sovereign wealth fund investments in
    U.S. banks.

                           COUNTRY REVIEWS BY REGION

    Africa
                Angola
        Angola has an estimated population of 16.4 million and a
    per capita income of $2,360. The average Angolan has a life
    expectancy of 42 years, and the infant mortality rate is
    estimated at 260 deaths per 1000 births. Angola's 2007
    estimated oil export revenues were approximately $44 billion,
    comprising approximately 72% of its GDP.
        Recovering from a 27-year civil war that left the economy
    in shambles and ended only in 2002, the Angolan government has
    been focused on consolidating peace among rival forces,
    demobilizing combatants, resettling displaced populations, and
    rebuilding devastated infrastructure. These tasks are
    complicated by stark poverty with only half of Angolans
    enjoying access to clean water and extreme economic
    inequality--easily palpable when one travels beyond the capital
    Luanda's crowded commercial center. Relations with the United
    States are made difficult by the fact that the U.S. Government
    supported the political forces now in the Angolan opposition.
        Angola has been an oil producer since the 1960s. Despite
    the devastation wrought by the civil war, the energy sector
    continued to flourish throughout the war years and left Angola
    well-positioned to capture the benefits of the last five years
    of the global run-up in oil prices, although hydrocarbon
    revenues are expected to soon plateau. On the back of petroleum
    exports, which totaled an estimated $44 billion in 2007, Angola
    has been Africa's fastest growing economy since 2005 and one of
    the fastest growing in the world at 23.4% in 2007. The primary
    symptom of Dutch Disease, currency appreciation, has been
    strongly felt in Angola, with inflation reaching heights of
    300% in recent years.
        Angola's national oil company Sociedade Nacionale de
    Combustiveis de Angola, Sonangol, has negotiated contracts with
    international oil companies that allow the government to
    capture a greater proportion of the revenues as global oil
    prices rise, which in today's energy markets leaves Angola
    financially well-positioned compared to many of its peers. In
    addition to oil, Angola is positioned to become a significant
    exporter of Liquefied Natural Gas (LNG). Natural gas exports
    are expected to get a boost in the years ahead when the new
    Soyo LNG facility comes online. Diamonds are also a big
    business in Angola, with the parastatal Endiama having control
    over both production and regulation. IMF data cites over one
    billion dollars in revenue from diamonds in 2006 from over 9
    million carats exported.\23\ These two extractive industries
    dominate Angolan exports (petroleum 95.9 % and diamonds 3.6%),
    and petroleum exports account for nearly 80% of government
    revenues.\24\
    ---------------------------------------------------------------------------
        \23\  IMF, ``Angola: Selected Issues and Statistical Appendix,''
    IMF Country Report No. 07/355, October 2007.
        \24\ IMF, ``Angola: Selected Issues and Statistical Appendix,'' IMF
    Country Report No. 07/355, October 2007.
    ---------------------------------------------------------------------------
        Transparency is critical for Angola's own ambitions to gain
    international respect. Macroeconomic reform, economic
    development, and participatory governance all rely upon
    improved dissemination of information in order for the
    government to be more effective and to enable civil society to
    play a productive role in increasing accountability of Angolan
    officials. For years, serious concerns have been raised about
    billions in revenues going unaccounted. Good governance of the
    country's resources and revenues goes far beyond the issue of
    transparency. With the reality that extractives revenues will
    plateau, and eventually dry up, the Angolan government faces
    the challenge of leveraging today's resources for long-term
    economic sustainability.
        The most striking illustration of the difficulty of
    transparency in Angola occurred in 2001, when the Angolan
    government lambasted BP for making a public commitment to
    disclose its payments to the government. From that low point,
    Angola has made impressive progress, most vividly illustrated
    in monthly Ministry of Finance internet disclosures of exports
    in revenue and physical quantity from petroleum (block by
    block) and diamonds. This is a particularly significant step,
    as related by Endiama officials, given that such disclosure was
    previously prohibited as a matter of law. The government
    engages external auditors such as KPMG and publishes at least
    some of their reports which do include criticisms of the
    government. Angola participates in Article IV consultations
    with the IMF, and is undertaking other review mechanisms
    despite past disagreements. Likewise, the government of Angola
    has joined with the U.S.G. and World Bank in transparency
    related technical assistance, and it has joined the NEPAD peer
    review mechanism.
        Angola is not an EITI candidate country, although it has
    been an observer and has participated in international
    meetings. One Ministerial-level official commented that he
    ``saw no reason'' for Angola to not sign up for EITI, but
    another explained that its rejection of EITI candidacy was
    ``purely an issue of political sensitivity'' based upon the
    assertion that Angola's domestic politics do not allow for
    policy and legislation to be driven from the outside.
    Interviews reinforced public statements that there is not
    currently political will for EITI candidacy. Nor, according to
    a senior Angolan official, have G-8 members in the country
    actively advocated the initiative.
        A few interviewees outside the government commented that
    Angola actually publicizes more information as an EITI observer
    than do EITI candidate countries. Yet, published data tends to
    be general or difficult to verify. There is not a clear public
    consolidated accounting of the variety of revenue streams
    associated with contracting for extractive rights or for in-
    kind payments and community investments. Nor are the terms of
    contracts made public. Signature bonuses up to and exceeding $1
    billion are well-known, but they are not included in regular
    revenues reporting. There are also widely discussed ``back
    room'' agreements related to companies or governments offering
    bonuses and non-energy related in-kind payments for
    preferential access in bidding for drilling rights.
        International oil companies sometimes have community
    development funding built into their contracts. Implementation
    of such projects have to be directed through Sonangol, creating
    opportunities for corruption while also creating a parallel
    funding stream not reported in published budget documents.
        Angola has made important progress in improving its
    budgetary process and publicizing its budget, and it is working
    with the World Bank, IMF, U.K. Department for International
    Development (DFID) and the U.S. Government in this area. Budget
    documents are available on the internet, although they lack
    useful detail. The government is now putting in place a new
    computerized platform that will facilitate better planning and
    cross-ministry accounting and will allow monthly budget
    reports. The Angolan government is considering the
    establishment of a sovereign wealth instrument, and it is being
    courted by major international investment groups. Currently,
    excess reserves are held in a treasury reserve fund in Angola's
    National Bank.
        Despite the challenges faced by U.S. diplomacy, U.S.
    interests in Angola are strong, and the Angolan government has
    made clear their desire for broader cooperation to be built
    upon the foundation of energy trade. However, the government is
    keenly aware of U.S. historical involvement in Angola and its
    anti-reform elements are emboldened by surging oil revenues.
    The current U.S. Embassy team in Luanda has made remarkable
    progress in forming a productive relationship with the Popular
    Movement for the Liberation of Angola (MPLA)-dominated
    government. Increased activity, particularly in support from
    Washington, is needed. Staff did not miss the irony that while
    they can come to Angola with a specific mandate to examine
    transparency issues, Embassy Luanda reported it was left to
    terminate its transparency capacity building program due to
    lack of funds. U.S.G. assistance for good governance in Angola
    is limited by competition for funds with our humanitarian
    objectives in the country and constraints on spending set by
    Congress and the administration. Close to 90% of fiscal year
    2008 funding is dedicated to health, humanitarian, and demining
    activities. The remaining 10% of funds support a broad remit of
    good governance programs--from supporting elections to
    transparency to civil society support to judicial reform. Of
    note was the country team's recognition of the key value U.S.
    assistance could bring to a nation flush with new wealth but
    lacking technical and knowledge capacity. Nonetheless, funding
    for good governance in 2008 decreased, eliminating future
    funding for transparency programming.
                Chad
        Chad has a population of nearly 11 million people and
    average per capita income is $1,230. Average life expectancy is
    50.4 years with an infant mortality rate of 208 deaths per 1000
    births. Total hydrocarbon revenues for 2007 were approximately
    $1.2 billion, which constituted 17% of GDP, and will be dwarfed
    in 2008.
        Chronic insecurity is the defining feature of Chad,
    affecting state activity and international involvement.
    Neighboring Sudan is a haven for rebel forces seeking to bring
    an end to Chadian President Deby's eighteen years in power and
    has sent a quarter of a million refugees across the border from
    the conflict in Darfur. The February 2008 rebel assault on
    Chad's capital, N'Djamena, virtually stopped all government
    function and international assistance programs. A ``bunker
    mentality'' prevailed which has only slowly started to lift.
        Chadians are among the poorest people in the world.
    Prospects for Chadians improved when oil began to flow to world
    markets through the World Bank supported Chad-Cameroon pipeline
    in 2003, running from Doba in southern Chad through Cameroon to
    an off-shore loading platform at Kribi. With surging global oil
    prices, Chad has thus far realized over $2.5 billion in
    revenues from oil production--an amount originally expected to
    take 25 years to achieve. Although surging global prices create
    an unexpected windfall now, those revenues will plateau and
    begin diminishing in the foreseeable future. Although the
    economy is still one-third dependent on agriculture, global oil
    prices are now the principle driver of GDP growth, exposing the
    country to economic volatility.
        Current oil production is from three fields in Doba, which
    are operated and owned by Esso Exploration and Production Chad,
    Inc., a consortium led by Esso (ExxonMobil) with Chevron and
    Malaysia's state-owned oil company Petroliam Nasional
    (Petronas). Relations with the government are productive but
    not easy. The government regularly attempts to lodge new fees
    on oil companies and had a protracted tax disagreement with
    Chevron and Petronas that led to their expulsion from the
    country. President Deby has publicly called for Chad to gain a
    60% stake in the Esso-led consortium.
        Nominally, Chad maintains a surprisingly progressive set of
    institutions and international agreements for transparent
    management of its extractive revenues. Chad has a number of
    institutions built into its government infrastructure that
    could play useful roles in financial management and auditing.
    Overall, however, these institutions do not have the political
    (as opposed to legal) mandate to function effectively and
    largely lack expertise necessary to fulfill their duties.
    Transparency in oil revenue reporting is to be commended in
    Chad. The Esso-led consortium, with the two pipeline owners,
    publishes expansive reports from job generation, to land use
    compensation, to environmental impacts. These reports contain
    quarterly and aggregate payment data broken into general
    categories of royalties, pipeline income, corporate income tax,
    and miscellaneous. Conducted quarterly during the construction
    phase and biannually thereafter, these reports are subject to
    World Bank verification. Reports are available on the internet
    and printed in English and French. Although the style of
    document gives the impression of a public relations brochure,
    it contains the most thorough reporting found in the five
    countries staff visited in Africa.
        The Chadian government is pursuing candidacy in EITI, yet
    progress on this too was delayed by the February 2008 conflict.
    The Chadian government has formally expressed interest in
    candidacy, and held a World Bank supported conference on the
    subject in August 2007. This was followed by a December 2007
    decree ordering creation of a ``high council'' to make progress
    on EITI qualification, but, according to an official, it was
    delayed due to the February conflict and has not yet gotten
    back on track. The effort is meant to be coordinated out of the
    Ministry of Petroleum, but has not received any budget support
    although it is reported that the African Development Bank may
    provide financial backing.
        In exchange for World Bank participation in the petroleum
    development and pipeline project, the Chadian government agreed
    to a Revenue Management Program, as the World Bank's direct
    involvement in oil revenue management is known, consisting of
    conditions on management of revenues and guidance on spending
    of 85% of royalty and dividend revenues (and eventually 100%).
    Those revenues were to be deposited into an escrow account held
    at Citibank in London (a prudent debt service mechanism for a
    risky country), and expenditure projects had to be approved by
    independent multi-stakeholder College. This arrangement was
    aimed to minimize opportunities for corruption and spending
    outside of development priorities, and provide for a longer
    time horizon for revenues.
        However, that law was effectively gutted by the President's
    amendment in December 2005 to eliminate the Future Generations
    Fund (thus shifting approximately $36 million to Chad's general
    treasury) to expand priority sectors to include territorial
    administration and security, and to shift directed spending in
    favor of the general treasury. Declaring a breach of contract,
    the World Bank exercised its rights to halt its activities and
    freeze the Citibank escrow account in January 2006. With more
    than the first quarter of 2008 consumed by the February
    conflict--including the government pulling monies from the
    country's reserve fund to replenish the military--it is
    unlikely that the government will meet targets for 2008 agreed
    in a subsequent negotiations with the Bank. In the judgment of
    staff, the World Bank should reengage in its revenue management
    efforts immediately and restore its presence on the ground.
        U.S. Government assistance to the country favors
    humanitarian aid and security cooperation. These are necessary
    priorities, but U.S. interests in the country will be
    strengthened by more consistent demonstration of a broader
    agenda which will also require reinstitution of an economic
    officer position at the Embassy. Despite the mixed record on
    revenue management, Chadian officials expressed gratitude that
    staff visited Chad to discuss topics beyond humanitarian action
    and security. Skeptical views of Chadian government sincerity
    to reform are understandable. However, receipt of oil revenues
    in excess of one billion dollars per year, which could support
    economic and social development, makes it all the more urgent
    that the United States seeks to bolster reform-minded
    individuals and activities in Chad.
                Equatorial Guinea
        Equatorial Guinea has an estimated population of
    approximately 515,000 and an average life expectancy of 50.7
    years. The infant mortality rate is 205 deaths per 1000 births
    and the average per capita income is $10,150. This is a
    deceiving statistic given the vast poverty of the majority of
    Equatoguineans--income is clearly not distributed evenly in the
    country. The total hydrocarbon revenue in 2007 was an estimated
    $3 billion, which is approximately 29% of its GDP.
        This tiny African country of Spanish-speaking people is
    comprised of five islands--the capital Malabo is situated on
    the island of Bioko--and a sliver of territory, Rio Muni, on
    the African mainland. With oil export revenues over $3 billion
    annually, hydrocarbon export has fundamentally altered
    Equatorial Guinea's economic environment and dramatically
    increased its prospects. The means--human resources, processes,
    and organizations--of translating such massive wealth into
    economic and social development are extremely limited. The
    historical record of the government's political repression,
    corruption, and disregard for service delivery leaves many
    observers cynical at the prospect for the Equatoguinean
    government committing to meaningful development, let alone
    political and social opening. Yet recent overtures of the
    country's president and government give reason for optimism, no
    matter how guarded.
        The Equatoguinean government is sharply criticized for near
    stagnant social development indicators even as GDP has soared.
    Between 2002 and 2006 the country experienced an average real
    annual growth of 15.8%. Economic development in Equatorial
    Guinea has thus far concentrated on major infrastructure. The
    Equatoguinean government is quick to point out that
    infrastructure collapsed along with the economy after the
    departure of the Spanish in 1968 and subsequent authoritarian
    rule by President Francisco Macias.
        Equatorial Guinea exhibited few economic prospects prior to
    the discovery of the offshore Zafiro oil field in 1995, and
    rare international attention on the country focused on the dire
    human rights situation and corruption. Today Equatorial Guinea
    is the third largest oil producer in Africa, providing a
    substantial gain of new production and investment in a region
    increasingly critical for the global diversification of oil
    sources. With current oil sales well in excess of $3 billion,
    Equatorial Guinea now ranks in the global top ten GDP per
    capita (PPP) at $44,100. A new state of the art liquefied
    natural gas (LNG) terminal outside the capital Malabo positions
    Equatorial Guinea to play an independent and useful role in an
    increasingly global natural gas market as well.
        Transparency is fundamental--albeit a first step--to
    improving Equatorial Guinea's domestic governance and
    international reputation, including in the financial sector
    which the government is relying on for foreign investment and
    financing. Power, which is synonymous with information about
    and control over finances, remains highly concentrated under
    President Obiang. His nod is required for any appreciable
    progress, and government ministries outside of energy have had
    little reason to build internal capacity, let alone take
    initiative to deliver on the needs of its citizens.
    Nonetheless, President Obiang has signaled incremental
    devolution of power and greater economic and political
    openness. The trajectory of improvements is unlikely to be
    linear, and the extent of his commitment will be tested over
    time. Yet simply more development projects, including those
    aimed at meeting social needs, will not be sufficient for
    President Obiang to demonstrate genuine change in the
    governance of his country. Transparency in Equatoguinean
    accounts, budgeting, and expenditures are minimum threshold
    markers for change. In fact, opposition leaders largely agreed
    with this statement, affirming transparency's importance on the
    same level with free and fair elections.
        Equatorial Guinea is an EITI candidate country. EITI's
    strength in Equatorial Guinea is derived from the fact that
    Equatorial Guinea's candidacy was made by personal decree of
    President Obiang, though attention to EITI from the members of
    his government has been uneven. It is likely helpful that the
    government coordinator and assistant coordinator also occupy
    significant positions within the key offices of the Finance
    Ministry and the prime minister's office, respectively. EITI
    will be funded from the state budget. Funding mechanisms will
    need to be closely monitored in order to ensure that government
    financing does not impinge on the freedom of associated civil
    society groups to operate. In the short-term, international
    assistance in funding for civil society is likely to be
    necessary.
        In terms of promoting transparency in the extractive
    industries and EITI in particular, the familiarity of U.S.
    energy company staff to the Equatoguinean government has
    allowed the private entities to be effective advocates.
    ExxonMobil, in particular, played a pivotal role in advocating
    Equatorial Guinea's accession to EITI candidate country status,
    building knowledge of EITI within the government and civil
    society, and assisting in persuading officials to attend
    meetings. Corporate commitment to continuing progress will be
    essential for EITI to have impact.
        Energy is the only sector bringing significant economic
    activity to the country, and its income per capita is so large
    that Equatorial Guinea is not eligible for lending from
    international financial institutions. International energy
    companies are required to invest heavily in community projects
    and have made strong contributions particularly in health and
    education. The ministries, particularly the energy ministry,
    have a great deal of say in selecting projects, but projects
    are carried out directly by the companies. This leaves little
    value-added in fostering planning and infrastructure capacity
    to implement projects.
        As a member of Banque des Etats de l'Afrique Centrale
    (BEAC), Equatorial Guinea is legally obliged to deposit excess
    revenues with that institution, although it is known that
    government accounts are held in other countries with no
    official reporting. Currently, there are two separate accounts
    at the BEAC. The first account consists of the country's
    primary reserves, which are said to be worth over half of total
    reserves in BEAC, and another fund sometimes referred to as the
    ``Generations Fund'' intended for future government
    expenditure. Both funds are said to yield less than 3%, and
    even this is an increase from reforms over the last couple of
    years. Current data on total reserves is not available.
    Currently Equatorial Guinea is not in a position to establish
    and manage its own sovereign wealth instruments, but these are
    services that could be contracted out in relatively short order
    and will attract suitors world-wide. This may be an attractive
    option in order to keep revenues from flooding the economy (a
    hedge against Dutch Disease-like impacts), and help bring
    Equatorial Guinea closer in line with international financial
    norms. The U.S. is in a relatively weak position to offer
    assistance in this area given the continued unease with how the
    Riggs Bank episode unfolded, which has hampered further
    financial activities by the Equatoguinean government in the
    United States.
        A future resource in the nascent stage of development and
    utilizing Equatoguinean government resources is the Social
    Development Fund (FSD), an E.G.-U.S. Government cooperative
    endeavor. Created by a Memorandum of Understanding signed April
    11, 2006, the FSD is an agreement for U.S. technical experts to
    work with the Equatoguinean government in the areas of health,
    education, women's affairs and the environment. The pace and
    performance of this endeavor has been closely monitored for
    Equatoguinean government sincerity. The agreement quickly ran
    into difficulties due to misunderstanding between the two
    governments in interpreting the agreement. Not unexpectedly in
    a country with severely limited institutional capacity, the
    Equatoguineans preferred turn-key projects while capacity
    building and host government partnership were the watchwords
    for USAID. This impasse, however, is reported to have largely
    passed. At the time of the staff visit, 45 projects valued at
    more than $87 million over three years had been approved but
    were awaiting final authorizations to proceed. The U.S.
    Government should continue its firm backing for this program
    for its development benefits and because it is the first
    significant devolution of spending authority from the
    President.
        The United States' diplomatic footprint in Equatorial
    Guinea is miniscule. In 1995, the U.S. embassy was closed and
    our diplomatic relationship was managed out of Embassy Yaounde
    in Cameroon. The general sentiment behind closure of the
    embassy was that the Equatoguinean government showed little
    reason to hope for progress, U.S. interests were too small, and
    the costs of maintaining our embassy too high compared to the
    opportunities available. The regrettable decision to pullout
    from Malabo has left diplomatic relations on soft ground. The
    first resident Ambassador since 1995 was confirmed in 2006, and
    he is supported by just two Foreign Service Officers and one
    American USAID contractor. Progress has been made in rebuilding
    understanding between our governments in the last year and
    half, but many obstacles still exist.
                Ghana
        Ghana has a population of approximately 22.5 million people
    and an average life expectancy of 59.1 years. With about 78.5%
    of the population living under $2/day, the infant mortality
    rate is 112 deaths per 1000 births. Ghana has a per capita
    income of $2,640. Ghana is a country on the threshold of
    economic stability and growth. Many Ghanaians fear that the new
    discovery of oil and its attendant revenues may overwhelm the
    nascent institutions and positive reforms and derail economic
    growth. These recent reforms and accompanying economic success
    have led to predictions that Ghana may, with accelerated growth
    as a driver, achieve the historic milestones of achieving the
    Millennium Development Goals and middle-income status by 2015.
    The growth rate necessary to deliver on such prognostications
    would have to be fueled by a number of positive inputs
    including donor assistance, which appears to be waning; non-
    concessional loans which have been made possible by improved
    risk perceptions; sustained fiscal responsibility; conservative
    monetary policy; and continued investment in infrastructure and
    institutional capacity. Such a future appears to be within
    their means, according to the IMF, if the 2008 election cycle
    machinations do not play havoc with their fiscal discipline and
    the energy crisis of 2006-2007, caused by low rainfall and
    mounting demand, do not coincide to sap what excess growth the
    country has generated of late.
        Ghana has achieved growth that is the envy of other African
    countries and has improved governance and policy to achieve
    remarkable milestones reflected in its eligibility for debt
    relief, significant private sector loans, a Millennium
    Challenge Corporation (MCC) Compact, and growing investor
    confidence. Nonetheless, it remains tarred with a legacy of
    corruption that has toppled several post-independence
    governments and that surveys indicate remains a considerable
    problem at the national and particularly at the local and
    district level. Ghana also suffers from challenging
    institutional capacity hurdles that will require considerable
    time and technical assistance to build to levels capable of
    administering effective management and oversight of its
    extractives, particularly hydrocarbons.
        The prospects for Ghana's development were made more
    evident in May 2007, when the IMF published an extremely
    positive 2007 Article IV Consultation and predicted that the
    country could achieve middle-income status by 2015. A month
    later, after 111 years of exploration, , Ghana announced the
    discovery of an oil field that may contain well over a billion
    barrels. At this point, Ghana receives little in oil revenues,
    producingonly 700 b/d. By 2010 Ghana expects to be pumping
    significantly more from the new oil fields and its budget has
    incorporated gradual increases in revenue beginning in 2009.
        Formerly known as the Gold Coast, Ghana also has a long
    history of mining experience and has relied on significant
    exports of gold, as well as manganese, bauxite, diamonds and a
    valuable export cocoa crop to drive its effort toward middle-
    income status. Many in the country, distressed by perceived
    over-generosity in contract terms and exploitation by mining
    companies, believe that Ghana has prospered in spite of
    extractives, not because of them.
        Ghana, an EITI candidate country, and established Ghana-
    EITI (GEITI) to address transparency in the existing mining
    sector, since it was formed prior to any substantial oil
    discovery. GEITI is one of various initiatives working to
    enable transparency in Ghana. It draws its strength from
    political buy-in rather than law or institution thus far. In
    fact many people pointed to the fact that there is already
    substantial legislation and other institutions that are
    empowered to pursue transparency and accountability. It was
    evident to staff that GEITI was accepted across the government
    but in a rather narrow focus upon the major mining industry and
    companies. Little reform has been accomplished in the informal/
    small mine slice of the sector which employs 80% of laborers.
    GEITI appears to have begun expansion of its mandate to the
    expenditure side rather than limiting itself to revenue as
    other countries have. GEITI was quite clear on the necessity of
    such scrutiny in order to achieve their goal of effective
    resource revenue governance and management for the country.
    Nonetheless, despite unanimous GEITI Board concurrence on
    expenditure scrutiny, this purpose is contingent upon their
    ability to scrutinize at both national and local levels both of
    which present their own obstacles. Their efforts to date have
    been primarily directed at the local level where they believe
    the most immediate problems exist.
        GEITI and associated stakeholders are at a point where they
    must decide whether or not to institutionalize by statute, as
    Nigeria has done, or to make themselves more independent from
    government. There is considerable political support under the
    current administration behind GEITI, with representation from
    key offices, including a representative from the Vice
    President's office who said: ``the fact that I am here shows
    the political importance of this work; I can take
    recommendations to the Presidency.''
        Despite Ghana's considerable accomplishments in
    establishing macro-economic stability and improving budget
    management, Ghana faces daunting challenges to ensure that oil
    revenue is managed in a manner that will benefit current and
    future generations. As a young democracy with large trade and
    fiscal deficits and extensive infrastructure and development
    needs, Ghana will be challenged to exercise fiscal discipline
    and strike a balance between current and future spending.
        The overall control of the petroleum sector is vested in
    the Ministry of Energy, but it is the state oil company, the
    Ghana National Petroleum Corporation (GNPC), which has
    practical authority over the sector according to laws
    established in the 1980's. GNPC has been granted exclusive
    responsibility for commercial petroleum operations as well as
    regulatory and enforcement responsibilities. Petroleum
    agreements are subject to cabinet and parliamentary
    ratification. Some Ghanaian officials believe that ``the
    technical capacity does not exist anywhere else in the
    government to effectively manage GNPC's current
    responsibilities.'' The officials further noted that Ghana
    would require significantly more engineers and hydrocarbon
    expertise. The U.S. Government and international community have
    many reasons for supporting the stability and sustainability of
    Ghana's economic and political improvements. Traditional U.S.
    Government assistance in Ghana emphasizes health and education
    programs, and the MCC programs helpfully broaden assistance, in
    particular to agriculture which is vital to building up ahead
    of potential Dutch Disease impacts once oil revenues start to
    flow. Beyond concurrence with Ghana's Growth and Poverty
    Reduction Strategy, the U.S. Mission Strategic Plan already
    identifies Democracy and Governance as the primary focus in our
    assistance strategy. However, the resources to adequately meet
    that priority are extremely limited. As Ghana's economy
    accelerates, foreign assistance will continue to diminish.
    Education and health are sectors that Ghana can and should fund
    from its own resources. U.S. assistance should fill critical
    gaps in those important sectors while concentrating efforts to
    build technical capacity for government institutions to manage
    and guide government policy-making and decisions and deliver
    effective oversight. Oversight will also require substantial
    investment in civil society. Ghana has a head start but will be
    scrutinized closely both by its own citizens as well as its
    neighbors, in the hope that the resources become a blessing for
    the country.
                Nigeria
        Nigeria has a population of 144 million and a per capita
    income of $1,050. Life expectancy is 46.5 years and the infant
    mortality rate is 194 deaths per 1000 births. About 92.4% of
    the population lives under $2/day and the number of people
    living in poverty has actually been increasing. Estimated oil
    export revenue in 2007 was $57 billion, constituting about 34%
    of GDP.
        Nigeria is a key ally and economic partner of the United
    States. Nigeria plays a major role in advocating peace and
    democracy in Africa, from helping resolve political disputes in
    Togo and Cote d'Ivoire to providing peacekeeping forces in
    Liberia and Sudan. Nigeria is a chief trading partner in Africa
    for the United States, is among the top suppliers of oil to the
    United States, and has the potential to be an engine of
    economic opportunity in Africa. Its laudable economic reform
    program has facilitated 7% growth, major debt has been
    eliminated, inflation is below 6%, while fiscal reserves and
    the banking sector are strong.
        Underscoring the importance of oil and gas to Nigeria,
    Nigeria's ``Energy Minister'' is the President himself, and
    hydrocarbons export is the linchpin of Nigeria's economy. This
    also points to the potential for political influence--both good
    and bad. According to the World Bank, oil and gas production
    account for 85% of government revenues, and 99% of export
    earnings. The discovery of hydrocarbons in the Niger Delta in
    1956 began a prolonged period of oil and gas production that
    has delivered over an estimated half trillion dollars in
    income. Yet Nigeria's historical inability to effectively use
    oil revenues--including $57 billion in 2007 alone--for broad
    development speaks against the Nigerian government's goal of
    being a global economic leader. Soaring global energy prices,
    persistent instability in the Middle East, and steadily
    increasing global demand all work to commend Gulf of Guinea oil
    and natural gas as an attractive source of energy import
    diversification for world markets. Long at the fore of regional
    oil and gas production, Niger Delta instability has recently
    caused Nigeria to lose its lock on production leadership in the
    region and has roiled global oil markets. Failure to
    effectively use hydrocarbon revenues for development has
    propagated Niger Delta insecurity, in turn rendering Nigeria
    unable to realize the full value of its resources. Shut-in
    production, stolen oil, and oil and gas lost due to attacks by
    militant groups onshore and at sea--let alone labor disputes--
    have removed as much as 1 million barrels of production at
    various points in time.
        Efforts to promote transparency and improved governance of
    fiscal resources in Nigeria is set against a legacy of manifest
    corruption, political volatility, and slow institutionalization
    of regulatory processes and oversight bodies. Corruption and
    mismanagement by a succession of military governments
    interspersed by occasional weak civilian governments have been
    the norm in the 48 years since independence. Corruption is
    rampant, government procedures are opaque, and new state and
    federal legislation is needed on public procurement, fiscal
    responsibility, and freedom of information. Whilst the
    political environment around elections remains contentious and
    significant problems of governance persist, Nigeria's
    institutional capacity to deal with political volatility,
    judicial confidence, and legal remedy on fiscal issues is
    notably improving.
        The Nigerian economy has been wracked for decades by a
    failure to effectively manage and account for revenues,
    especially those from the petroleum industry. However, until
    1970 when oil income began to markedly increase, the scope of
    mismanagement and theft was limited by the national income. At
    the close of the Biafran civil war, oil income was just $250
    million, but by 1974 due to the OPEC oil embargo it had soared
    to $11.2 billion, dominating the economy and lavishing those in
    power with untold opportunities for malfeasance with little
    scrutiny. Although the massive income would wax and wane, the
    mismanagement and theft became entrenched.
        In Nigeria's case there are two distinct repositories for
    the income derived from oil--the Federation Account and the
    Excess Crude Account. The Federation Account holds funds for
    use of the federal government, the 36 state governments, and
    774 local government councils then draw their respective
    proceeds for general budget execution. The formula for each
    governing entity's share is developed by the Revenue
    Mobilization, Allocation, and Fiscal Commission (RMAFC).
    According to the formula, the federal government currently
    receives 48.5% of oil and gas revenue, states receive 24%, and
    local governments 20%--a minimum of 13% of revenue accruing to
    the RMAFC account is stipulated to be returned to the oil-
    producing states. The remaining 7.5% is intended to be set
    aside but it is unclear for what purpose. The ultimate use of
    the finances that are distributed at all levels was beyond the
    means of staff to assess. However, all officials with whom
    staff spoke echoed the sense that without scrutinizing the
    budget expenditure side of the federal and state and local
    levels there would be little chance of reducing waste, fraud
    and corruption. Budget management is limited, however. In 2003
    only 36% of the national budget was met. By 2006 the
    effectiveness of implementing the budget had improved to 89%,
    although in 2007 there was a dip to 70% according to government
    estimates.
         Revenues collected above the projected year's budget
    outlays, or when oil was in excess of the $54/barrel budgeting
    benchmark in 2008, flow into the Excess Crude Account. This
    Account was set-up by President Obansanjo's administration in
    2003. Great dissension exists between the federal government
    and the states as to what should be done with this fund. Some
    have indicated that despite the federal management of the
    Excess Crude Account, the Constitution stipulates that the
    proceeds of natural resources belong to all the states, and
    thus should be moved to the Federation Account. Others have
    recommended prudent investment of the Excess Crude Account and
    use for infrastructure projects throughout Nigeria.
        The emphasis on reform of Nigerian governance began during
    President Obasanjo's term in office and led to significantly
    more U.S.G. interest in engaging Nigeria. The reform effort was
    focused on greater transparency and counter-corruption, which
    included providing investigative mechanisms that could wield
    considerable authority. President Obasanjo established the
    Economic and Financial Crimes Commission (EFCC) as well as the
    Independent Corrupt Practices and Other Related Offences
    Commission (ICPC). Through high-profile prosecution of
    corruption allegations, and despite accusations of their use
    for political ends by the Obasanjo administration, these
    organizations have served to raise awareness of the prevalence
    of corruption at the highest levels of the government.
        Nonetheless, in late December 2007, after President
    Obasanjo left office, Nigeria's Inspector General of Police
    announced the transfer of EFCC head Nhuru Ribadu to the state
    of Jos to attend a one-year course at a Nigerian policy
    institute, raising questions of the new government's commitment
    to reform in its present form. The EFCC was also placed under
    the authority of the Minister of Justice, possibly limiting its
    effectiveness. Staff visited with then acting head of the EFCC,
    Ibrahim Lamorde, who maintained that ``there would be no
    letdown'' in the effective investigation and pursuit of corrupt
    officials. The EFCC's momentum does not appear to have
    diminished though their resources are still limited and their
    efforts are helping to reveal and remedy a plainly systemic
    corruption problem. The EFCC's work has brought information to
    the fore; what is done with that information and how capable
    the actors are in making best use of it is an opportunity for
    international technical and other assistance to help.
        President Obasanjo indicated his intent to pursue greater
    transparency by naming a reform-minded Finance Minister and
    pursuing implementation of the Extractive Industries
    Transparency Initiative (EITI). By 2004 Obansanjo had launched
    the Nigerian version (NEITI), and had established a committee
    to guide the group called the National Stakeholders Working
    Group (NSWG), made up of 28 representatives from federal and
    state governments, civil society and industry. A subsequent
    call for more civil society representation brought the Civil
    Society Steering Committee into existence as a consultative
    body to the NSWG.
        The most influential outcome of these formative efforts is
    the Hart Group audit of Nigeria's oil industry between 1999 and
    2004. The audit issued in December 2006 was groundbreaking for
    Nigeria in revealing information about the petroleum sector.
    The most important findings were not specific monetary losses
    but failed accounting and capacity to account for resource
    transfer up and down the production line that left broad
    opportunities for theft. The Hart audit points to the
    weaknesses in accountability within the Nigerian National
    Petroleum Company, the Department of Petroleum Resources, and
    the Federal Inland Revenue Service.\25\ Several observers
    commented that the most remarkable finding was that revenues
    were largely accounted for and, therefore, that monies were
    being stolen after they reached the treasury--hence needed
    emphasis on budgeting, expenditure, and procurement. There is
    little doubt that billions in income have been lost to
    Nigerians over the years. Indeed, the NEITI process has
    produced the unintended consequence of enabling the government
    to collect on previously missed payments by private industry
    and has empowered the federal government to respond to blame by
    states that it is not providing them with sufficient resources.
    There is validity to the concern that state and local capacity
    to properly utilize appropriations is wanting.
    ---------------------------------------------------------------------------
        \25\ Revenue Watch Institute, Policy Brief, Leaving A Legacy of
    Transparency in Nigeria, April 2007.
    ---------------------------------------------------------------------------
        Of the countries that have now endorsed EITI, Nigeria joins
    only Azerbaijan to have undertaken most of the essential EITI
    steps (established multi-stakeholder committees, identified an
    individual within the government to lead the process, drafted
    national work plans, selected auditors) and have published
    audited and reconciled EITI reports. NEITI has been proactive
    in public outreach ``road shows'' and has an extended mandate
    to audit product movement as well as finances. There are some
    reservations as to whether the independence of the institution
    will be maintained and whether it will be properly funded.
    NEITI was in limbo through the presidential transition, and
    only recently was a director named. Observers recognize that
    the senior official first chosen to chair NEITI, Obiageli
    Ezekwesili (now at the World Bank), possessed a close working
    relationship with President Obasanjo, a factor which appears
    crucial in generating internal momentum behind EITI
    implementation.\26\
    ---------------------------------------------------------------------------
        \26\ Civil Society Perspectives and Recommendations on the
    Extractive Industries Transparency Initiative, Publish What You Pay/
    Revenue Watch Institute Report, October 2006.
    ---------------------------------------------------------------------------
        Improved governance of extractive industries resources is
    fundamental to U.S. Government policy priorities in the
    country--from poverty alleviation, to improved security
    environment, to democratic consolidation--as well as in meeting
    the new President's goals of electrification, gas development,
    and Niger Delta conflict resolution. The Nigerian government
    has substantial financial and personnel resources, but needs
    technical support. Indeed, requests for such assistance were
    frequently raised in staff meetings. No economic development
    effort in Nigeria is more important than the Niger Delta.
    Insecurity in the Delta hampers Nigeria's own ability to
    capture the benefits of its hydrocarbons production, and it is
    a direct threat to the U.S. economy. The Niger Delta is also of
    significant international concern should a full-blown conflict
    emerge causing the collapse of the region which would likely
    prompt a very difficult and expensive international
    peacekeeping response. General sentiment in Abuja now seems to
    be that the situation can only be solved through development
    instead of military intervention, and the U.S.G. should act
    decisively to promote this viewpoint. U.S. embassy personnel
    are unable to visit large areas of the delta due to broad
    criminality and insecurity that has prompted restrictive
    security procedures and the high costs of security personnel
    and transport. Lack of a persuasive strategy for U.S.
    assistance to the Delta impinges U.S. interests in the country
    and economic interests in oil prices.
        Some within the donor community and Nigerian officials
    indicate that failure to improve governance will undermine
    sustained development thus thwarting the government's own
    ambition to be in the top twenty economies in the world by
    2020.
    ASIA
                Cambodia
        Cambodia is slightly smaller than Oklahoma and has a
    population of 14.2 million. Average life expectancy is 61.7
    years, and infant mortality is about 57 deaths per 1000 births.
    The average per capita income of a Cambodian is $1,690 with
    77.7% living under $2/day.
        Cambodia still suffers from the legacy of intermittent
    civil war between 1970-1990, which included U.S. bombing raids,
    the Khmer Rouge genocide, and a 10-year occupation by Vietnam.
    The Khmer Rouge having eliminated its educated classes,
    Cambodia emerged with very low civil and institutional capacity
    but enjoys relative political stability today with impressive
    GDP growth of 9.5% in 2007. Cambodian Prime Minister Hun Sen, a
    former Khmer Rouge commander, is the longest serving prime
    minister in Asia (23 years), and was recently returned to
    office in an election that observers say failed to meet
    international standards. Cambodia boasts a generally free
    press, vibrant civil society, and a multi-party political
    system, though impunity for political killings, election
    intimidation, and land-grabbing cases are prevalent. Corruption
    is rampant in Cambodia (one USAID-funded study concluded that
    ``only 25% of potential tax was collected from the private
    sector in 2005''). Staff heard repeatedly that many government
    officials' salaries are so meager that they are forced to take
    second jobs or resort to bribes.
        Cambodia views itself in competition with its regional
    rivals Vietnam and Laos and is aware that it could be left
    behind. On the economic front, Cambodia is focused on further
    developing its successful garment industry, expanding tourism,
    beginning to exploit its hard minerals and recently-discovered
    offshore oil resources, fighting endemic corruption, and
    petitioning donors for debt forgiveness.
        Though Cambodia is believed to have significant deposits of
    gold, copper, bauxite, oil, and natural gas, no commercial
    exploitation is yet underway and no significant revenues are
    being created. Whereas timber was formerly a revenue-creating
    industry, it has come under great scrutiny by the NGO community
    for corrupt practices, and all timber exports have since been
    banned.
        In 2002, Chevron was granted a petroleum agreement for
    offshore exploration near the Thai border and successfully
    located deposits in the Pattani and Khmer basins in 2005. The
    deposits are in small pools, as opposed to a single reservoir,
    and it is still unclear how viable extraction will be.
    Moreover, the Pattani basin lies in the Overlapping Claims Area
    with Thailand, and negotiations to resolve the border dispute
    are ongoing. The Cambodian government has signed agreements for
    five additional offshore blocks with several international oil
    companies, whose fiscal terms remain undisclosed; no
    exploration has yet taken place in these fields. Several
    onshore exploration contracts have also been signed,
    particularly in the ecologically- and agriculturally-rich Tonle
    Sap (Great Lake) basin in central Cambodia, with seismic tests
    now underway.
        Due to these uncertainties, international oil companies and
    Cambodian officials cautioned against high expectations. Staff
    is aware of revenue expectations ranging from $60 million/year
    (Cambodian National Petroleum Authority) to $150 million/year
    (Cambodian Ministry of Economy and Finance) to $1 billion/year
    (Congressional Research Service) to $1.7 billion/year (Global
    Witness) from the oil and gas sector if extraction goes
    forward, with fields coming online in 2011-2012 at the
    earliest.
        Several international mining companies, including BHP
    Billiton and Oxiana, have signed mining exploration contracts
    for copper, iron, gold, and bauxite, but no revenues are yet
    being created. No international bidding occurs for mining
    concessions, and the concessions themselves are not disclosed.
    Cambodian Ministry of Mines officials told staff that private
    companies could release whatever they wanted, but the Ministry
    of Mines would not divulge any contract details.
        Cambodian Prime Minister Hun Sen has often noted that
    corruption and lack of transparency have inhibited growth but
    few tangible anti-corruption measures have been undertaken.
    Many analysts agree that the government has pushed anti-
    corruption measures with little zeal, usually only far enough
    to keep donor money flowing in. For example, international
    donors and civil society have been united in advocating passage
    of an anti-corruption law that has been in the works for 13
    years. It has ultimately stalled in the Council of Ministers
    because of its misgivings about an overzealous anti-corruption
    commission, provisions requiring a declaration of assets held
    by government officials, and harmonization with the penal code.
    Instead, the Council of Ministers has created a weak anti-
    corruption body, which international donors have ceased
    funding. As is often the norm in foreign assistance debates,
    U.S. officials maintain that other international donors have no
    leverage over the government on these issues because other
    donors have consistently provided increasing amounts of direct
    budget support despite Cambodian obstinacy on anti-corruption
    measures.
        Staff found that all Cambodian officials were well-versed
    in the EITI concept and, in general, positively disposed to the
    broad principles of EITI. However, officials were hesitant
    because of the present lack of revenues, failure of Asian peers
    to sign up, and a severe lack of technical capacity to
    implement an EITI-like regime. Cambodia has sent delegations to
    Norway, East Timor, and Azerbaijan to study their experience
    with oil wealth.
        Cambodia is the third largest recipient of U.S. aid in
    Southeast Asia. Officials from the U.S. Embassy to Cambodia
    were very familiar with EITI, and Ambassador Mussomeli appears
    to have made advocacy of EITI a U.S. priority in Cambodia.
    Transparency, anti-corruption and natural resource management
    seemed to touch on most high priorities of the U.S. Embassy. As
    one U.S. official noted, ``You have to approach every issue
    here from an anti-corruption angle.''
        The U.S. Government has been part of the international
    coordinating group for passage of the anti-corruption law and
    had a lawyer at post to provide counsel on the law; USAID
    worked in a similar capacity to provide technical assistance
    for the drafting of a freedom of information act. The Embassy
    has also trained 22 journalists in investigative reporting to
    help expose corruption. USAID launched the Mainstreaming Anti-
    Corruption for Equity (MAE) program in 2006, which builds
    public capacity to police mismanagement of public land and
    resources.
        The U.S. Government has no programs that directly deal with
    extractive industry capacity building, though the MAE program
    has brought together several NGOs interested in transparency in
    extractive industries. These NGOs formed a group called
    Cambodians for Resource Revenue Transparency in January 2008,
    which is still harmonizing its positions on many critical
    issues of revenue management.
                China
        With a land mass slightly smaller than the United States,
    China has approximately 1.3 billion people. The infant
    mortality rate is approximately 21 deaths per 1000 births, and
    average life expectancy is 73 years.\27\ The per capita income
    of the average Chinese is $44,050.\28\
    ---------------------------------------------------------------------------
        \27\ Figures for life expectancy and infant mortality throughout
    this report are from the United Nations Development Program, Millennium
    Development Goal data (http://www.undp.org/mdg/).
        \28\ Figures for per capita income are from the World Bank, World
    Development Indicators (http://web.worldbank.org)
    ---------------------------------------------------------------------------
        China is still a developing country, despite its GDP
    ranking fourth in the world after only thirty years of reform.
    China's land is crucial to food production, yet China has only
    9% of the world's arable land and 22% of the world's
    population. China is also short on fresh water due to its large
    population; fresh water per capita is less than one fourth of
    the world's average. According to government officials, China's
    top policy priority is to focus on the peaceful and equal
    development of relations with other countries in terms of
    culture, politics, and trade and improving the standard of
    living within China.
        In 2006, China's GDP from extractives totaled $152.7
    billion, and employment in these industries was 7.84 million.
    China's extractive industry production amounts to less than 5%
    of the country's GDP due to the incredible size of their
    economy. China produces significant amounts of the following
    commodities: iron ore, mercury, tin, antimony, manganese,
    tungsten, aluminum, lead, zinc, molybdenum, gold, uranium,
    copper, vanadium, lead, and magnetite. Last year, China
    produced around 2.3 billion tons of coal, making it the world's
    largest producer and consumer of coal, as well as the world's
    largest producer of tin. China's natural gas supply, however,
    is less than 1% of the world's total production and aluminum is
    only 2% of the world's total. China's extractive industries
    have recently boomed in order to satisfy its large population
    as well as the rest of the world's demand: China's 2006 growth
    rate of output was 49% for coal, 77% for oil and gas, 42% for
    metal and ores.
        China's total oil production in 2007 was 3.9 millions of b/
    d and their consumption was 7.58 million b/d. They ranked 5th
    in 2007 in both total oil production and crude oil production,
    as well as second in consumption.\29\
    ---------------------------------------------------------------------------
        \29\ ``China Energy Profile'' Energy Information Administration
    August 2008.
    ---------------------------------------------------------------------------
        According to an official from Shanghai Institute of
    International Studies, a think tank in China, most extractive
    revenues go to the central government since most of the
    companies are State Owned Enterprises (SOE). The companies can
    help the local governments develop water, electricity, housing,
    schools, and transportation in order to sustain their economic
    development and create a good investment environment for
    foreign direct investment. The SOEs have a monopoly over the
    extractives industry and pay a tax to the government for their
    rights. World Bank officials noted that the mining industries
    are usually small and locally operated, and therefore, the
    revenue goes into the local economy; however, the central
    government is attempting to consolidate this industry. One
    government official stated that some of the inland provinces
    are rich in natural resources and develop those industries for
    their benefit. One stated that most of the fiscal revenue in
    the local government of Wuhan goes towards helping the local
    people through cultural exchanges and educational development.
    The extractive revenues are reportedly not invested in China's
    sovereign wealth fund.
        China stated that it has just begun SWF investment and is
    in an experimental stage. China claims it has suffered the loss
    of billions of U.S. dollars, stressing that SWFs are simply for
    commercial interest and that it is up to the corporations
    themselves on what sectors they make investments in. China
    established its SWF, the China Investment Corporation (CIC) on
    September 29, 2007, with an initial investment of $200
    billion.\30\ China currently has over $1.5 trillion in foreign
    exchange reserves, and therefore allegedly created the CIC to
    improve the rate of return and to get rid of excess liquidity.
    ---------------------------------------------------------------------------
        \30\ China's Sovereign Wealth Fund information came from Michael
    Martin's January 22, 2008 CRS report.
    ---------------------------------------------------------------------------
        CIC has been criticized because the initial investments
    were apparently political in nature, even though the top
    management denies these claims. Concern has grown from U.S.
    officials about the large amount of money in CIC as well as
    potential investments in major U.S. investment banks like
    Citigroup. The Fund has invested in U.S. Treasury bonds and, on
    December 19, 2007, the CIC purchased ``around 9.9%'' of Morgan
    Stanley which amounted to $5 billion. Morgan Stanley stressed
    that the CIC will have ``no special'' rights of ownership and
    no role in corporate management.''
        World Bank officials said there has been very limited
    dialogue on EITI with the Chinese government. Since extractives
    are such a small part of their GDP it would be difficult to
    apply any serious pressure on China to become engaged in EITI.
    China would benefit from EITI but it would be too complex to
    implement because the payments are mostly done at a local level
    rather than the national level.
        The World Bank has been trying to improve budget
    transparency in China, but representatives said this was
    difficult and that most successes have been at the local or
    municipal level. Transparency became more of a key issue
    following the recent earthquake in China. According to both
    U.S. officials and Chinese officials, China passed anti-
    corruption laws in conjunction with joining the WTO and passed
    anti-bribery laws after becoming a signatory on the UN
    Convention. The U.S.-China Strategic Economic Dialogue has been
    the primary forum for U.S. officials to raise issues relating
    to transparency and economic management with Chinese officials.
    For example, agreements have been reached to increase energy
    security for oil importing countries in the event of a supply
    disruption by cooperating with one another and in conjunction
    with the International Energy Agency. Other agreements include
    civil aviation to approve non-stop flights between the two
    countries and tourism agreements. U.S. officials asserted that
    they have engaged with China on supporting transparency through
    their investment in resource-rich companies, though it is not
    clear if these discussions have resulted in any changes. The
    United States and China have discussed consumer product safety,
    intellectual property rights, and working to expand U.S.
    exports to China. As U.S. embassy officials explained,
    transparency will continue to expand, but at China's own pace;
    the U.S. has little leverage to push these types of issues. In
    the end, Embassy officials said that the most important thing
    is consistency.
                Indonesia
        Indonesia has a population of over 230 million. Annual per
    capita income is $3,580 while the percent of the population
    living under $2/day is 52.4%. Indonesia's total revenue from
    hydrocarbons in 2005 was $15.8 billion which was 5.5% of GDP.
        The Asian financial crisis severely affected the Indonesian
    economy, causing per capita GDP to plummet. The economy has
    since bounced back with increasing foreign investment, but
    growth is expected to slow to 5.9% in 2008 from 6.3% in 2007,
    due predominately to increasing fuel and food prices. Indonesia
    still faces issues of corruption that deter further foreign
    investment, but the nation has taken substantial steps to
    promote democracy.
        In 2006, Indonesia was the 21st largest oil producer. As an
    oil producer, Indonesia has been on the decline. This reduced
    profile as an oil producer led Indonesia to recently announce
    its withdrawal from the Organization of Petroleum Exporting
    Countries (OPEC) at the end of 2008. Indonesia was responsible
    for approximately 1.3% of the world's daily oil production in
    2006 with 1,005,810 b/d of petroleum crude and condensate; in
    2007 Indonesian production fell to 912,000 b/d. Indonesia's
    proven oil reserves are approximately 4.44 billion barrels,
    according to official data.
        However, there is great untapped potential in gas reserves.
    Indonesia ranks eighth in world gas production and is the
    world's second largest LNG exporter, with proven reserves of
    88.5 trillion cubic feet (Tcf) in 2006. Proven reserves fell 9%
    in 2006 compared with 2005. Indonesia produced 2.97 Tcf in
    2006, down 1% from 2005. Indonesia lost its status as the
    world's largest exporter of LNG to Qatar in 2006. Indonesia
    produced 22.4 million tons of LNG in 2006, the same year the
    government announced a policy to re-orient natural gas
    production to serve domestic needs. As a result, Indonesia's
    share of the world LNG market has shrunk from 18.8% in 2004 to
    14% in 2006. Rapid rates of new production in Qatar, Australia
    and Russia are likely to continue to erode Indonesia's
    position.
        Indonesia is the largest exporter of thermal coal and also
    has large deposits of copper, gold, nickel, and silver. Mining
    investment fell almost 66% from 1998 to 2005, largely due to
    regulatory uncertainty. Mining policy challenges include
    resolving conflicts between mining and forestry laws to prevent
    disputes with local communities that cause additional financial
    burdens to mining companies.
        Oil and gas revenues are channeled to the Non-Tax Revenue
    Department, Ministry of Finance and are audited internally with
    an external auditor working through the Indonesian audit board
    (BPK). Hydrocarbon revenue is included in the national budget
    and re-allocated according to separate formulas for oil and gas
    to the regional governments. Due to devolution of power and
    revenue authority to regional governments, a persistent problem
    has been the misunderstanding of the calculations of oil and
    gas revenues by sub-national government officials, which has
    led many regional administrations and their citizens to
    overestimate the value of future transfers. To clarify the
    regions' share of oil and gas revenues, the Ministry of Finance
    began the practice in 2005 to issue a yearly decree estimating
    the allocation of oil and gas revenues to all of the provinces,
    regencies, and cities. Indonesia does not have a sovereign
    wealth fund (SWF). There is consideration of establishing a SWF
    from the ``SOE pooling fund.'' However, it is not yet clear how
    the SWF would be structured.\31\
    ---------------------------------------------------------------------------
        \31\   Ibid
    ---------------------------------------------------------------------------
        The prospects for development of a long-term environment
    conducive to transparency and combating corruption in Indonesia
    are uncertain. Since transition to democracy in 1998, Indonesia
    has made progress in anti-corruption reform, notably with
    institutional reform during the Yudhoyono administration. Yet,
    while a plethora of transparency and anti-corruption
    initiatives have been launched by Indonesian governmental
    leaders, with the encouragement of civil society, progress is
    slow.
        Since ascending to the top office in Indonesia, the
    President has continually pressed on the corruption front, and
    can point to ``over 100 public officials, including governors,
    regents and former ministers, (having) been jailed for
    corruption since. . . . 2004.'' However, the recently released
    United Nations Development Program (UNDP) Asia-Pacific Human
    Development Report, ``stresses that while anti-corruption
    efforts too often focus on exposing the `big fish,' it is
    `small fry' corruption, which causes more day-to-day suffering
    and could severely hamper the Region's goal of achieving the
    Millennium Development Goals--the eight internationally--agreed
    targets aimed at halving poverty by 2015.'' \32\ In March of
    this year, the Indonesian Parliament (DPR) passed a ``Freedom
    of Information'' act which reflects the Indonesian government's
    commitment to transparency. While passage of the law reflects
    commitment to transparency, actual implementation of the law
    will be the long-term test.
    ---------------------------------------------------------------------------
        \32\ ``Tackling Corruption, Transforming Lives,'' United Nations
    Development Program, June 12, 2008.
    ---------------------------------------------------------------------------
        Indonesia is not an EITI candidate country. Timeliness of
    action by President Yudhoyono advancing EITI will be an
    integral determinant as to whether EITI, and other transparency
    initiatives, gain momentum so that the people of Indonesia may
    realize direct benefit from extractive industries. There
    appears to be a general lack of information in the public
    sphere on how EITI works. EITI-related reforms were part of the
    massive 2008-2009 structural reform package released by
    Coordinating Minister for Economic Affairs Dr. Boediono before
    he became Central Bank Governor. Implementation of these
    reforms remains uncertain.
        USAID is funding over $100 million of transparency and good
    governance projects in Indonesia, and as possible, enlists
    other donors to contribute and participate in the projects.
    U.S. Attorney General Mukasey recently visited Indonesia where
    he was able to view U.S. Department of Justice (DOJ) programs
    already in place. Along with Indonesian Attorney General
    Hendarman Supandji, Mr. Mukasey signed a Memorandum of
    Understanding (MOU), providing $750,000 in U.S. Government
    assistance to help establish an anti-corruption task force at
    the Attorney General's Office (AGO), modeled on the U.S. AGO's
    Anti-Terrorism and Transnational Crimes Task Force.\33\
    ---------------------------------------------------------------------------
        \33\ U.S. Embassy, Jakarta, June, 2008.
    ---------------------------------------------------------------------------
                Timor-Leste
        Timor-Leste has a population of approximately 1 million
    people. The average life expectancy is 59.7 years, and the
    infant mortality rate is 61 deaths per 1000 births. The total
    hydrocarbon revenue for 2005 was $116 million or 38.8% of GDP.
        Timor-Leste was created in May of 2002, following
    independence from Indonesia. During the secession movement, an
    estimated 75% of the population was displaced and nearly 70% of
    all buildings, homes, and schools were ruined by a campaign of
    violence carried out by militia groups following their 1999
    vote for independence. Between 1999 and 2002, over 5,000 (8,000
    at peak) UN peacekeeping troops were sent to help rebuild the
    nation. Conflict again broke out in March 2006 resulting in
    another UN peacekeeping mission in Timor-Leste and the
    resignation of Prime Minister Alkatiri. Violence again erupted
    surrounding the April 2007 presidential elections, and in
    February 2008, one of the leaders of the March 2006 violent
    protests, Major Reinaldo, led an unsuccessful assassination
    attempt and coup against the elected President and Prime
    Minister. Violence and peacekeeping troops have been persistent
    forces in defining the newly independent nation, not only due
    to military-related violence but also gangs of unemployed
    youths. Unemployment and underemployment are thought to be as
    high as 70%. According to a 2007 estimate, inflation is
    approximately 7.8%.
        In 2000, as Timor progressed toward independence under UN
    auspices, complex and politically controversial negotiations
    began with Australia regarding overlapping claims on gas and
    oil resources of the Timor Sea. The result was the signing of
    the Treaty on Certain Maritime Arrangements in the Timor Sea
    (CIMATS) on January 12, 2006, which increased Timor-Leste's
    share of hydrocarbon revenues from 18% to 50% for the Greater
    Sunrise oil field. In the years 2005-2006, Timor-Leste earned a
    combined $360 million in hydrocarbon revenues. Timor-Leste is
    also currently receiving revenue in a 90%-10% sharing agreement
    (in favor of Timor) from an earlier agreement on the Bayu-Udan
    field, which contains approximately 400 million barrels of oil
    and 3.4 Tcf of gas.
        According to World Bank reports, revenues from oil and gas
    already comprise 50% of the country's GNI and supply more than
    90% of its government revenues. All of this is derived from
    offshore, upstream development, with downstream processing done
    in other countries. It is the hope of many Timorese, including
    the Timor-Leste government, that Timor-Leste will soon receive
    revenues from downstream (refining, processing and gas
    liquefaction. The most likely near-term possibility for this is
    an undersea pipeline from the Greater Sunrise gas field to the
    shore of Timor-Leste, with a Liquefied Natural Gas (LNG)
    liquefaction plant and tanker port to process the gas and ship
    it overseas.'' \34\
    ---------------------------------------------------------------------------
        \34\ ``Sunrise LNG in Timor-Leste, Dreams, Realities and
    Challenges,'' A report by La'o Hamutuk, Timor-Leste Institute for
    Reconstruction Monitoring and Analysis, p. 3, February, 2008.
    ---------------------------------------------------------------------------
        ``Oil and gas revenues are expected to accelerate sharply
    in coming years. Petroleum Fund assets have the potential to
    exceed $12 billion by 2020.'' \35\ Hydrocarbon revenues are
    channeled into the Petroleum Development Fund, which was
    established in 2005 and is managed by the Banking and Payments
    Authority (BPA). The BPA is a distinct autonomous public
    entity, accountable directly to the Prime Minister. The highest
    decision body of the BPA is the Governing Board. The BPA does
    not receive instructions when making decisions that relate to
    areas under its responsibility, e.g. approving licenses for
    banks or insurance companies. The Petroleum Fund Law provides
    clear lines of responsibility between the BPA, the Ministry of
    Finance and the Parliament.\36\
    ---------------------------------------------------------------------------
        \35\ Economics@ANZ, Timor-Leste, June 2007.
        \36\  Abraao Fernandes de Vasconselos, Banking & Payments Authority
    General Manager.
    ---------------------------------------------------------------------------
        The assets of Timor-Leste's Petroleum Fund are
    approximately $3 billion. The return on the Fund for the year
    to March 31, 2008 was 9.1%. During the first quarter of this
    year, the capital of the Fund grew from $2,086.16 to $2,629.96
    million.\37\ The BPA continues to invest all funds received
    according to the investment mandate agreed with the Ministry of
    Planning and Finance in which a benchmark index of United
    States Treasury Securities with maturities up to five years is
    specified together with defined performance measures.\38\ The
    BPA continues to invest all funds received according to the
    investment mandate agreed with the Ministry of Planning and
    Finance.\39\
    ---------------------------------------------------------------------------
        \37\ Quarterly Report, Petroleum Fund of Timor Leste.
        \38\ Ibid.
        \39\ Ibid.
    ---------------------------------------------------------------------------
        Timor-Leste President Jose Ramos-Horta noted that credit
    for establishing the Petroleum Development Fund should be given
    to the Norwegians, the World Bank and the IMF, which have
    provided advice to the government of Timor-Leste on this
    project. He also praised former Prime Minister Mari Alkatiri
    for his initiative in setting up the fund. It produces
    quarterly reports that are released to the public.
        The Petroleum Fund law gives the Minister of Finance
    authority to make investment decisions after receiving advice
    from the Investment Advisory Board (an advisory body set up to
    advise the Minister on issues related to investment strategy,
    performance benchmarks, and performance of the investment
    managers). The Petroleum Fund is audited annually by an
    internationally-recognized audit firm (presently Deloitte), and
    the BPA and Minister of Finance audit offices also conduct
    regular auditing, required every six months.\40\
    ---------------------------------------------------------------------------
        \40\ Abraao Fernandes de Vasconselos, Banking & Payments Authority
    General Manager.
    ---------------------------------------------------------------------------
        Leaders of Timor-Leste are committed to transparency in
    governance. One example is a special project informing the
    public as to the success of individual Cabinet members with
    budget execution. Unfortunately, the limited capacity of GOTL
    institutions point to weaknesses in fiscal policy, including
    budget execution and program implementation and monitoring. The
    government does not have the capacity to fully and completely
    fund and plan these projects, and large amounts of funds have
    been carried over from year-to-year and there is no clear
    tracking system for how the money is spent.
        Timor-Leste has signed up for EITI and is an outstanding
    model of implementation. Former Prime Minister Mari Alkatiri
    announced Timor-Leste's commitment to EITI in 2003 and
    consulted with Norwegian officials, among others, to determine
    the best way forward. The former Prime Minister has conveyed
    his hope that Timor-Leste develops an EITI program that is ``a
    Norwegian plus model.''\41\ Currently, Timor-Leste EITI does
    not include mining as there is presently no mining activity in
    the country. However, ``we have left room for mining to join
    the Working Group in the event there is an activity in that
    area.'' \42\
    ---------------------------------------------------------------------------
        \41\  Interview between Keith Luse and Mr. Alkatari, June 17, 2008.
        \42\ Ibid.
    ---------------------------------------------------------------------------
        However, more recently, concern has been expressed
    regarding the Timor-Leste government's plans to reportedly
    increase government spending in the next budget by over 120% to
    assist in subsidizing high food and fuel prices. ``Opponents
    say these subsidies risk dampening East Timor's nascent non-oil
    economy. ''\43\
    ---------------------------------------------------------------------------
        \43\  ``East Timor Ignores Economic Warning,'' BBC News, July 31,
    2008.
    ---------------------------------------------------------------------------
        U.S. objectives in Timor-Leste include strengthening the
    country's democracy and free markets. U.S. foreign assistance
    primarily supports job creation through accelerated economic
    growth and strengthening key foundations of good governance,
    with particular emphasis on developing a functioning justice
    system and professional media sector.\44\ While U.S. officials
    have not been actively promoting EITI in Timor-Leste, part of
    USAID's portfolio encourages greater transparency in
    government. U.S. advocacy for EITI is unnecessary given the
    full endorsement of the project by top levels of the Timor-
    Leste government as well as key parts of the business
    community. There is opportunity for the United States to
    express its support to the civil society players who are on the
    front lines, interacting with Timor-Leste officials. Along with
    AusAid, USAID is funding a project to strengthen independent
    media in Timor-Leste. There is specialized training for
    journalists from local media outlets and organizations, to help
    the media produce and distribute high quality news to as many
    people as possible.\45\
    ---------------------------------------------------------------------------
        \44\ U.S. Embassy, Dili, May, 2008.
        \45\ USAID News Release, ``USAID, AusAid Sign Agreement to Continue
    Supporting Independent Media,'' March 26, 2008.
    ---------------------------------------------------------------------------
                Vietnam
        Vietnam has a per capita income of $3,300. Vietnam's total
    hydrocarbon revenues in 2005 were approximately $3,878 million,
    or 7.4% of its GDP for the year. Vietnam's population is 84
    million with a life expectancy of 73.7 years and an infant
    mortality rate of 19 deaths per 1000 births.
        Vietnam is a market-oriented Communist country, not unlike
    its neighbor China. It launched a similar opening up (doi moi,
    or ``renovation'') process in the mid-1980s, stumbled in the
    1990s amid the Asian financial crisis, and has since
    experienced high economic growth rates, 7.3% annually for a
    decade, coupled with improved relations with the United States.
    Its 15-year economic growth and poverty-reduction record has
    been called ``a spectacular success story'' by the World Bank.
    Competition with China is a driving force. The signing of a
    bilateral trade agreement with the U.S. in 2001 and especially
    entry into the WTO in January, 2007, marked a major shift in
    international perceptions and resulted in an unexpected influx
    of foreign direct investment (FDI), remittances and development
    assistance. That, combined with soaring world food and energy
    prices, has led to raging inflation, expected to top 30% this
    year (after averaging 5% annually for much of the decade.)
        The extractives transparency agenda in Vietnam is only just
    getting underway. Very few government officials have heard of
    EITI, and the United States, despite significant interaction on
    governance and administrative reform issues, is not a player.
    By contrast, an anti-corruption agenda is in full swing.
    Corruption is an openly-discussed issue, both in the media and
    among government officials and donors, though the government
    has reined in reporters who have exposed malfeasance in the
    higher reaches of government. The country passed an anti-
    corruption law in 2005, and has a high-level National Anti-
    Corruption Steering Committee headed by the Prime Minister
    himself. There is a long-standing Government Inspectorate which
    has been given donor support to improve its effectiveness, and
    the State Audit of Vietnam was given its independence in 2006
    and reports to the National Assembly. Nonetheless, Vietnam does
    poorly on the Transparency International index, ranked 123 in
    the world, the same as Nicaragua, East Timor and Zambia. At a
    certain level, state budgets are public: until 1998 they were a
    state secret, and in 2005, the entire budget was disclosed to
    the public for first time.
        Vietnam is a significant but low-profile oil producer.
    Vietnam has been a net oil exporter since the early 1990s, and
    with production starting to slow, the recent boom is largely
    due to the run-up in oil prices. Staff was told that oil and
    gas revenues in 2008 are likely to be 140% higher than in 2007.
    Production in 2007 was about 360,000 b/d, about half that of
    Malaysia, and a bit more than Thailand, making it Asia-
    Pacific's sixth largest oil producer. All of Vietnam's oil is
    produced offshore, and many other offshore areas have been
    unexplored or undeveloped owing to territorial disputes in the
    Spratley Islands and elsewhere with Thailand, China, Taiwan,
    and other neighbors. Fields currently under development could
    come online soon and reverse the production decline, and some
    believe the unexplored areas are highly likely to contain oil
    or gas as well.
        Natural gas production has been going up as oil production
    has declined, rising by a factor of four since 2000 to more
    than 160 billion cubic feet. All the gas, also offshore, is
    piped onto land for use in electric power or fertilizer plants,
    and it appears the government will not allow gas to be
    exported, even though the international oil companies producing
    it say they could make much more money if they did. Chevron has
    been trying for 10 years to commercialize a large gas find of 4
    Tcf, a resource sufficient to supply 20% of the country's
    electricity needs.
        Since the mid-1990s, Vietnam has greatly increased its coal
    production and its exports (mostly to Japan and China). But
    coal exports are only 1/10 of crude oil exports by value, and
    by 2013, Vietnam expects to be a coal importer as it increases
    coal use to meet growing electricity demand. The major new
    extractive on the horizon is bauxite (aluminum). Large
    commercial deposits (world's fourth biggest, by one estimate)
    have been found in the Central Highlands, but they will require
    massive infrastructure investments to develop.
        The dominant extractives company is PetroVietnam, a wholly
    state-owned oil company, which through either production-
    sharing contracts or joint ventures has a stake in all oil
    production. From its opulent new 19-story headquarters in
    Hanoi, it controls directly or indirectly most aspects of the
    petroleum and gas business in Vietnam. On the one hand,
    PetroVietnam acts like a commercial company: it publishes an
    annual report, gets loans from international banks, floats
    bonds on international markets, publishes audits, regularly
    turns over its profits to the treasury after keeping some for
    itself, as set by law. On the other hand, much of
    PetroVietnam's operations remain behind a curtain which few
    dare to draw back. For instance, when we asked a Foreign
    Ministry official what were the perceptions of the company
    regarding corruption, he smiled and shrugged his shoulders:
    ``Not much is known about what goes on there.''
        Transparency of oil revenues could curb the power of
    PetroVietnam by giving other power centers in the government a
    chance to scrutinize, and criticize, its priorities. It could
    also help improve macroeconomic management with better data on
    cash inflows into the treasury, and more realistic budgeting.
    For instance, staff were told that last year the National
    Assembly kept asking, in the budget, what the projected oil
    price would be. Finally, the government said that for 2008,
    they would assume an average $63 a barrel (at a time when oil
    was already in the $80-$90 range). The extra money does not
    appear to go through the normal budgetary processes. There
    appears to be little discussion and no appetite in Vietnam at
    the moment for a sovereign wealth fund for oil or other
    extractive revenues.
        EITI is unlikely to be adopted anytime soon, for several
    reasons. First, the concept is still largely terra incognita,
    and much more education is needed. Second, the government is
    pre-occupied with the inflation crisis. Third, oil company
    officials are either not EITI-savvy, or are preoccupied with
    other pressing issues. Companies are dealing with the fallout
    of recent demands by China that one major international oil
    company stop doing exploration work in a Vietnamese block that
    is also claimed by China. Because so much of Vietnam's
    promising areas lie in contested waters, this has roiled
    Vietnam's petroleum community, driving EITI far down the
    priority list. Fourth, the U.S. is pushing a variety of other
    transparency and governmental reform issues. Fifth, no other
    donors, except Norway, appear to be promoting EITI. It is
    absent from the World Bank and ADB agendas. Finally, EITI's
    image in Vietnam is hurt by the fact that no other country in
    the region has signed up.
        The overarching U.S. policy toward Vietnam is to continue
    the process of normalizing relations that only formally began
    in 1996, after being frozen for many years following the
    Vietnam War. The main focus is on trade, as the US has quickly
    become Vietnam's top export market. Promoting governance reform
    and transparency is a major USAID focus, and the primary
    vehicle is a comprehensive technical assistance and capacity
    building effort for legal reform called ``Support for Trade
    Acceleration II,'' or STAR. However, EITI is nowhere part of
    this effort. Launched originally to help Vietnam meet its
    obligations under the Bilateral Trade Agreement (BTA) and World
    Trade Organization (WTO), the project is helping Vietnam cut
    red tape, develop an administrative procedures law, and
    implement other reforms to help improve the investment climate,
    reduce corruption and boost competitiveness. The government of
    Vietnam has embraced regulatory and administrative reform,
    under a program it calls Project 30, as an element of its
    ambitious economic growth strategy, which aims to achieve
    middle-income country status by 2010.
    EUROPE AND CENTRAL ASIA
                Azerbaijan
        Azerbaijan has a population of 8.5 million people with an
    average life expectancy of 67.1 years and an infant mortality
    rate of 74 deaths per 1000 births. Over one-third of
    Azerbaijan's population lives under $2/day. Azerbaijan's total
    oil export revenues in 2007 was $5.27 billion or 20% of GDP.
        Azerbaijan is located in a difficult neighborhood along the
    energy rich Transcaucasian corridor linking the Caspian Sea to
    Turkey and Russia to Iran. The United States and Azerbaijan
    have cooperated strategically and economically on energy
    development and transport, which also has reinforced the
    sovereign independence of Azerbaijan. President Ilham Aliyev
    has made commendable progress in the transparent management of
    oil revenues, establishing Azerbaijan as a global leader in
    reserves fund management. Yet the ongoing challenges of
    corruption and issues of poverty pose substantial challenges.
    Azerbaijan is also locked in a frozen conflict with Armenia
    over Nagorno-Karabakh.
        Fuelled by the oil sector and construction, Azerbaijan's
    GDP growth rate for 2006 was, by many estimates, the highest in
    the world at 34.5%. Several indicators point to an onset of
    ``Dutch disease'' in Azerbaijan. Inflation hovers near 1%.
    Export-driven industries are suffering as the local currency
    experiences steady appreciation (13% against the dollar in
    2005-2006), despite currency interventions of approximately $1
    billion by the Azerbaijan government. In 2006, the Azerbaijan
    government increased fiscal spending by a reported 80%.
        Azerbaijan became one of the first world oil producers
    after crude was found in the mid-1800s. Since its independence
    in 1991, its oil sector has again surged as offshore Caspian
    fields have come online. Azerbaijan's oil revenues were $5.27
    billion in 2007, constituting 20% of GDP; revenues are expected
    to climb to $19.4 billion by 2010, constituting over 43% of
    GDP. While Azerbaijan has undergone a massive infusion of oil
    wealth over the last decade, oil revenues are expected to peak
    in only a few years (2010-2012). Natural gas revenues have the
    potential to increase substantially over the coming two
    decades. However, lingering uncertainty over the Nabucco
    pipeline project leave prospects for development--and price
    expectations--of Azerbaijani gas unclear.
        Perhaps the most important development for the energy
    wealth outlook for Azerbaijan was the completion of two U.S.-
    supported pipelines allowing Azerbaijani oil and gas to reach
    global markets. The Baku-Tbilisi-Ceyhan (BTC) pipeline
    transports crude oil from the Caspian Sea to the Turkish port
    of Ceyhan on the Mediterranean, and the South Caucasus pipeline
    (SCP) currently transports gas to Georgia and Turkey with
    onward ambition to Vienna. The BTC pipeline should ensure that
    Azerbaijan remains a major energy conduit for years to come: in
    2007, revenues for use of the BTC totaled $16.5 million for
    Azerbaijan. These pipelines facilitated investment in new
    production, and onward routes will be necessary to develop more
    natural gas production in the coming years. Likewise, trans-
    Caspian energy transport from Central Asia for onward delivery
    through Azerbaijan to world markets would provide a stable
    revenue stream from transport fees.
        Azerbaijan is a candidate country for EITI and has been
    involved with EITI since its inception. Azerbaijan has until
    March 9, 2010 to complete the EITI validation process.
    Azerbaijan was the first country to submit EITI reports to be
    scrutinized by an independent audit firm and is a leader in
    allowing civil society to help implement EITI. Azerbaijan has
    submitted a total of 8 reports on its oil and gas revenues to
    date. Azerbaijan has done a great deal to improve revenue
    transparency, but it ranks relatively poorly in measures of
    corruption compared to both its oil deprived neighbors in the
    Caucasus and even many oil-rich countries in the developing
    world. However, most estimates indicate that Azerbaijan ranks
    with Nigeria as making the most progress along the EITI path of
    oil revenue transparency. Yet as corruption and development
    challenges in both those countries indicate, revenue
    transparency will not bring development or political reform.
    The key question is how that information will be used--and if
    the government will allow it to be used through civil society,
    media, and political representation--by the people of
    Azerbaijan to hold their government accountable.
        Several reasons have been posited to explain why a country
    known for tightly controlled politics and corruption would
    embark on a relatively progressive transparency agenda. First,
    Azerbaijan decided to sign up when oil revenues were meager, so
    the requisite accounting was still at a relatively simple
    stage. Second, international financial institutions, especially
    the IMF and World Bank, were very influential in Azerbaijan at
    the time and convince Azerbaijan to establish the State Oil
    Fund for the Republic of Azerbaijan (SOFAZ) for macroeconomic
    stability. Third, Azerbaijan was led by several Western-
    educated officials, one of whom set up SOFAZ. Fourth, the
    establishment of the BTC pipeline received much international
    political attention, which spilled over into general interest
    in the management of Azerbaijan's oil revenues. Fifth, the
    primary oil companies were Western majors with serious concerns
    with their international reputation and, thus, felt greater
    pressure to push EITI.
        In 1999, President Heydar Aliyev created the State Oil Fund
    for the Republic of Azerbaijan (SOFAZ), a sovereign wealth fund
    which holds assets overseas in a mix of currencies. As of April
    2008, the Fund reported assets of $3.35 billion. SOFAZ expects
    $5-10 billion in revenue for 2008, up to $30 billion
    accumulated in three years, and $150-200 billion over the life
    of the fund. Apart from oil and gas sales, SOFAZ receives
    revenues from royalties payments, investment returns, and
    rental fees from firms using state property. SOFAZ employs
    Deutsche Bank and Clariden Bank as external asset managers, and
    has a domestic staff of approximately 80 persons. SOFAZ'
    guiding principle, ``solving the most important national
    problems,'' is laudable if not amorphous. Fund managers
    indicate a preference for infrastructure projects. In effect,
    these expenditures represent a funding stream outside the
    normal budget, and as such receive soft criticism in terms of
    fiscal management. SOFAZ does not receive revenues from SOCAR,
    which constitutes SOFAZ' primary weakness in terms of
    transparency. Despite need for improved expenditure and
    investment criteria at SOFAZ, it seems most payments made thus
    far have been applied to projects to improve the lives of
    Azerbaijanis in real need. The Economist Intelligence Unit
    notes that SOFAZ has become ``the most transparent government
    body in Azerbaijan.'' Indeed, managers of the fund are rightly
    proud of having received a United Nations Public Service Award
    in 2007.
        The United States was a strong proponent of the
    construction of the BTC and SCP pipelines to diversify
    dependence away from Russian-controlled infrastructure. The
    U.S. Government and our allies have a profound interest in
    extending this project to include nations of Central Asia and
    Europe. U.S. Government assistance has also been heavily
    focused on the development of the non-oil sector with over $7
    million targeted for macroeconomic stability, trade and
    investment, private sector competitiveness, and financial
    sector reform. The United States has also provided assistance
    to bolster Azerbaijan's maritime security forces, assisting in
    oil production security. The emerging orientation of Azerbaijan
    towards close cooperation with Western countries is a
    significant strategic achievement richly rewarding to the
    United States, and provides a strong framework through which
    the U.S. Government is able to advocate critical governance
    reforms.
                Kazakhstan
        Kazakhstan has a per capita income of $7,780 and a
    population of 15.3 million people. Infant mortality is 73
    deaths per 1000 births, life expectancy is 65.9 years, and over
    16% of the population lives under $2 a day. In 2005, Kazakhstan
    brought in approximately $3.6 billion of hydrocarbon revenue,
    comprising 6.3% of GDP.
        Kazakhstan is the largest energy producer in the Caspian
    region, having staked claim to vast oil and gas fields
    offshore. Power in the country is centered around President
    Nursultan Nazarbayev. Kazakhstan has been a productive partner
    of the United States in key areas of cooperation, even as it
    balances the concerns of its large neighbors Russia and China.
    Kazakhstan's economic growth has been robust, approaching 10%
    in 2007, and its oil sector accounts for approximately 38% of
    total government revenues and half of Kazakhstan's exports.\46\
    ---------------------------------------------------------------------------
        \46\ ``Kazakhstan: Country Analysis Brief'' Energy Information
    Administration, February 2008.
    ---------------------------------------------------------------------------
        Kazakhstan is rated by Freedom House as not free, due to
    increased pressure on civil society. In 2007, President
    Nazarbayev announced sweeping constitutional amendments to
    allow him to remain president. Many interlocutors believe that
    he could easily win any free election, although no elections
    have yet been so judged. Kazakhstan ranks 73rd out of 177
    countries on the United Nations Human Development Index, higher
    than regional rivals Uzbekistan and Turkmenistan.
        Kazakhstan's oil production has boomed since 1999. In 2007,
    it produced 1.45 million barrels per day of oil, of which 1.2
    million were exported. Total reserves are estimated at 40
    billion barrels. As the Tengiz field is expanded and when the
    new Kashagan field comes online, Kazakhstan's oil production is
    expected to increase dramatically. Kazakhstan also has large
    natural gas reserves with estimated reserves of 106 trillion
    cubic feet. Production, most prominently in the Tengiz and
    Karachaganak fields, was estimated at 1,037 billion cubic feet
    in 2007, an increase of over 8% on 2006 levels. Kazakhstan
    consumes most gas it produces but may become a net exporter of
    natural gas in 2008. The primary conduit for gas is the Central
    Asian Center pipeline, which is under expansion and travels
    from Turkmenistan and Uzbekistan through Kazakhstan to connect
    with the Russian network. Pipeline routes to China are also
    under discussion.
        Kazakhstan is also the largest Central Asian producer of
    coal, producing 102 million short tons in 2006 and exporting
    just under 30 million short tons. Kazakhstan also has
    significant deposits of other minerals, including uranium,
    chromium, lead, zinc, and others. Next to Canada and Australia,
    Kazakhstan is the third largest producer of uranium.
        Kazakhstan is in the process of considering a range of
    energy transport infrastructure options to meet and diversify
    its own export needs and to balance the concerns of the United
    States, Russia, and China. Most importantly for U.S. Government
    interests, a recent law authorized shipment of crude oil by
    tanker across the Caspian to the Baku terminal of the Baku-
    Tbilisi-Ceyhan (BTC) pipeline, which flows to the Mediterranean
    coast in Turkey. The United States advocates construction of a
    trans-Caspian pipeline to diversify Kazakhstan's oil export
    routes and reduce dependence on infrastructure on Russian soil.
    Kazakhstan also exports crude across Russia to the Black Sea
    port of Novorossiysk through the Caspian Pipeline Consortium, a
    pipeline in need of expansion but seeing little progress in
    that regard due to Russian concerns; crude is also transported
    northward to Russia via the Atyrau-Samara pipeline. The Astasu-
    Alashankou network takes Kazakh crude to China, while
    Kazakhstan conducts energy swaps with Iran.
        Kazakhstan has made many positive strides in the area of
    fiscal and oil revenue transparency. Kazakhstan endorsed EITI
    in June 2005 and has until March 2010 to become compliant. It
    has created a National Stakeholders' Council to coordinate EITI
    and hosted its first EITI implementation conference with
    stakeholders in February 2008. To date, Kazakhstan has
    submitted one Reconciliation Report for EITI in January 2008,
    but this report came under some criticism for not including all
    oil companies operating in Kazakhstan.
        With oil prices on the rise since 2000, the Kazakhstan
    government has become more assertive with oil contracts,
    passing a law in 2007 that allowed it to break contracts with
    any international oil company with only two months notice and
    to reserve the right to renegotiate contracts and levy fines
    against companies found to be in breach. These moves were
    contemporaneous with contracting difficulties for the
    exploitation of the Kashagan field. As the Kazakh government
    asserts a greater stake in the direct operation and profit-
    taking from the oil and gas sector, the inclusion of
    Kazmunaigaz in transparency standards should be a particular
    point of emphasis for the U.S. Government.
        In 2000, Kazakhstan set up the National Oil Fund for the
    Republic of Kazakhstan to manage its oil wealth. As of May
    2008, the fund contained approximately $18 billion and was
    managed by the Ministry of Finance.\47\ From the outset, the
    Fund has come under criticism from transparency watchdogs for
    having been set up by presidential decree and not an act of
    parliament. Oversight of the Fund is carried out by the
    Management Council comprised of the President, Prime Minister,
    and members of Parliament. Thus, the President ultimately
    controls the disbursements, and the public has little
    involvement.
    ---------------------------------------------------------------------------
        \47\ Goldman Sachs, ``In Defense of Sovereign Wealth Funds,''
    Global Economics Paper No 167.
    ---------------------------------------------------------------------------
        U.S. assistance to Kazakhstan is highly focused on
    expanding the non-oil sector of the economy with $7.7 million
    targeted towards private sector competitiveness, financial
    sector reform, and macroeconomic foundation and growth. USAID
    programs have also helped to develop regional energy markets to
    link Central and South Asian markets and enable greater energy
    trade with South Caucasian states, Turkey, Europe, and global
    markets. Many economic assistance programs are cost-shared
    between the U.S. and Kazakhstan governments. In the political-
    military sphere, the United States has agreed to a five-year
    military plan with the government of Kazakhstan that
    incorporates funding to boost Caspian security.
                Norway
        Norway has a population of 4.6 million people. The average
    life expectancy for a Norwegian is 79.8 years old and the
    infant mortality rate is 4 deaths per 1000 births. The total
    spend on hydrocarbon in 2005 was approximately $38.4 billion
    (13% of GDP). The per capita income of Norway is $43,820.
        Norway is seen as the leading country on EITI. Since Norway
    is a social democratic republic and many of the extractive
    countries share a similar view of the role of the state, their
    state-owned oil company seems to have particular influence when
    suggesting policy actions. Some felt that the Europeans,
    particularly the Norwegians, could be more effective because
    they were seen as friendly nations whereas the U.S. was seen as
    a threatening country with an ulterior motive.
        Many refer to the ``Norwegian model'' as one worth
    replicating. In Norway, the government was democratic and
    fiscally disciplined before the discovery of oil. The state,
    which controls the oil industry, has set up a resource
    management system which includes an open budget process, a
    public long term fiscal policy strategy, and a sovereign wealth
    fund.
        Some in Norway saw sovereign wealth funds as a framework
    rather than a tool. One noted that ``accumulation of cash in a
    weak institution is not a recipe for success,'' while another
    noted that a fund can help decouple revenues from spending and
    help a country avoid inflation. Norway's sovereign wealth fund
    was first set up in 1990 but the first allocations to the fund
    were only in 1996. 15-20% of Norway's GDP goes to the sovereign
    wealth fund to be used for future generations. Now, roughly 4%
    of the Fund goes to the government's budget.
        In Norway, transparency is important to retain domestic
    trust and helps the government stick to an investment strategy
    even when markets are turbulent. Norwegians stressed that an
    informed public with a clear sense of ownership was critical.
    The Norwegians suggest that other countries: 1) devise
    comprehensive budget policy frameworks so they can see total
    resources and prioritize; 2) may or may not need to develop a
    sovereign wealth fund; and 3) build good credible institutions
    to manage money--regardless if they have a fund or not. They
    repeatedly stressed that a sovereign wealth fund was no
    substitute for sound fiscal management.
        Most interlocutors stressed the importance of securing
    support for EITI from the Chinese and Indian governments. It
    was reported that Chinese companies are already reporting
    through EITI in Nigeria and Mauritania. A few people suggested
    that China be brought into the International Energy Agency
    framework.
                Russia
        The Russian Federation has a population of 142.4 million.
    Average life expectancy is 65 years, and over 12.1% live on
    less than $2 a day. The average per capita income is $11,630,
    and infant mortality is 18 deaths per 1000 births. Russia
    collected over $55.8 billion in hydrocarbon revenues in 2005,
    approximately 7.3% of its GDP.
        Russia has been focused on promoting political and economic
    stability following many years of turbulence. These priorities
    have resulted in a crackdown on civil society and increased
    pressure on opposition parties to operate freely. Many
    interlocutors and observers are cautiously optimistic about the
    recent election of President Dmitri Medvedev. He has publicly
    spoken about the need for increased transparency, although he
    has not provided any details about how he will proceed. He
    announced the appointment of former President Vladimir Putin as
    his Prime Minister as soon as he was elected, which has led to
    some debate about who will lead Russia.
        Despite the recent economic recovery, which brought
    prosperity to some of the Russian people, 15% still live below
    the official poverty line set by the Russian government
    (compared to 38% in 1998). Quality of life indicators paint a
    mixed picture. The population is relatively well-educated and
    has a literacy rate of nearly 100%, but since the 1990s, the
    health of the Russian people has been in decline. Russian
    workers continue to have high levels of under- and unemployment
    in pockets of the country, although there is a growing middle
    class and labor shortages exist in some high-skilled job
    markets.
        The energy sector has been identified by the Kremlin as
    important to bringing improved living conditions to the
    millions of Russians who still live in poverty. Perhaps more
    importantly, many Russians see energy as a means to regain the
    power and prestige they enjoyed prior to the collapse of the
    Soviet Union. There are numerous concerns about the way the
    energy sector is managed in Russia. The government has taken
    control of much of the country's energy supplies. In addition,
    the government has moved to nationalize and take control of
    several private corporations.
        Over the last several years, Moscow has used energy as a
    geopolitical weapon and foreign policy tool on numerous
    occasions. It has cut off or threatened to cut off oil and gas
    supplies to several neighbors to intimidate or pressure
    governments to bend to Russia's will. Targets of this political
    intimidation have included Ukraine, Georgia, Estonia,
    Lithuania, Belarus, and Czech Republic.
        Some observers are concerned that Russia's energy
    extraction is inefficient, and could be more productive with
    newer technology. Others suggest that without significant
    improvements in recovery and transportation Russia will be
    hard-pressed to meet its current contract commitments. Many
    multinational and international energy corporations have
    expressed skepticism about prospects for success in Russia.
    Nevertheless, these same entities are quick to add they do not
    have a choice and must take their chances given Russia's
    reserves. The investment climate in Russia is reportedly
    improving, but there have been complaints about limitations on
    foreign investor participation. Many are hopeful that the
    recent change in Russia's government may improve the situation.
        Russia is a large player in the international oil and gas
    markets, with the largest proven natural gas reserves in the
    world. The Russian economy is heavily dependent on oil and gas,
    which account for 63% of its exports and 50% of total state
    revenues.\48\ From 1999 to 2007, Russia's real GDP grew at an
    annual rate of 6.7%, and Russia virtually eliminated its public
    foreign debt, which equaled 100% of GDP in 1999.
    ---------------------------------------------------------------------------
        \48\ See CRS Report RL33407 Russian Political, Economic, and
    Security Issues and U.S. Interests, by Stuart Goldman; and CRS Report
    RL33212 Russian Oil and Gas Challenges, by Robert Pirog.
    ---------------------------------------------------------------------------
        Oil and gas revenues first go into a Reserve fund (which
    was formerly called the Stabilization Fund). When the reserve
    fund reaches 10% of Russia's gross domestic product in a given
    year, the additional revenue goes into the National Welfare
    Fund. In some circumstances, money is transferred from the
    Reserve Fund to the general budget to cover spending gaps that
    non-oil and non-gas revenues cannot fill. It is important to
    note that this system was established this year, it is unclear
    how well the process will work.
        Some interlocutors gave the impression that the Russian
    government has relatively responsible and transparent fiscal
    policies, including collecting and spending oil and gas
    revenues. One interlocutor said that revenues are taxed because
    they are by nature more transparent, and it is easier for
    companies to miscalculate profits for the purpose of avoiding
    paying taxes. The government does not tax profits because it
    does not trust the companies to be honest about them. The main
    problems voiced about the government concern the lack of
    judicial independence and respect for rule of law in general.
    These problems increase the risks and therefore the costs of
    doing business in Russia, and dampen foreign investment. A few
    interlocutors claimed that detailed budget information is not
    available from the government, especially for extractive
    revenues.
        Most interlocutors gave the impression that Russia would
    not readily become an EITI candidate country.\49\ Russians
    consider EITI to be an initiative for developing countries with
    greater problems than Russia. Even those people who admitted
    that Russia's problems are very large were hesitant to embrace
    EITI as a viable initiative for Russia, mainly because they saw
    EITI as something that merely scratched the surface of Russia's
    complex governance problems. Furthermore, many interlocutors
    expressed a sense that transparency in Russia is improving
    because of international financial market conditions, and
    pushing EITI would not help move to greater transparency.
    ---------------------------------------------------------------------------
        \49\ EITI sets a global standard for companies to publich what they
    pay and governments to disclose what they receive in the extractive
    industriesw. More information can be found at http://
    www.eitransparency.org/.
    ---------------------------------------------------------------------------
        An exception to this reluctance about EITI came from
    Transparency International which has been encouraging EITI in
    Russia. Reportedly, TNK-BP and Lukoil expressed interest in
    EITI two years ago and then backed down after receiving no
    support from the government or other companies. Transparency
    International representatives said that a briefing from a high-
    level G-8 delegation could help convince them to consider
    implementing EITI. The organization is publishing a report on
    EITI in Russia to raise awareness of how EITI could benefit
    Russia.
        Most of the private sector interlocutors agreed that
    Russian oil and gas companies, including Rosneft and Gazprom,
    are becoming more transparent for their own reasons. These
    companies need to access international capital markets, and in
    order to do so they need to adhere to a higher standard of
    transparency. They therefore can get a lower cost of capital,
    participate in joint ventures with international firms, and be
    listed on international exchanges. They also want to be
    considered among the best and biggest companies in the world.
    There are some concerns that Russian firms could slide back to
    old practices if economic conditions change and capital markets
    become looser. Some interlocutors suggested that the more
    Russian firms become entrenched in international markets, the
    more difficult it will be for them to backslide in
    transparency. Others thought that the Russian firms are
    beginning to see the benefits of transparency in and of itself,
    and will not go back to being less transparent. Some observers
    believe that they are as transparent as necessary for
    international markets, but not necessarily for the Russian
    public. There are others who believe that Russian firms in the
    extractive industries are still not transparent by western
    standards.
        Some interlocutors said that as more Russian people become
    stockholders, and as major Russian pension funds invest in
    Russian companies, they will demand more information from the
    companies and this will lead to greater transparency. The
    Russian people do not hold the companies or government
    accountable because current economic conditions are so much
    better than just a few years ago. Russian firms want to be held
    to the same standards as firms around the world, but they do
    not want to be held to higher standards. They understand that
    Russia has a reputation for corruption, but they do not want to
    be punished for it by being required to jump through hoops that
    western firms can bypass.
        Energy, including transparency issues, is a standard agenda
    topic in meetings between the U.S. and Russians. Presidents
    Bush and Putin was discussed it in April in their meetings at
    Sochi. Under the Framework Agreement the two presidents signed
    the US and Russia will initiate a number of economic dialogues.
    Moscow and Washington have made good progress in the
    government-to-government dialogue and energy transparency was
    discussed at the inaugural meeting in late April in Washington.
    The next meeting is scheduled for September in Moscow and
    energy will again be on the agenda.
                United Kingdom
        The United Kingdom has a population of roughly 60.9 million
    people. Life expectancy is about 78.9 years old and their
    infant mortality rate is 5 births per 1000 deaths.
        Generally in Europe, there is a growing interest in
    transparency and governments as a development measure. While
    the United Kingdom was the first Western country to push
    transparency in extractive industries as an international
    initiative, Norway is viewed as the model of prudent management
    of extractive revenues and is home to the EITI Secretariat.
    Some sense that the focus on anti-corruption and transparency
    by the British has diminished in the wake of the BAE scandal
    and due to less focus on Africa generally. Some say that DFID
    is not getting political backup on transparency.
        The next two years are critical in determining whether or
    not EITI will really work. A number of people pointed out that
    the more stable and predictable framework for oil producing
    countries, the more stable the energy supply. One argument for
    EITI is that it uses small money to ensure the big money is
    used well.
        Investors became interested in EITI because they saw the
    ``potential for the resource cures to bite the companies''
    themselves. They see EITI as a tool to promote stability which
    would in turn reduce work stoppages or supply disruptions. The
    investors are concerned that there are no definitive studies
    showing that good governance results in a better cost of
    capital. They asserted the need for compelling examples of
    developing countries where extractive resources were put to
    good use. The EITI process is seen as leveling the playing
    field for non-corrupt companies. The major oil companies appear
    more engaged on EITI than the ``second-tier'' companies and
    many of the companies that are pushing EITI are companies that
    had a bad experience with corruption or poor governance.
        There is a UN General Assembly resolution supporting EITI,
    similar to the one passed on the Kimberley Process, that
    Azerbaijan is spearheading. Many argued that countries like
    India, China and Brazil will be more likely to embrace EITI. A
    range of interlocutors suggested that it would be helpful for
    the US to sign onto and promote the UN resolution. A number of
    people praised World Bank involvement with EITI but expressed
    concern that the regional development banks were not as
    engaged. They suggested that all the regional development
    banks, particularly the African Development Bank, incorporate
    EITI into their projects.
        Some suggested that China would be more open to
    transparency, influence and reputational impacts than many
    expect. They encouraged the U.S. to develop an engaged
    approach. Some suggested that the Chinese sovereign wealth fund
    may become more interested in transparency issues given their
    exposure to extractive investments. Almost everyone asserted
    that the wrong way to promote extractive industry transparency
    with China was to be critical of the country. One person said
    ``finger-wagging doesn't work.''
        Among EITI experts in these countries, the United States is
    seen as being somewhat supportive of EITI, however, more
    supportive in policy than in funding. The U.S. has not
    contributed funding to the EITI because of the legal structure
    of the EITI Secretariat is not finalized. The U.S. currently
    has a seat on the EITI board but will give it up shortly in the
    every two year board rotation. There are three seats on the
    Board from supporting countries, 5 seats from EITI countries
    and 5 from companies. The U.S., once its contribution is made
    to the Multi-donor Trust Fund, will maintain its seat on the
    MDTF Board which gives funding for EITI capacity building.
        The U.S. is viewed by many insiders as a focusing force
    with EITI. The current U.S. representative to EITI is seen as
    capable, bright, and active; however, given his rank at the
    State Department, many think that the U.S. needs a
    representative with more clout. While U.S. staff at embassies
    in extractive countries are engaged on EITI, there is
    apparently little action on EITI with the staff at our
    embassies in donor countries. Many suggested that it would be
    very motivating and influential of the United States signed
    onto EITI as a candidate country. Several interlocutors
    suggested that the U.S. help encourage companies to make more
    emphatic attempts to support EITI, increase political will and
    support capacity building.
        In addition, many felt that the U.S. Government,
    particularly through foreign assistance programs, could do more
    directly to encourage extractive countries to sign onto EITI by
    the U.S. increasing or shifting funds for extractive countries
    for transparency efforts. EITI is consistent with Foreign
    Corrupt Practices Act so the more compliance of foreign
    companies to EITI, the more level the playing field for U.S.
    companies.
    LATIN AMERICA
                Brazil
        Brazil has a population of 192 million, approximately.
    Average life expectancy is 72.5 years with an infant mortality
    rate of 27 deaths per 1000 births. The average per capita
    income is $5,910, while 21.2% of the population lives under $2/
    day. Total hydrocarbon revenues for 2007 were $87.5 billion or
    5 per cent of GDP.
        With the recent discovery of two new offshore oil fields
    (Tupi and Carioca), Brazil is in a position to become a
    significant political and economic power not just in the
    Western Hemisphere, but on the world stage. Brazilians are
    anxious to be considered a global power independent of South
    America, an emerging economic market on par with India.
    However, besides their leadership of the common market area in
    Latin America (MERCOSUR), membership in other regional
    agreements, and their work to advance peace in Haiti, Brazil
    has been reticent to take a larger role in global affairs.
        In Brazil, sectors within the country exist that could be
    defined as first, second and third world, highlighting the
    tremendous disparity between rich and poor that still exists.
    Over 50 million Brazilians live in poverty and there are over
    600 Brazilian municipalities that have poverty levels similar
    to some of the poorest African countries. One percent of the
    population controls 45% of the farmland. In addition, disparity
    of opportunity and representation in the formal and ``white
    collar'' sectors of Brazil's economy continues for Afro-
    descendents, as well.
        Despite these challenges, Brazil has experienced steady
    economic growth that reached 4.5% in 2007 as well as a
    significant rise in exports. Brazil still suffers from high
    real interest rates but in early 2008 it received an
    investment-grade sovereign debt rating.
        Brazil is rich in natural resources including oil, iron
    ore, manganese, and others. It has 14% of the world's renewable
    fresh water. The Government of Brazil (GOB) has undertaken an
    ambitious program to reduce dependence on imported oil. In the
    mid-1980s, imports accounted for more than 70% of Brazil's oil
    and derivatives needs; the net figure is nearing zero. The
    recent discovery of the Tupi and Carioca oil fields could yield
    reserves upwards of 40 billion barrels. Output from the
    existing fields combined with the new discoveries could make
    Brazil a significant global oil exporter by 2015.
        Brazil produces approximately 1.59 million b/d of oil and
    produces 9.37 billion cubic meters of natural gas. In 2007,
    Petrobras generated revenues of $41.6 billion from oil and gas
    (sold internally and externally) and $87.5 billion from all
    sales of hydrocarbons. These figures are expected to increase
    to $65 billion and $111 billion in 2008, respectively. 58% of
    revenues are reinvested directly into exploration and
    production. Although much of the revenues go to domestic and
    international development of its oil fields and refineries, as
    well as R&D, Petrobras paid an estimated $36 billion to the
    Brazilian state in taxes in 2007. Although it is listed on
    Bovespa and is partially publically-owned, the government and
    the state development bank own 37.5% of Petrobras's preferred
    and common shares, and about 56% of the voting shares. In the
    recently-approved 2008 federal budget of Brazil, state
    enterprises accounted for $62 billion of fiscal receipts,
    Petrobras making up over half that figure.
        Brazil is also one of the world's leading producers of
    hydroelectric power and a global leader in biofuels--especially
    ethanol from sugarcane--its production and promotion. Demand
    for Brazil's abundant minerals, notably iron ore and bauxite,
    has been booming largely due to demand from China. All
    extractive industries are impacted by environmental controls
    from relevant GOB Ministries.
        As a result of potential earnings, at the time staff
    visited Brazil Finance Ministry officials were expecting
    President Lula to forward a legislative proposal to congress
    establishing an ``investment fund'' or ``fiscal savings fund''
    of about $10 to 20 billion, exact timing remains unclear at the
    writing of this report.
        Brazilian Finance officials asserted that Brazil was unique
    in that the rationale for this fund was not based on commodity
    revenues, but on its robust reserves and good fiscal position,
    and therefore was not comparable to other countries' sovereign
    wealth funds.
        GOB statements that the fund could draw on oil revenues
    from PetroBras' recent finds in three to five years to create a
    $200-300 billion does not take into account that these fields
    are not expected to generate revenue in the immediate future.
    Officials indicated that Singapore had come to Brazil and
    explained its sovereign wealth fund, and that Brazil's Finance
    Ministry had discussed sovereign wealth fund structures with
    relevant Gulf States, as well. They underlined that reserves
    were off the table as a funding source for the fund, and that
    Brazil hoped to increase the primary surplus target by 0.5% of
    GDP (or about $13 billion per year) to fund this mechanism.
        Brazil is not yet a candidate country for the EITI. The
    Ministry of Mines and Energy indicated that they would have to
    have direct feedback from extractive industries to persuade
    them of EITI's utility and relevance for Brazil. GOB diplomatic
    interlocutors felt that the idea had merit but indicated it was
    important for the U.S. to demonstrate commitment as well if it
    wished to persuade others. Petrobras, the largest oil company,
    supports EITI, but EITI reportedly reflects what they are
    already doing and complements company goals and operations.
    Both Vale, the largest mining company, and Petrobras are
    publicly traded, with financial data publicly available on
    their websites and results submitted to Brazil's equivalent of
    the Securities and Exchange Commission (the Commissao de
    Valores Mobili rios).
        Brazil's use of the phrase ``Transparancia Publica''
    (public transparency) is omnipresent in the Lula
    administration, and a website exists with a transparency portal
    to track all government spending. Staff is satisfied with
    Brazil's transparency efforts regarding earnings revenues since
    tax revenues are public and accessible on the internet.
        Brazil's relationship with the U.S. has been generally
    positive although there is relatively little of substance in
    the bilateral agenda; the Bush administration signed an
    Executive branch agreement on biofuels, but there is no
    guarantee that this agreement will continue during the next
    administration.
        Efforts to deepen this relationship could begin with
    passing into law an improved agreement on biofuels and
    eliminating the tax on Brazilian ethanol currently in place.
    Other policies could include, negotiating a Tax Treaty and
    beginning negotiations for a limited market access agreement
    with MERCOSURs full member countries (Brazil, Argentina,
    Paraguay, and Venezuela).
                Chile
        Chile has a population of 16.3 million people approximately
    and an average life expectancy of 78.3 years. Chile's infant
    mortality rate is 10 deaths per 1000 births and per capita
    income is $11,270, with 5.6% of the population living under $2/
    day. Total hydrocarbon revenues for 2005 were $25.4 billion or
    22% of GDP.
        Today, Chile has fewer pressing domestic problems than in
    its recent past, and the bureaucracy and markets generally
    function well. Private property and the rule of law are
    respected and the public actively demands accountability of its
    officials. When cases of corruption do arise, they are
    denounced and investigated.
        Chile is a leader among upper middle income countries on
    measures of competitiveness and quality of life. Chile has
    embraced globalization and is highly dependent on international
    trade, having become an active participant in the Doha round of
    trade negotiations. Between 1990 and 2006 the poverty rate fell
    from 38.6% to 13.7%; the indigence rate from 12.9% to 3.2%.
        Chile is the world's leading copper producer and exporter,
    constituting about 35% of world output. Chile also produces
    molybdenum, gold, and silver. Copper production and investment
    in Chile increased sharply during the 1990s and the consequent
    increased production seems to have been responsible for a large
    drop in the international market price.
        Since 2002, (at the time this report was written) the
    copper price has resumed an upward trend, mainly because of
    growing demand from the large Asian economies. The Chilean
    copper mining sector is both state-owned and privately owned,
    so Chile benefits from receiving fiscal resources directly and
    through taxes and royalties on private enterprise. High copper
    prices have led to increased investment in funds to finance
    pension reform and for economic contingency funds to stabilize
    the economy during economic downturns. In 2007 copper
    production by state owned entities was 28.5% and 71.5% by
    privately owned mines.
        Though Chile is a net oil importer, it produced
    approximately 11,600 billion b/d in 2007. Oil revenues have
    been relatively steady over the last several years and oil
    exploration activities in Chile are ongoing in the Magallanes
    region in the south, the only part of Chile where hydrocarbons
    have been discovered.
        Chile is examining steps to reduce its dependence on
    foreign oil, including the expansion of research on alternative
    energy sources, such as wind, solar and nuclear energy. In this
    regard, staff noted the need for the United States and Chile to
    pursue exchanges where U.S. scientists and energy professionals
    can work with the Chilean government, academic and private
    sector actors to help establish the necessary technical
    capacity so Chile can develop a sustainable domestically-based
    energy infrastructure.
        Chile is not an EITI candidate country and few government
    officials were familiar with the EITI concept. However, Chile
    has a very transparent revenue management system, and staff
    believes that Chile already has policies in line with EITI. Due
    to widespread fears of corruption in the copper industry,
    Chilean officials have taken numerous steps to maintain
    transparency and improve public confidence in the use of
    extractive revenues.
        To ensure that fiscal surpluses generated by the extractive
    industry are properly invested, Chile established mechanisms to
    regulate their use in 2006 through the Fiscal Responsibility
    Law. Two sovereign funds were created through this legislation:
    the Pension Reserves Fund (FRP) to cover for future pension
    payments and the Economic and Social Stabilization Fund (FEES)
    to reduce economic instabilities during periods of uncertainty.
    Chile's Central Bank has hired JP Morgan Chase as a custodial
    bank to manage these funds and produce performance assessments
    and reports on the FEES and FRP funds. Reports on these funds
    and on revenues are published by the Ministry of Finance and
    readily accessible to civil society and international financial
    institutions. Reports and recommendations provided by the
    Advisory Financial Committee are also accessible to the public.
    The United States has no assistance programs relating directly
    to transparency or extractive industries with Chile.
        The U.S. Government enjoys positive and expanding relations
    with Chile that are focused on deepening the U.S.-Chile free
    trade agreement. Breaking with traditional diplomacy, in an
    example of innovation, Chile has pursued relations with several
    U.S. states, including California, in the areas of energy
    cooperation and educational exchange programs.
                Peru
        Peru has a population of 28 million. Average life
    expectancy is 70.7 years with over 30.6% of the population
    living under $2/day. The infant mortality rate in 2005 was 27
    deaths per 1000 births. The total hydrocarbon revenues for 2007
    were $855 million or 1 per cent of GDP. Per capita income was
    $6,080.
        Peru is a country in transition following over 20 years of
    political and economic turmoil. While the Government of Peru
    (GOP) has earned an enormous amount of revenues from extractive
    industries, the technical capacity to transform wealth into
    development remains a challenge. President Alan Garcia took
    office in July 2006 for a five year term. Although there was
    initial skepticism because of the economic chaos and
    hyperinflation that occurred under his first term as a result
    of his populist policies (1985 to 1990), he has taken steps to
    get the Peruvian economy back on track and to encourage private
    investment and exports. He has recast himself as a moderate in
    his second term and has continued the economic policies of his
    predecessor, Alejandro Toledo. GDP is expanding rapidly (7% in
    2007) due to mining and export growth as well as an increase in
    private investment. The government has had success with recent
    international bond issuances, resulting in ratings upgrades.
        Peru is rich in natural resources such as iron ore, copper,
    gold and silver, which make up 3% of fiscal revenue, 1.5% of
    GDP, and over 60% of export revenue according to the IMF. At
    the time this report was written, rising mineral prices were
    contributing to an increase in revenues from exports. Peru is
    the second largest producer of silver in the world, and the
    sixth largest of gold and copper. Peru also produces a
    significant quantity of zinc and lead. The U.S. purchased 23%
    of Peru's exports, mainly gold and copper in 2007.
        Extractive industry transparency is important in Peru
    because it is still a very poor country despite the massive
    influx of revenues it is beginning to receive from extractives.
    Peru is now the only country in the Western Hemisphere that has
    signed up for EITI. Peru has an extremely complex, yet
    transparent, system regarding extractive industry payments to
    the government. First, half of all mining revenues are by law
    redistributed back to the regions, where extraction takes
    place; these revenues are used primarily for social
    infrastructure projects. The law dictating this process is
    called Canon law and the resulting revenues are referred to as
    ``canon.''
        Given Peru's increasing exports, vast amounts of resources
    are being transferred to the regions: in 2007, canon resources
    totaled 5.1 billion soles ($1.8 billion). However, the unequal
    distribution of canon is one of the hottest topics of political
    debate in Peru.
        Second, through the aporte voluntario or ``voluntary
    contribution,'' 47 out of 49 mining companies give money to a
    solidarity fund managed by a committee comprised of
    representatives from NGOs, the mining companies, local
    governments and civil society. The role of the committee is to
    decide how to best invest the resources. Experts estimate that
    in 2008 the fund will generate 540 million soles ($193
    million).
        Third, approximately 50% of the bid or tender is invested
    through a fideicomiso (trust fund) into social programs
    focusing on health and education to benefit the communities
    where extractive activity takes place. The goal of the trust
    fund is to ensure that the benefits of extractive company
    investments are long-term and continue helping future
    generations of Peruvians. Fideicomisos are established during
    the projects' exploration phases. The trust fund is
    administrated through a council made up of representatives from
    the company, the Government, and civil society.
        All of the financial data on Canon law, voluntary
    contribution, and trust funds are published on the internet.
    However, staff heard from several people about the contrast in
    transparency between the large international companies and the
    smaller domestic companies. Whereas the large international and
    multinational companies follow international standards and
    practices regarding transparency, smaller indigenous companies
    disclose less information.
        Peru has also made strides in advancing an anti-corruption
    and transparency agenda, though a fragmented government
    structure with four independent sub-national levels of
    government complicates coordination. A freedom of information
    law was approved by the Peruvian Congress approximately five
    years ago. The Peruvian Government and civil society have been
    increasingly open and forthcoming in sharing information, a few
    pitfalls notwithstanding. Transparency has also resulted in a
    massive crackdown on corruption because the country's budget is
    now available online through the Ministry of Economy and
    Finance. Specific information and figures are broken down by
    years, as well as by federal, region, province, and district.
    This has allowed government officials to be held to account at
    all levels in Peru.
        Peru became an EITI candidate country in September of 2007.
    It has until March 2010 to become a compliant country. Peru
    established an EITI working group in the country comprised of
    representatives from the Government of Peru, civil society, and
    extractive companies. Although Peru was one of the first
    countries to sign up for EITI, the progress toward
    implementation has been extremely slow. The working group was
    slow to organize and the companies do not want to release
    disaggregated figures on their taxes paid. This is especially
    true of the medium and small sized companies who are mostly
    domestic Peruvian companies.
        International donors are contributing approximately $2.2
    million for implementation of EITI in Peru. USAID granted the
    World Bank's International Finance Corporation $450,000 to set
    up a well-regarded program to bolster technical capacity to
    implement EITI. The program will provide assistance to local
    officials on how to design projects that meet legal
    requirements and will include a civic oversight component to
    inform citizens about the measures taken by their authorities.
    USAID remains in an advisory role for this initiative. The
    Peruvian Government has also appointed two senior level
    ministers to sit on the working group, the Vice Minister of
    Energy and the Vice Minister of Mines.
        Apart from this USAID-IFC partnership, the United States
    has promoted transparency through provisions in the U.S.-Peru
    Trade Promotion Agreement, which requires regulatory
    transparency. Regulative authorities must use open and
    transparent administrative procedures, consult with interested
    parties before issuing regulations, provide advance notice and
    comment periods for proposed rules, and publish all
    regulations. The financial services chapter of the agreement
    also includes provisions on transparency of domestic regulatory
    regimes. Other U.S. foreign policy priorities in Peru include
    promoting democratic governance; countering the transnational
    threat of narcotics trafficking; and ensuring that the benefits
    of economic growth reach the poor and marginalized.
        Technical capacity could actually be a larger problem than
    transparency in Peru. Despite the Peruvian Government's
    reserves (Peru's Net International Reserves (NIR) amounted to
    34.78 billion dollars as of July 25, 2008), the Government has
    no plans for much needed large scale national development
    projects which would include major transportation
    infrastructure, roads, rail and ports, to take full advantage
    of the recently enacted U.S.-Peru Trade Promotion Agreement. In
    the rural areas, there is a lot of interest and good will, but
    capacity for the formulation and implementation of basic
    economic development projects by local governments is lacking.
    Though the Peruvian Government's system is transparent enough
    that people can track budget surpluses and put pressure on
    politicians to perform, local Peruvian Governments do not have
    the technical capacity to use these surplus funds effectively
    and the expectations of regular Peruvians regarding their
    Government are low. This is creating a degree of social
    conflict and an increasing sense of frustration among the
    Peruvian people who have not seen ground-level benefits of this
    economic windfall in the form of services, health, education or
    infrastructure to improve their everyday lives. This has
    resulted in a sense of distrust of both the mining companies as
    well as the national Government. Many Peruvian analysts believe
    that if the Garcia administration does not show a real
    improvement in the everyday lives of regular Peruvians in key
    areas of the country, an anti-free market leader might gain the
    presidency in 2011 and all the progress that has been made
    during presidents Toledo and Garcia will be lost.
    MIDDLE EAST
                Iraq
        A study by UNDP and the Iraqi Government suggest that one-
    third live in poverty, while according to Oxfam International,
    43% of Iraqis are in ``absolute poverty.'' Unemployment is
    calculated from 25-40%, although the Government of Iraq's
    (GOI's) estimate is 17.5%. Infant mortality, measured in 2006
    and reported by UNICEF is 37. Per capita GNI is $2,170. Iraq
    has an infant mortality rate of 125 deaths per 1000 births.
    Total hydrocarbon revenue in 2005 was $8.8 billion, which is
    approximately 69.5% of GDP. Revenue estimates for 2006 were
    $31.3 billion and for 2007 were $41.0 billion and projected
    revenue for this year exceeds $70 billion.\50\
    ---------------------------------------------------------------------------
        \50\ Oil figures provided by the U.S. Department of State, current
    as of 23 July 2008.
    ---------------------------------------------------------------------------
        Iraq is emerging from decades of tyranny and corruption
    that pervaded all levels of government. As the GOI chips away
    at the complex series of challenges it faces, it remains behind
    the expectation curve in nearly every measurable aspect. Where
    competent governance lags, criminality, powerful militias, and
    incompetence compete to replace the institutions of the Saddam
    era. Transparency International's ``Corruption Perceptions
    Index'' put Iraq among the worst in the world--only Burma and
    Somalia rank worse. While Iraq has made some grand gestures,
    such as joining EITI and working closely on planning with UN
    and IMF, it has not yet changed. Senior Iraqi officials are not
    required to declare their income, investments or net worth. Oil
    terminals are not metered. Anti-corruption officials are
    undermined in their work by the highest officials in the
    Government.\51\
    ---------------------------------------------------------------------------
        \51\ For more, see Judge Radhi Hamza al-Radhi, former Commissioner,
    Iraq Commission on Public Integrity, testimony at House Committee on
    Oversight and Government Reform hearing ``The Status of Corruption in
    the Iraqi Government.'' October 04, 2007.
    ---------------------------------------------------------------------------
        Despite the widespread poverty and unemployment, Iraq's
    macro-economy shows some health. According to the IMF, over the
    past year, inflation has fallen from 64.8% at the end of 2006
    to 5% at the end of 2007, a rate that has been sustained in
    2008. IMF predicts growth in 2008 will be 7%, driven by rising
    oil prices, economic reforms and surging foreign exchange
    reserves. Sovereign debt, estimated in 2003 to be between $125
    and $140 billion, has been cut in half. Fuel subsidies have
    been all but eliminated.\52\
    ---------------------------------------------------------------------------
        \52\ Bennett, Adam. Senior Advisor, Middle East and Central Asia
    Department, International Monetary Fund. Statement on the International
    Compact with Iraq, Stockholm, Sweden, May 29, 2008.
    ---------------------------------------------------------------------------
        Attempts to improve financial management through
    computerizing data and reporting have been hit and miss. The
    FMIS (Financial Management Information System), an accounting
    and reporting system has been put in place by USAID for all
    Iraqi ministries to use. The GOI is using the system and has
    started to pay for Internet connectivity for all FMIS sites
    throughout the country. Training continues for the MOF and
    other government staff. Nevertheless, use has not been
    standardized and laws and directives are not in place to
    stipulate accounting procedures.\53\ Iraq has established
    mechanisms to investigate and fight corruption, but they have
    proven largely ineffective. The clearest reason for this is
    intimidation. Judge Rahdi, Iraq's one time leading anti-
    corruption official has fled the country for fear of his life.
    ---------------------------------------------------------------------------
        \53\ Source: email exchange with USAID staff, May 1-5, 2008.
    ---------------------------------------------------------------------------
        In 2008, Iraq's crude oil exports have increased from 2007
    levels by 22%. Iraq has exported an average of 1.92 million b/d
    this year, with the bulk (approximately 1.5 million b/d) coming
    from southern Iraq. Iraq's reserves have long been ranked third
    in the world, with estimates ranging from 100-116 billion
    barrels, but with only a small portion of its fields producing.
    However, great challenges remain to maintain or further boost
    this capacity. Within the oil industry in Iraq, which accounts
    for 64% of GDP and 84% of the national budget,\54\ smuggling,
    corruption, looting, and graft are rife; production (lift and
    transfer) is hampered by decrepit infrastructure, the
    challenges posed by surface and subsurface water, poor
    security, corrosion, poor reservoir management, the flight of
    intellectual capital competency, and more. The World Bank
    estimates that to simply sustain current levels of production,
    Iraq needs to invest $1 billion annually. In 2007, according to
    end of year data from the Iraqi Ministry of Finance, the
    Ministry of Oil expended only $36.1 million of its $2.5 billion
    budget.
    ---------------------------------------------------------------------------
        \54\ International Compact with Iraq, Annual Review Conference
    Report, dtd 29 May 2008, p. 49.
    ---------------------------------------------------------------------------
        In May, Iraq's Minister of Oil Hussain al-Shahristani
    announced that the first five two-year technical service
    contracts (TSCs) with Royal Dutch Shell, ExxonMobil, Chevron,
    BP and Total would be signed. These contracts were to have been
    completed by now, but domestic Iraq politics and the lack of an
    oil law continue to complicate matters. Iraq is hoping that by
    using short-term TSCs to reconstruct established fields such as
    Rumailah--Iraq's largest and the fourth largest oil field in
    the world--it can increase its oil production by 500,000 b/d
    and give the political establishment time to finalize a new oil
    law, and enable actual investment.\55\ In the Kurdish region,
    more than twenty contracts have been reportedly signed, but
    this has all been done without pledged transparency. No major
    international oil companies have signed contracts in the
    Kurdish region.
    ---------------------------------------------------------------------------
        \55\ ``Al-Shahristani Expects First Service Contracts To Be Signed
    In June,'' Middle East and Africa Oil and Gas Insights, May 1, 2008.
    ---------------------------------------------------------------------------
              The international companies have a tremendous amount
            of leverage--if not than a great deal of influence--
            when it comes to promoting transparency now in Iraq but
            they have not been pressing the case. One oil industry
            executive told staff, ``EITI has not come up in talks
            with the Iraqis. . . .'' and stated further that
            neither the U.S. Government nor the British Government
            have supported EITI.
        Iraq's natural gas reserves, according to the Oil and Gas
    Journal are 112 trillion cubic feet (Tcf), making it the tenth
    largest in the world. Probable reserves may be closer to 275-
    300 Tcf. The EIA's annual report notes that natural gas
    production has declined steadily over the last 15 years along
    with oil production and deteriorating processing facilities.
    According to the January 2007 report from the Special Inspector
    for Iraqi Reconstruction (SIGIR), the value of the gas that is
    flared or injected back into wells is approximately $4 billion
    annually. Experts suggest that if Iraq captured and piped that
    gas, it could provide for much of Iraq's domestic fuel needs
    and enable Iraq to export crude. Plans to build the necessary
    infrastructure to capture and pipe the gas have been announced,
    but so far have been tabled for future consideration. Estimates
    to build the necessary infrastructure are in the $2 billion
    range. The Oil Ministry has not made the investments to capture
    the gas, whether for domestic use or export.
        The Government of Iraq has established a Committee of
    Financial Experts (COFE) to serve as an independent monitor of
    fiscal activities. COFE has worked closely with the
    International Audit and Monitoring Board (IAMB), which is
    responsible for monitoring the Development Fund for Iraq (DFI),
    the UN-mandated repository for Iraq's oil revenues. COFE will
    assume the duties of the IAMB when it and the DFI mechanism are
    dissolved, which could come as early as January 2009, when the
    current UN mandate expires. The IAMB and COFE's most recent DFI
    report, a summary audit of 2007 activities, noted 13.8 million
    barrels of oil produced but unaccounted for last year.
        Over the past year, the Ministry of Oil has begun to report
    monthly export figures on its website and in a national
    newspaper, including export quantities and destinations, and
    revenues garnered.\56\ Furthermore, the Ministry of Finance is
    publishing quite a bit of fiscal data, including what they are
    sending to the Kurdish Regional Government (KRG) every month,
    but there is not the least bit of transparency on the part of
    the KRG, who some locals say are ``selling Iraqi oil down the
    river.'' KRG finances are, in the words of one close observer
    ``a complete black hole.'' This compromises transparency
    efforts by the central government as well, and U.S. officials
    and oil companies cannot ignore it forever. Nevertheless, the
    lack of reliable mercantile infrastructure forces many
    transactions to continue to occur in cash. In 2006, the GAO
    estimated that about 10% of Iraq's refined fuel and 30% of its
    imported fuels were being stolen. Industry analysts quietly
    question discrepancies between sales and export figures, with
    some placing Iraq's ``slippage'' at as much as 200,000-300,000
    b/d, although coalition officials have often said that the
    fuel/smuggling theft problem is less than 10% of fuel supply
    and much of that stays domestic and is sold on the black
    market, and so is not often seen as a major problem. The Iraq
    Oil Ministry's Second Transparency Report ``Smuggling Crude Oil
    and Oil Products,'' also from 2006 provided clear indicators
    the Ministry is aware of its problems, but it has not issued a
    subsequent report, suggesting it has made no progress. A U.S.
    Government official familiar with the reports, stated to staff
    that indeed, ``. . . it's fairly the same story.''
    ---------------------------------------------------------------------------
        \56\ See: http://www.oil.gov.iq/ for Iraq MO reports and http://
    www.state.gov/p/nea/rls/rpt/ for USG reports.
    ---------------------------------------------------------------------------
        Without laws to govern the oil and gas sector, with good
    governance and overall ministerial capacity wanting,
    transparency may be the single most powerful weapon the
    Government of Iraq has to combat pervasive, systemic
    corruption. A transparent, efficient and equitable legal
    framework for the management of oil and gas resources is
    perhaps the most important benchmark under discussion in Iraq.
    If done right, it could be the genesis for true national unity.
    In meetings with U.S. and Iraqi officials in Iraq and in
    Washington, staff heard no end to the frustration about the
    lack of progress towards political milestones, including the
    development of a package of laws to regulate the hydrocarbons
    industry. Embassy officials and U.S. policy makers recognize
    this, and must continue to work steadfastly with the parties to
    ensure this becomes a reality. Nevertheless, as with many
    things in the new Iraq, it is more important that it is done
    right than it is done fast. Across the board, progress on
    political reform is slow because the parties in control of the
    system benefit from it and a general mistrust among major
    factions persists. Progress on the hydrocarbons laws is no
    different.
        In addition to transparency, metering would seem a simple
    and sensible fix. The Iraqi Government has indicated that they
    are committed to install, fix, and/or regulate oil flow meters
    at all oil production and distribution facilities by the end of
    2007, progress has been slow. Some metering has been installed
    at oil terminals, such as Basra and the Gulf Oil Platforms, but
    no metering is being done in the oil fields.\57\ U.S. funds
    supported the installation and renovation of the meters at the
    Al Basra Oil Terminal, however according to the U.S. Corps of
    Engineers, ``the new meters are still not being used for
    custody transfer.'' The meters are being used to check ship's
    ullage readings, which determine the custody transfer
    amount.\58\
    ---------------------------------------------------------------------------
        \57\ International Advisory and Monitoring Board on Iraq (IAMB),
    Third Interim Report Covering the Year 2007.
        \58\ Special Inspector General for Iraq Reconstruction, Quarterly
    Report to the US Congress, April 30, 2008, p. 117.
    ---------------------------------------------------------------------------
        In a February 21, 2008 letter to the EITI Secretariat, the
    Government of Iraq indicated its commitment to formally sign up
    to EITI. This action followed several years of Iraqi interest
    in EITI, including attendance at EITI annual conferences and
    including it as an economic benchmark in the International
    Compact with Iraq. U.S. officials that staff met with for this
    project have reacted favorably towards the Government of Iraq's
    actions towards EITI, toward anti-corruption efforts and
    transparency. But, achieving results will require much more
    than simple statements.
        One U.S. official admitted that extractive industry
    transparency ``is not in the top fifty'' of U.S. priorities
    with respect to Iraq. The Iraqis have not begun to submit
    reports to EITI or to the IMF, and no financial outlays have
    been made for EITI.
                Saudi Arabia
        Saudi Arabia is home to a population of more than 28
    million people. With the price of oil skyrocketing, Saudi oil
    revenues increased from $85 billion in 2003 to $194 billion in
    2007, a 128% increase in just four years.\59\ In 2007, Saudi
    oil revenues constituted approximately 52 per cent of GDP.
    Saudi Arabians have a per capita income of $16,260, a life
    expectancy of 72.2 years, and an infant mortality rate of 26
    deaths per 1000 births.
    ---------------------------------------------------------------------------
        \59\ Saudi Arabia also possesses 240 trillion cubic feet of proven
    natural gas reserves. This amount represents roughly 4% of the global
    total, the fourth largest proven reserve in the world. In 2006, Saudi
    Arabia produced 2.6 trillion cubic feet of natural gas.
    ---------------------------------------------------------------------------
        Saudi Arabia has seen some political and economic reform
    over the last several years in response to escalating domestic
    problems. In 2005, King Abdallah continued his cautious reforms
    to increase political participation through nationwide
    elections for half of the members of the municipal councils;
    the remaining members were appointed by the monarch. Terrorist
    attacks in 2003 also provoked a strong political campaign
    against domestic terrorism and extremism. Dependence on
    petroleum output and prices, aquifer depletion, high
    unemployment among a growing population (nearly 40% of which
    are youths under the age of fifteen) remain challenges. In
    reaction to the largely uneducated youth population, the Saudi
    Government has significantly increased spending on job training
    and education, infrastructure development, and government
    salaries.
        According to the Energy Information Administration, Saudi
    Arabia's proven oil reserves are 259.8 billion barrels. This
    amount represents 22% of the global total, and the largest in
    the world. In 2007, Saudi Arabia produced 8.7 million b/d of
    oil with an estimated production capacity of 10.5--11.0 b/d.
    Oil accounts for 70-90% of Saudi state revenues.
        Saudi Arabia releases timely, but not highly-detailed
    budget information. Overall, the level of transparency in Saudi
    Arabia is improving but still lacking according to most
    international standards. The information provided by the Saudi
    Government lacks important details, and publicly available
    numbers are too generalized to identify specific programs or
    even budgets for specific ministries. Furthermore, the lack of
    specificity and transparency provide an environment where
    corruption can flourish. According to Transparency
    International's Corruption Perceptions Index, Saudi Arabia
    ranks 79th out of 179 countries with a ranking of 3.4 (0 =
    highly corrupt and 10 = highly clean).\60\ From a regional
    perspective, this rank gives Saudi Arabia the worst ranking of
    the six members of the Gulf Cooperation Council, including
    Bahrain, Kuwait, Oman, Qatar, and the UAE. Most observers,
    though, believe Saudi Arabia is managing this enormous inflow
    of cash in a relatively responsible manner. The Government has
    utilized its oil wealth to make qualitative improvements to the
    country's social and physical infrastructure and has focused
    its expenditures in five areas: education and manpower
    development; health and social affairs; water, agriculture and
    infrastructure; transportation and telecommunications; and
    municipality services.\61\
    ---------------------------------------------------------------------------
        \60\ http://www.transparency.org/policy--research/surveys--indices/
    cpi.
        \61\ Ibid
    ---------------------------------------------------------------------------
        Saudi Arabia has expressed no desire to join EITI. Average
    Saudis express numerous economic concerns, but the relative
    lack of transparency in the extractive industries does not
    appear to be a leading source of frustration. While the Saudi
    Government could clearly improve its level of transparency and
    could benefit from joining EITI, the Saudis have already taken
    steps towards additional disclosures. In fact, since June 2006,
    Saudi Arabia has observed the International Monetary Fund-
    endorsed standards and codes related to banking supervision,
    monetary and financial policy transparency, and payments
    systems.
        In December 2007, Saudi Arabia announced its 2008 $106
    billion budget, roughly twice the 2002 budget and Saudi
    Arabia's largest in history.\62\ In 2007, Saudi Arabia also
    accrued a $47.6 billion budget surplus, its fifth consecutive
    year of budget surpluses. To put this surplus in perspective,
    it is more than twice as big as Lebanon's GDP and equal to the
    total value of Qatar's Investment Authority. The Saudis have
    used a majority of this budget surplus to accumulate foreign
    assets at the Saudi Arabian Monetary Agency (SAMA) and to
    reduce debt.\63\ SAMA controls approximately $271 billion in
    foreign assets (some estimates are as high as $330 billion).
    The value of SAMA's foreign assets has increased fivefold since
    2003, and with a projected budget surplus for 2008 of more than
    $40 billion, this rapid growth in the value of Saudi foreign
    assets is likely to continue.\64\
    ---------------------------------------------------------------------------
        \62\ John Sfakianakis, ``And the boom continues.High revenues,
    robust budget, growth,'' The Saudi British Bank (12 December 2007).
        \63\ Sfakianakis, ``And the boom continues . . .''
        \64\ Ibid.
    ---------------------------------------------------------------------------
        The Saudi Government recently confirmed that it plans to
    launch a more traditional sovereign wealth fund. The Secretary-
    General of the Saudi Public Investment Fund (PIF), Mansour al-
    Maiman, says the new fund is expected to begin with an
    authorized capital of $5.3 billion, a relatively small sum
    compared to the current worth of Kuwait's fund of about $200
    billion and of the UAE's fund of around $500 billion. According
    to Maiman, the PIF will retain 100% ownership of the new fund,
    but the fund will feature an independent management team. One
    of the objectives for the new fund is to improve Saudi Arabia's
    financial services sector by building a national asset
    management base.\65\ While Saudi embassy officials emphasize
    the domestic focus of this fund, the fund's desire to maximize
    long-term returns will almost certainly result in equity
    investment abroad, including the United States. The fact that
    Mr. Maiman has cited Norway's fund as a potential model
    suggests the Saudis may plan to run their SWF in a transparent
    manner.
    ---------------------------------------------------------------------------
        \65\ ``Join the club; Saudi Arabia launch a formal sovereign-wealth
    fund,'' The Economist Intelligence Unit (May 1, 2008).
    ---------------------------------------------------------------------------
        While the U.S. and Saudi Arabia have a long-standing
    bilateral relationship, the U.S. has few tools to press the
    Saudis for more transparency in its extractive industry. The
    U.S. would be wise to promote transparency in Saudi Arabia's
    extractive industries and its new SWF through consistent
    discrete diplomatic exchanges. Such an approach is most likely
    to yield positive results without jeopardizing the dollar peg
    or Saudi investment in the U.S., which are important the U.S.
    economy.
                United Arab Emirates
        The United Arab Emirates (UAE) has a population of 4.6
    million. The average life expectancy is 78.3 years and the
    infant mortality rate is 9 deaths per 1000 births. The per
    capita income is $23,990. Between 2003 and 2007, UAE oil
    revenues almost tripled, ballooning from $22.9 billion to $63
    billion or 33 per cent of GDP in 2007.
        The UAE is a federation of seven principalities, including
    the oil-rich capital, Abu Dhabi, and the commercial center,
    Dubai. The UAE has seen little political reform, but in
    December 2006, it held limited elections for half of the 40-
    seat Federal National Council (FNC). Despite these elections,
    citizens do not have the right to form political parties, and
    other civil liberties are limited. The UAE enjoys political
    stability and a robust free-market economy, though challenges
    in the area of terror financing and human trafficking remain.
    Despite diversification, oil exports still account for one-
    third of the UAE's federal budget. Favorable terms for foreign
    investors and low taxes have helped augment the oil-driven
    economy, and GDP growth reached approximately 7.4% in 2007.
    Inflation remains a challenge at 11% in 2007.
        The UAE possesses some of the world's largest reserves of
    oil and natural gas. The UAE enjoys the world's sixth largest
    proven oil reserves at 97.8 billion barrels, representing 8% of
    the global total. In addition to the UAE's large reserves of
    oil, the UAE has 214 trillion cubic feet of proven natural gas
    reserves. This amount represents over 3% of the global total,
    giving the UAE the sixth largest proven reserve of natural gas
    in the world. In 2006, the UAE produced 1.7 trillion cubic feet
    of natural gas. Between 2000 and 2005, oil and natural gas
    provided 66% of the UAE's fiscal revenue.\66\
    ---------------------------------------------------------------------------
        \66\ ``Implementing the Extractive Industries Transparency
    Initiative: Applying Early Lessons from the Field,'' The World Bank.
    2008.
    ---------------------------------------------------------------------------
        Roughly 90% of the oil and natural gas reserves are located
    in the emirate of Abu Dhabi. In the UAE, an emirate's resources
    belong to the emirate as opposed to the entire country so any
    discussion of extractive industry revenue and the UAE must
    focus on Abu Dhabi. Numerous foreign energy companies, such as
    BP, Exxon Mobile, Shell, and Total, operate in Abu Dhabi;
    however, the Government of Abu Dhabi owns a majority stake in
    all oil concessions. More specifically, with only a few minor
    exceptions, the Government of Abu Dhabi owns a 60% stake in oil
    concessions in the country.
        The UAE's record of extractive industry transparency and
    corruption is mixed. Abu Dhabi has taken some measures to
    improve transparency and the general trajectory is positive.
    The UAE has ratified the United Nations Convention Against
    Corruption but lags behind in implementation. It has not joined
    EITI, unlike its neighbor Yemen. According to Transparency
    International's Corruption Perceptions Index, the UAE ranks
    34th out of 179 countries with a rank of 5.7 (0 = highly
    corrupt and 10 = highly clean).\67\ In short, while
    transparency in the UAE is improving, critics suggest that it
    is not at a level to certify that all extractive revenues are
    reported or arrive in Abu Dhabi's treasury.
    ---------------------------------------------------------------------------
        \67\ http://www.transparency.org/policy_research/surveys_indices/
    cpi.
    ---------------------------------------------------------------------------
        For budgeting purposes, Abu Dhabi's Department of Finance
    gets a projection of expected oil revenues. When revenues
    exceed the projected amount, the difference has been sent to
    the Abu Dhabi Investment Authority (ADIA)--the Government's
    sovereign wealth fund (SWF). If actual revenues are less than
    expected, then ADIA covers the revenue shortfall. Recently,
    since ADIA has done so well with its investments, the Abu Dhabi
    Investment Council (ADIC)--which focuses on regional and
    domestic investments-reportedly now serves as the destination
    for Abu Dhabi's budgetary surpluses.
        The large reserves of oil and natural gas controlled by the
    UAE--combined with the ballooning price of both commodities
    over the last decade--have resulted in significant budgetary
    surpluses in the UAE. Abu Dhabi has directed these
    extraordinary surpluses to the emirate's sovereign wealth fund.
        ADIA represents one of the largest SWFs in the world. While
    the lack of transparency makes it difficult to accurately
    estimate the amount of investments owned, ADIA's value is
    estimated to be between $300 and $900 billion. Recently, ADIA
    paid $7.6 billion for a 4.9% stake in Citigroup, becoming the
    biggest shareholder in the world's biggest bank. In September
    2007, ADIA also invested $1.35 billion in the private equity
    company Carlyle Group, obtaining a 7.5% ownership stake. In
    order to assuage the fears of some, ADIA agreed to forgo any
    management role. ADIA and Abu Dhabi officials insist that Abu
    Dhabi's SWFs seek solely to maximize returns. Some skeptics of
    this official Emirati line point to the lack of transparency as
    evidence of ulterior and potentially political motives.
    Admittedly, the U.S. does not know with any level of accuracy
    how much the assets of ADIA are worth and cannot identify all
    ADIA investments in the United States. While Abu Dhabi has
    worked with the U.S. Department of Treasury in developing a
    mutually acceptable ``philosophy'' for the operation of SWFs,
    Abu Dhabi has resisted Treasury's calls to make specific
    disclosures or provide a list of investments.
        Some commentators have remarked, ADIA's investment in the
    U.S. economy is a ``natural evolution of globalization.'' Much
    of the money ADIA is investing in the U.S. is simply a
    recycling of the trillions of dollars the U.S. has paid for low
    cost imports and Middle Eastern oil. This dynamic rests at the
    heart of globalization. If the U.S. seeks to remain faithful to
    its long-term interest in promoting trade and reducing
    protectionism in order to gain access to foreign markets, the
    U.S. must continue to allow foreign investment in the U.S.
    Allowing foreign investors to invest in the U.S. often involves
    some level of risk, but these risks are often overblown and
    exploited for political purposes. The U.S. must balance its
    national security interests with its desire to welcome the
    much-needed capital infusion that SWFs like ADIA are eager to
    provide.

                              A P P E N D I X E S

                                  ----------

      Appendix I: Administration Responses to Questions From Senator Lugar

        Senators often ask witnesses and nominees follow-up
    questions, i.e. questions for the record, on topics addressed
    in hearings. Below are administration responses such questions
    for the record, selected for their relevance to topics covered
    in this report.

      FEBRUARY 13, 2008--QUESTIONS FOR SECRETARY OF STATE CONDOLEEZZA RICE

        Senator Lugar. Funding for the Multilateral Donor's Fund
    for the Extractive Industries Transparency Initiative was
    authorized in legislation signed by the President in December
    2007. What is the State Department's policy on contributing to
    the Fund?

        Secretary Rice. We support EITI, participate actively on
    the EITI board and assist with EITI implementation directly
    through our embassies. Our financial support to date has been:

       FY06--$990,000 in total funds ($1 million before
            rescissions) to support civil society participation in
            EITI implementation, administered by USAID

       Peru--$445,000 for catalyzing EITI planning and stronger
            civil society participation in EITI

       Nigeria--$445,000 to expand civil society oversight of EITI

       Democratic Republic of Congo (DRC)--$100,000 to expand
            civil society and private sector engagement in EITI

       FY07--$1 million to support civil society participation in
            EITI implementation. USAID is currently determining the
            recipient countries.

       FY08--The FY08 funding estimate is $3 million. The Foreign
            Operations Conference Report directs that no less than
            this amount be provided to the EITI multi-donor trust
            fund at the World Bank; however, the final
            determinations on the amount and destination of the
            money are subject to 653(a) negotiations on FY08
            allocations.

    MAY 14, 2008--QUESTIONS FOR STATE DEPARTMENT DEPUTY SECRETARY OF STATE
                                JOHN NEGROPONTE

        Senator Lugar. Chinese companies are playing a growing role
    in extractive industries (such as oil, gas, minerals and
    timber) in developing countries. Do Chinese companies operate
    differently than companies from other countries? If so, how?
        Are Chinese companies held to similar anti-bribery
    standards that U.S. companies are held to through the Foreign
    Corrupt Practices Act?

        Deputy Secretary of State John Negroponte.  Overseas
    investments by Chinese firms in extractive industries are a
    response to China's rapid economic growth. Like their OECD
    counterparts, Chinese companies are profit-maximizing
    corporations whose actions are guided primarily by commercial
    considerations. However, Chinese companies are bound by fewer
    national legal restrictions than companies from OECD countries
    and are not yet party to international agreements on overseas
    business practices. Many of the Chinese companies engaged in
    pursuing contracts for extractive products are state-owned or
    state-operated companies, meaning that the companies receive
    political support from the Chinese Government for their
    overseas activities, including tied development aid, and
    business decisions may take into account some political goals
    as well as purely commercial factors.
        There is no legislation in China that is the equivalent of
    our Foreign Corrupt Practices Act (FCPA). In recognition of
    China's importance in global commerce and the need to level the
    playing field by addressing the issue of foreign bribery, the
    U.S. and partners at the OECD are hopeful that China will sign
    the OECD's Convention on Combating Bribery of Foreign Public
    Officials in International Business Transactions, which
    requires legislation making the payment of bribes a criminal
    offense and eliminating tax breaks for bribing foreign
    officials. The desire to address the problem of bribery and
    corruption is one of the reasons why the OECD has called for
    Enhanced Engagement with countries like China, with the aim of
    having these countries adopt common standards on the way to
    eventual OECD membership.

        Senator Lugar. How is the administration engaging with the
    Chinese Government on issues around extractive industry
    transparency? At what level and through what agencies is the
    engagement? Is the administration encouraging the Chinese
    Government to support the Extractive Industry Transparency
    Initiative (EITI)? If so, how?

        Deputy Secretary Negroponte. Senior Department of State
    officials have, on a number of occasions, encouraged
    interlocutors within both China's Foreign Ministry and the
    National Commission for Development and Reform (NDRC) to
    consider China's participation in EITI as a ``supporting
    country.'' This is the same status that the U.S. holds in EITI.
    Such support by China would reflect China's growing weight and
    influence as an important investor in the extractive sectors of
    many developing countries.

        Senator Lugar. A number of countries are supporting a UN
    General Assembly draft resolution in favor of EITI--A/62/L.41.
    Some have suggested that a UN resolution encouraging EITI will
    help pave the way for Chinese and Indian support for the
    initiative. Given the administration's support for EITI, does
    the administration expect to support this resolution? Why or
    why not?

        Deputy Secretary Negroponte. The pursuit of transparency is
    a high-profile foreign policy objective which cuts across
    numerous USG departments and organizations. State participates
    in international and bilateral efforts such as EITI to
    encourage resource-rich developing countries, as well as
    countries that invest in them (including China and India), to
    implement transparency throughout the extractive industries
    value chain. Resource revenue transparency contributes to
    effective use of public resources by enabling oversight. It is
    encouraging to see that other countries, including those who
    have proposed and sponsored the current UNGA draft resolution
    in favor of EITI (A/62/L.41), agree and are willing to
    encourage increased participation in the initiative. Although
    the US does not anticipate formally co-sponsoring the
    resolution, we have no objections to the current wording, and
    expect that the administration will support it.

       JULY 18, 2008--QUESTIONS FOR TREASURY DEPARTMENT DEPUTY ASSISTANT
     SECRETARY KENNETH PEEL AND NOMINEE FOR U.S. EXECUTIVE DIRECTOR OF THE
                EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT

        Senator Lugar. What is the European Bank for Reconstruction
    and Development's (EBRD) current assessment of the Extractive
    Industry Transparency Initiative (EITI)? How, if at all, is the
    EBRD currently integrating EITI into their operations? What
    steps have been taken? What will be your role in promoting
    EITI?

        Deputy Assistant Secretary Kenneth Peel. The EBRD supports
    the EITI and is participating in the work of the EITI. For all
    natural resource projects, the EBRD requires its project
    sponsors to publicly disclose their material project payments
    to the host government, regardless of whether the government is
    a member of the EITI. The EBRD is actively involved in the EITI
    consultative process, including through providing input into
    the development of technical mechanisms for reporting
    (templates, aggregation of data, etc.). The EBRD promotes
    transparent revenue reporting, as well as increased financial
    and organizational transparency, with the draft EITI reporting
    guidelines providing a useful starting point for even greater
    revenue transparency. The EBRD is working in cooperation with
    other international financial institutions and the
    participating private financial institutions to promote
    governance and transparency initiatives in the financial
    community. The EBRD is helping to build capacity in countries
    of operation to enable them to implement the objectives of the
    EITI. Two countries, Azerbaijan and the Kyrgyz Republic, have
    been in the forefront on this, and may be among the first
    countries to achieve full EITI compliance. In Mongolia, the
    EBRD is helping the country to implement the EITI through its
    work with mining companies.
        My role would be to monitor EBRD activities in this area
    and also to engage upstream with Bank staff and management to
    promote the related objectives identified in recent legislative
    guidance on IFI extractive industry projects. Accountability
    and transparency are key to the mandate of the EBRD to promote
    transition to market economies.

        Senator Lugar. Given your current position as Deputy
    Assistant Secretary for International Development Finance and
    Debt, what is the Asian Development Bank's current assessment
    of the Extractive Industry Transparency Initiative? How, if at
    all, is the Asian Development Bank currently integrating EITI
    into their operations?

        Deputy Assistant Secretary Kenneth Peel. The Asian
    Development Bank (AsDB) endorsed the EITI on February 29, 2008.
    The AsDB has five member states that have already agreed to
    comply with EITI principles: Azerbaijan, Kazakhstan, the Kyrgyz
    Republic, Mongolia, and Timor Leste. All of these countries are
    at the EITI's ``candidate'' stage.
        The AsDB already promotes transparency and anti-corruption
    efforts in its projects and its developing member countries
    through projects and initiatives. These efforts will be
    strengthened by the endorsement of EITI, which is a natural
    complement to these existing activities. Also, the AsDB is
    currently revamping its safeguards policies and our expectation
    is that extractive industries, and the principles of the
    initiative, will be part of that.

        Senator Lugar. Also, what is the World Bank's assessment of
    the Extractive Industry Transparency Initiative? How is the
    World Bank currently integrating EITI into their operations?

        Deputy Assistant Secretary Kenneth Peel. The World Bank
    formally supported EITI in December 2003 as a global
    initiative, which aims to support good governance and
    transparency in resource-rich countries through the publication
    of payments and revenues from oil, gas, and mining in a multi-
    stakeholder process. EITI is achieving strong momentum globally
    and has become an established standard for transparency. There
    are EITI programs in 23 candidate countries, 21 of which have
    active Bank programs. In addition, there are several countries
    that have publicly stated their intention to join EITI and
    others who are in contact with the World Bank Group about the
    EITI process.
        The World Bank Group role, led by the Oil, Gas, and Mining
    Policy Division (COCPO), is to support EITI implementation at
    the country-level and globally. COCPO's Technical Assistance
    programs on EITI are supported by a multi-donor trust fund
    (MDTF). The MDTF seeks to broaden support for the EITI
    principles and process through the establishment of extractive
    industries transparency initiatives in countries that have
    signed on to EITI through programs of cooperation among the
    Government, the private sector, and civil society. The MDTF is
    instrumental in funding the EITI work programs and grants in 10
    countries and 7 additional programs are in negotiation. The
    World Bank Group also has special funds dedicated to supporting
    civil society groups working on EITI through the Development
    Grant Facility. Following strong U.S. leadership during
    negotiation of the fifteenth replenishment of the International
    Development Association (IDA) in 2007, the World Bank expressed
    a continued commitment to enhance transparency of revenue flows
    to governments from extractive-industry projects.
        World Bank Group support for EITI includes making EITI
    consultants and advisors available to governments to assist
    them in implementation and sharing international best practice.
    The Bank also works with client governments on EITI issues as
    part of broader Bank-supported programs on extractive-
    industries reform, natural resource management, and good
    governance/anti-corruption. Aside from the MDTF, the Bank has
    also provided financial support from its own funds to a number
    of civil society groups involved in EITI implementation.

       JULY 18, 2008--QUESTION FOR MS. MIMI ALEMAYEHOU, NOMINEE FOR U.S.
               EXECUTIVE DIRECTOR OF THE AFRICAN DEVELOPMENT BANK

        Senator Lugar. What is the African Development Bank's
    assessment of the Extractive Industry Transparency Initiative?
    How, if at all, is the bank currently integrating EITI into
    their operations? What steps have been taken? What will be your
    role in promoting EITI?

        Ms. Alemayehou. African Development Bank (AfDB) President
    Kaberuka endorsed the EITI in October 2006. Since then, I
    understand that the Bank has developed an implementation
    framework to guide the Bank's operations to help African
    countries improve resource management of extractive industries.
    The framework is results-oriented and includes both short and
    medium term measures to help countries strengthen transparency
    and accountability in the management of extractive industries.
    The approach includes technical and financial assistance for
    countries which have demonstrated political will by endorsing
    the EITI and for those countries participating in EITI++,
    advocacy and outreach activities to encourage resource rich
    countries to improve governance, and mainstreaming the EITI
    principles in the Bank's own natural resources operations. The
    AfDB has worked with the Liberian Government to develop its
    EITI work plan, and has assisted Madagascar to become an EITI
    candidate country. The Bank is also financing efforts by the
    Central African Republic, Botswana and other countries to
    become EITI candidates.
        I believe that it is very important that every appropriate
    measure is taken to ensure that all people in resource rich
    countries benefit from the extraction of resources, and not
    just a well-connected few.
        As U.S. Executive Director, I will actively promote the
    Bank's involvement in achieving the important transparency and
    accountability objectives of the EITI in the Bank's borrowing
    member countries. Furthermore, I would work to block any
    support by the Bank for the extraction and export of certain
    natural resources unless the government of a country has in
    place functioning systems which meet three broad standards on
    revenue accounting, independent auditing of accounts and
    transparency.

       JULY 18, 2008--QUESTION FOR MR. MIGUEL SAN JUAN, NOMINEE FOR U.S.
           EXECUTIVE DIRECTOR OF THE INTER-AMERICAN DEVELOPMENT BANK

        Senator Lugar. What is the IDB's current assessment of the
    Extractive Industry Transparency Initiative? How, if at all, is
    the IDB currently integrating EITI into their operations? What
    steps have been taken? What will be your role in promoting
    EITI?

        Mr. San Juan. The Extractive Industries Transparency
    Initiative (EITI) was launched in 2003 to promote transparency
    in resource rich countries through the reporting and
    publication of company payments and government revenues from
    oil, gas and mining operations. EITI is implemented through
    multi-stakeholder partnerships (government-industry-civil
    society) that adhere to a series of 20 voluntary steps embodied
    in a ``validation grid.'' Countries are deemed to be EITI
    compliant if they have met all 20 steps, and EITI candidates if
    they have met the first four ``sign up'' steps. To date, no
    country is compliant; 23 countries are candidates (Peru is the
    only candidate from Latin American and the Caribbean).
    Candidate countries have two years to achieve compliance
    (implement the 20-steps). The United States, through the State
    Department, sits on the EITI Board of Directors, which sets
    broad policy for the initiative. The U.S. recently contributed
    around $3 million to the EITI trust fund administered by the
    World Bank, and has provided nearly $2 million in bilateral
    support to help countries to implement EITI.
        The U.S. has actively pressed the IFIs to support EITI
    through their policy dialogue, lending and technical assistance
    programs, and analytical work.
        The IDB has not yet formally endorsed EITI, despite
    encouragement by the USG to do so. However, bank management has
    indicated that they are preparing a proposal regarding EITI
    which will be submitted to the Board shortly. Steps for
    integrating EITI into operations will depend on the outcomes of
    the consultations with the Board.
        If confirmed, I will work with IDB management and the Board
    to integrate EITI into their operations and also engage
    upstream with Bank staff and management to promote the related
    objectives identified in recent legislative guidance on IFI
    extractive industry projects.

      JULY 18, 2008--QUESTION FOR MR. PATRICK J. DURKIN, NOMINEE TO BE A
      MEMBER OF THE BOARD OF DIRECTORS OF THE OVERSEAS PRIVATE INVESTMENT
                                  CORPORATION

        Senator Lugar. Please describe OPIC's policy regarding the
    Extractive Industry Transparency Initiative. How is OPIC
    integrating EITI into its policies and operations? How is
    implementation proceeding?

        Mr.  Durkin. As I understand it, in 2006 OPIC included the
    Extractive Industries Transparency Initiative (EITI) in its
    initiative to combat corruption and improve transparency. Under
    the policy announced by OPIC President Robert Mosbacher, OPIC
    will encourage its investors to abide voluntarily by EITI
    guidelines to ensure that revenues from extractive industries
    projects contribute to sustainable development and poverty
    reductions and not individual enrichment. Implementation of
    EITI has been a high priority and OPIC is working with the EITI
    Secretariat to encourage compliance with other multilateral
    organizations and OPIC counterparts. I understand the OPIC
    Board of Directors has approved the first OPIC-supported
    project where the agency's commitment to greater transparency
    in reporting on royalty payments to host governments on
    extractive projects has been realized. Additionally, OPIC's
    pending reauthorization legislation would formalize OPIC
    support for EITI principle

    Appendix II: U.S. Legislation Pertaining to EITI and Related Extractive
                              Industry Issues\68\
    ---------------------------------------------------------------------------

        \68\ This appendix is based on a background memo entitled ``The
    `Resource Curse': Literature Survey Paper Summary'' prepared by
    Danielle Langton and Nicolas Cook from the Foreign Affairs, Defense,
    and Trade Division of the Congressional Research Service.
    ---------------------------------------------------------------------------
        U.S. legislation pertaining to EITI and related extractive
    industry issues includes the following:

              P.L. 110-161 (formerly H.R. 2764) [110th]

              Title: Consolidated Appropriations Act, 2008

              Sponsor: Rep. Nita Lowey (introduced 6/18/2007)

              Relevant sub-element of this omnibus legislation: The
            Department of State, Foreign Operations and Related
            Programs Appropriations Act, 2008 (Reported in Senate)

        P.L. 110-161 itself does not mention the Extractive
    Industries Transparency Initiative. However, accompanying House
    Report 110-197 recommends $1 million in Economic Support Funds
    (ESF) for ``Extractive Industries Transparency''
        Senate Report 110-128, which accompanied P.L. 110-161,
    states that:

              Environmental Security and Sustainability- The
            committee recognizes the work of the Foundation for
            Environmental Security and Sustainability [FESS] to
            address critical national security issues, including
            regional instability arising from resource scarcity and
            management practices, natural hazards, and other
            environmental stresses. The committee recognizes the
            importance of the Foundation's conflict management and
            mitigation programs, particularly initiatives to
            develop regional and global approaches to combat
            corruption, implement extractive industries' best
            practices, and promote effective reconstruction of
            post-conflict countries to promote stability and
            security. The committee recommends continued support to
            FESS for these activities.

        As originally reported in the Senate, the measure, The
    Department of State, Foreign Operations and Related Programs
    Appropriations Act, 2008, [H.R. 2764.RS] stated that of
    Economic Support Fund appropriations:

              ``. . . not less than $3,000,000 shall be made
            available for a United States contribution to the
            Extractive Industries Transparency Initiative Trust
            Fund . . .''

        Under the heading ``Surplus Commodities'' (Sec. 614), with
    regard to extractive industry commodities but not issues of
    transparency, it stated that:

              ``The Secretary of the Treasury shall instruct the
            United States Executive Directors [. . . multiple
            multilateral development banks and funds . . .] to use
            the voice and vote of the United States to oppose any
            assistance by these institutions, using funds
            appropriated or made available pursuant to this Act,
            for the production or extraction of any commodity or
            mineral for export, if it is in surplus on world
            markets and if the assistance will cause substantial
            injury to United States producers of the same, similar,
            or competing commodity.''
        Under the heading Environment and Energy Conservation
    Programs/ Extraction of Natural Resources (Sec. 676 [c]), it
    stated that:

              ``. . . (1) The Secretary of the Treasury shall
            inform the managements of the international financial
            institutions and the public that it is the policy of
            the United States that any assistance by such
            institutions (including but not limited to any loan,
            credit, grant, or guarantee) for the extraction and
            export of oil, gas, coal, timber, or other natural
            resource should not be provided unless the government
            of the country has in place functioning systems for:
            (A) accurately accounting for revenues and expenditures
            in connection with the extraction and export of the
            type of natural resource to be extracted or exported;
            (B) the independent auditing of such accounts and the
            widespread public dissemination of the audits; and (C)
            verifying government receipts against company payments
            including widespread dissemination of such payment
            information, and disclosing such documents as Host
            Government Agreements, Concession Agreements, and
            bidding documents, allowing in any such dissemination
            or disclosure for the redaction of, or exceptions for,
            information that is commercially proprietary or that
            would create competitive disadvantage.

              (2) Not later than 180 days after the enactment of
            this Act, the Secretary of the Treasury shall submit a
            report to the Committees on Appropriations describing,
            for each international financial institution, the
            amount and type of assistance provided, by country, for
            the extraction and export of oil, gas, coal, timber, or
            other national resource since September 30, 2007, and
            whether each institution considered, in its proposal
            for such assistance, the extent to which the country
            has functioning systems described in paragraph (c)(1).
            . . .''

        The managers statement for P.L. 110-161 (Division J,
    Department Of State, Foreign Operations, And Related Programs
    Appropriations) appropriated $3 million in ESF funds for
    ``Extractive Industries Transparency'' and designated that
    these funds be used as a U.S. contribution ``to the Extractive
    Industries Transparency Initiative Trust Fund'' (presumably a
    reference to the World Bank-administered, primarily donor
    government-supported Multi-Donor Trust Fund for EITI).
        Under a provision entitled Environment and Energy Programs
    (Sec. 684), the managers state that ``the amended bill modifies
    a provision similar to that proposed by the House and Senate.
    There are technical modifications to the language,
    modifications to the funding level, and modifications to the
    Extractive Industries report.''
        Under the heading Anti-Kleptocracy (Sec. 699L) it stated
    that:

              ``(a) In furtherance of the National Strategy to
            Internationalize Efforts Against Kleptocracy and
            Presidential Proclamation 7750, the Secretary of State
            shall compile and maintain a list of officials of
            foreign governments and their immediate family members
            who the Secretary determines there is credible evidence
            to believe have been involved in corruption relating to
            the extraction of natural resources in their countries.

              (b) Any individual on the list submitted under
            subsection (a) shall be ineligible for admission to the
            United States.

              (c) The Secretary may waive the application of
            subsection (a) if the Secretary determines that
            admission to the United States is necessary to attend
            the United Nations or to further United States law
            enforcement objectives, or that the circumstances which
            caused the individual to be included on the list have
            changed sufficiently to justify the removal of the
            individual from the list.

              (d) Not later than 90 days after enactment of this
            Act and 180 days thereafter, the Secretary of State
            shall submit a report, in classified form if necessary,
            to the Committees on Appropriations describing the
            evidence considered in determining involvement pursuant
            to subsection (a).

                                  ----------

        P.L. 109-102 (formerly H.R. 3057) (109th)

        Title: Foreign Operations, Export Financing, and Related
    Programs Appropriations Act, 2006

        Sponsor: Rep. Jim Kolbe (introduced 6/24/2005)

        This legislation included the following provision on the
    extraction of natural resources:

        Sec. 585. [. . .] (c) Extraction of Natural Resources.--

              (1) The Secretary of the Treasury shall inform the
            managements of the international financial institutions
            and the public that it is the policy of the United
            States that any assistance by such institutions
            (including but not limited to any loan, credit, grant,
            or guarantee) for the extraction and export of oil,
            gas, coal, timber, or other natural resource should not
            be provided unless the government of the country has in
            place or is taking the necessary steps to establish
            functioning systems for: (A) accurately accounting for
            revenues and expenditures in connection with the
            extraction and export of the type of natural resource
            to be extracted or exported; (B) the independent
            auditing of such accounts and the widespread public
            dissemination of the audits; and (C) verifying
            government receipts against company payments including
            widespread dissemination of such payment information,
            and disclosing such documents as Host Government
            Agreements, Concession Agreements, and bidding
            documents, allowing in any such dissemination or
            disclosure for the redaction of, or exceptions for,
            information that is commercially proprietary or that
            would create competitive disadvantage.

              (2) Not later than 180 days after the enactment of
            this Act, the Secretary of the Treasury shall submit a
            report to the Committees on Appropriations describing,
            for each international financial institution, the
            amount and type of assistance provided, by country, for
            the extraction and export of oil, gas, coal, timber, or
            other national resource since September 30, 2005.

                                  ----------

        H.R. 2798 [110th, Passed/agreed to in House]

        Title: Overseas Private Investment Corporation
    Reauthorization Act of 2007
        Sponsor: Rep. Brad Sherman

        This legislation would have governed OPIC reauthorization.
    Note that OPIC has agreed to abide by the EITI principles.\69\
    ---------------------------------------------------------------------------
        \69\ See: (1) OPIC, Transparency Initiative: http://www.opic.gov/
    about/Transparency; (2) OPIC, Anticorruption & Transparency Initiative
    Fact Sheet: http://www.opic.gov/about/Transparency/documents/
    transparencyfactsheet0906.pdf; (3) OPIC, Anti-Corruption Policies And
    Strategies Handbook: http://www.opic.gov/about/Transparency/documents/
    opicanticorruptionhandbook-0906.pdf; (4) See also: U.S. Embassy Deputy
    Chief of Mission Praises Opening of EITI Resource Center in Liberia:
    http://monrovia.usembassy.gov/eiti.html
    ---------------------------------------------------------------------------
        The House-passed version of the bill included these
    provisions:

        [. . .] (b) Extraction Investments.--

              (1) Prior notification to congressional committees.--
            The Corporation may not approve any contract of
            insurance or reinsurance, or any guaranty, or enter
            into any agreement to provide financing for any project
            which significantly involves an extractive industry and
            in which assistance by the Corporation would be valued
            at $10,000,000 or more (including contingent
            liability), until at least 30 days after the
            Corporation notifies the Committee on Foreign Affairs
            of the House of Representatives and the Committee on
            Foreign Relations of the Senate of such contract or
            agreement.

              (2) Commitment to EITI principles.--The Corporation
            may approve a contract of insurance or reinsurance, or
            any guaranty, or enter into an agreement to provide
            financing to an eligible investor for a project that
            significantly involves an extractive industry only if--

                      (A) the eligible investor has agreed to
                    implement the Extractive Industries
                    Transparency Initiative principles and
                    criteria, or substantially similar principles
                    and criteria; or

                      (B) the host country where the project is to
                    be carried out has committed to the Extractive
                    Industries Transparency Initiative principles
                    and criteria, or substantially similar
                    principles and criteria.

              (3) Preference for certain projects.--With respect to
            all projects that significantly involve an extractive
            industry, the Corporation, to the degree possible and
            consistent with its development objectives, shall give
            preference to a project in which both the eligible
            investor has agreed to implement the Extractive
            Industries Transparency Initiative principles and
            criteria, or substantially similar principles and
            criteria, and the host country where the project is to
            be carried out has committed to the Extractive
            Industries Transparency Initiative principles and
            criteria, or substantially similar principles and
            criteria. [. . .]

        It also contained these definitions:

                      (A) Extractive industry.--The term
                    ``extractive industry'' refers to an enterprise
                    engaged in the exploration, development, or
                    extraction of oil and gas reserves, metal ores,
                    gemstones, industrial minerals, or coal.

                      (B) Extractive industries transparency
                    initiative principles and criteria.--The term
                    ``Extractive Industries Transparency Initiative
                    principles and criteria'' means the principles
                    and criteria of the Extractive Industries
                    Transparency Initiative, as set forth in Annex
                    A to the Anti-Corruption Policies and
                    Strategies Handbook of the Corporation, as
                    published in September 2006.

        The version of the bill reported in the Senate replaced the
    House language and contained this provision:

        (b) Extraction Investments.--

              (1) Prior notification to congressional committees.--

                      (A) In general.--The Corporation shall
                    provide notice of consideration of approval of
                    a project described in subparagraph (B) to the
                    Committees on Foreign Relations and
                    Appropriations of the Senate and the Committees
                    on Foreign Affairs and Appropriations of the
                    House of Representatives not later than 60 days
                    before approval of such project.

                      (B) Project described.--A project described
                    in this subparagraph is a Category A project
                    (as defined in section 237(q)(3)) relating to
                    an extractive industry project or any
                    extractive industry project for which the
                    assistance to be provided by the Corporation is
                    valued at $10,000,000 or more (including
                    contingent liability).

                                  ----------

        H.R. 3221 [110th; Passed/agreed to in House; Motion to
    proceed to consideration of measure withdrawn in Senate.
    However, the bill was incorporated into omnibus energy
    legislation, H.R. 6 (Energy Independence and Security Act of
    2007) and passed as P.L. 110-140]

        Title: New Direction for Energy Independence, National
    Security, and Consumer Protection Act and the Renewable Energy
    and Energy Conservation Tax Act of 2007

        Sponsor: Rep. Nancy Pelosi

        Note: The legislation supports diverse measures to support
    the Extractive Industries Transparency Initiative (EITI) and
    authorizes the appropriation of # million for this purpose. The
    following summary of EITI provisions in P.L. 110-140 is
    excerpted from CRS Report RL34294, Energy Independence and
    Security Act of 2007: A Summary of Major Provisions, by Fred
    Sissine, Coordinator, et al.):

        Section 935 has the stated purpose of improving national
    energy security by promoting anti-corruption initiatives in oil
    and natural gas rich countries and of improving global energy
    security by promoting programs such as the Extractive
    Industries Transparency Initiative (EITI) that aim to increase
    transparency and accountability into extractive resource
    payments. The sense of Congress is expressed that global energy
    security should be furthered by encouraging further
    participation in EITI by eligible countries and companies and
    by promoting the effectiveness of the EITI program by ensuring
    that a robust and candid review mechanism is put in place. The
    Secretary of State is required to report to Congress on
    progress made in promoting transparency in extractive
    industries resource payments. An authorization of $3 million is
    provided to support U.S. contributions to the Multi-Donor Trust
    Fund of EITI.

                                  ----------

        H. AMDT .762 to H.R. 3221 [110th; offered 8/4/2007, Agreed
    to by voice vote]

        Sponsor: Rep. Alcee L. Hastings

        Title: Amendment requires the Secretary of State to submit
    to Congress a report on progress made in promoting transparency
    in extractive industries resource payments.

        Amendment Purpose: An amendment numbered 20 printed in Part
    B of House Report 110-300 to make findings regarding fuel
    supplies and expresses the Sense of Congress that the U.S.
    should further global energy security and promote democratic
    development in resource rich foreign countries by encouraging
    further participation in the Extractive Industries Transparency
    Initiative and other international initiatives.

    Related bill:

        H.R. 1886 [110th; introduced in the House]

        Title: To prevent public financing of oil or gas field
    development projects, surveying or extraction activities,
    processing facilities, pipelines, or terminals, or other oil
    and gas production or distribution operations or facilities,
    and for other purposes.

        Sponsor: Rep. Maurice D. Hinchey

        H.R. 1886 would prevent U.S. funding of extractive industry
    projects and activities. It does not mention transparency
    specifically related to EITI or EITI itself, but does reference
    the Extractive Industries Review (EIR) of the World Bank Group
    (commissioned in 2001), which deals with issues generally
    related to issues that EITI also seeks to address.
        CRS Summary of the bill, as introduced, from the
    Legislative Information System:

              Amends the Export-Import Bank Act of 1945 to prohibit
            the Export-Import Bank of the United States from
            guaranteeing, insuring, or extending credit: (1) in
            connection with an oil or gas project; or (2) to any
            entity that may use the guarantee, insurance, or credit
            to finance such a project.

              Amends the Foreign Assistance Act of 1961 to prohibit
            the Overseas Private Investment Corporation from
            issuing any contract of insurance or reinsurance or any
            guarantee, or entering into any financing agreement for
            an oil or gas project, or to taking such actions
            respecting any person who will insure or finance such
            project.

              Amends the International Financial Institutions Act
            to direct the Secretary of the Treasury to use U.S.
            influence to oppose multilateral development
            institution assistance to gas or oil development
            projects.

                                  ----------

        H.R. 6066 [110th, Introduced in the House]

        Title: Extractive Industries Transparency Disclosure Act

        Sponsor: Rep. Barney Frank

        This legislation would amend Section 13 of the Securities
    Exchange Act of 1934 (15 U.S.C. 78m) to require companies to
    file an annual report with the Securities and Exchange
    Commission (SEC) disclosing payments made to foreign country
    governments for natural resources in a foreign country. The
    legislation would also require the SEC to compile the
    information from all companies and publish it publicly on its
    website.
        Appendix III: Summary of G-8 Commitments on Extractive Industry
                                Transparency\70\
    ---------------------------------------------------------------------------

        \70\ This appendix is based on a background memo entitled ``The
    `Resource Curse': Literature Survey Paper Summary'' prepared by
    Danielle Langton and Nicolas Cook from the Foreign Affairs, Defense,
    and Trade Division of the Congressional Research Service.
    ---------------------------------------------------------------------------
        The Group of 8 (G-8) has made numerous statements and
    commitments to increasing and promoting transparency and
    accountability related to Extractive Industries Transparency
    Initiative industry relations with and revenue payments to
    governments, among many other related good governance
    commitments.\71\ Below are excerpts of the main G-8 Extractive
    Industries Transparency Initiative industry relations
    commitments, beginning with the G-8 meeting in Kananaskis,
    Canada in 2002, the year when EITI was initiated. Key terms are
    highlighted.
    ---------------------------------------------------------------------------
        \71\ See Ella Kokotsis, ``All G7/8 Commitments, 1975-2006,'' G8
    Research Group, [http://www.g8.utoronto.ca/evaluations/
    G8_commitments.pdf ].
    ---------------------------------------------------------------------------

               G-8 SUMMIT HOKKAIDO TOYAKO, JAPAN, JULY 7-9, 2008

    World Economy (Summit Leaders Declaration July 8, 2008)

        15. To promote improved transparency, accountability, good
    governance and sustainable economic growth in the extractive
    sector, and to address the natural resource dimensions of armed
    conflict and post-conflict situations, we:

              (a) continue to support initiatives such as the
            Extractive Industries Transparency Initiative (EITI)
            and call for its full implementation and for candidate
            countries to complete the validation process in a
            timely manner. We encourage emerging economies and
            their companies to support the initiative;

              (b) promote improved resource management including
            fiscal transparency and legislative oversight by
            resource-rich countries through supporting
            international financial institutions' efforts to
            develop international standards and codes to be
            voluntarily adopted by those countries, and technical
            assistance, as appropriate; and

              (c) support international efforts to respond more
            effectively to the natural resource dimensions of
            conflict and post-conflict situations, and would
            welcome additional analysis on the issue by the OECD
            Development Assistance Committee (DAC), the United
            Nations Secretary General, and the World Bank.

        16. We affirm the importance of open raw materials markets
    as the most efficient mechanism for resources allocation. We
    call on our trading partners to strictly comply with WTO rules
    and to enhance the transparency and predictability of their
    measures in this area.

        [. . .] 51. Reaffirming that principles of ownership and
    partnership are essential for African development, we agree
    that the following points, inter alia, are critical both to
    generating private sector-led economic growth and achieving the
    MDGs:

              [. . .]
        (c) improvement of domestic revenue generation capacity by
    African countries and of transparency in the use of resources
    [. . .]

                                  ----------

                G-8 SUMMIT HEILIGENDAMM, GERMANY, JUNE 6-8, 2007

    Growth and Responsibility in Africa (Summit Declaration June 8,
            2007)\72\
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        \72\ Source: http://www.g8.utoronto.ca/summit/2007heiligendamm/g8-
    2007-africa.pdf
    ---------------------------------------------------------------------------
        [. . .] 11. We will also continue to strengthen efforts
    such as the Extractive Industries Transparency Initiative
    Industries Transparency Initiative (EITI) as appropriate to
    enhance good financial governance on the revenue side. In this
    context, we support African states in their efforts to increase
    the transparency and predictability of expenditure flows and
    encourage more African participation in EITI. Transparency
    principles could also be extended to other sectors, where
    appropriate. [. . .]

        33. [. . .] The G-8 will encourage sustainable investment
    through African private sector networks, including support for
    the UN Global Compact and the UN Principles for Responsible In-
    vestment. The G-8 will also strengthen their dialogue with
    emerging donors on international initiatives for responsible
    investment and financial transparency (such as EITI). [. . .]

    Responsibility for Raw Materials: Transparency and Sustainable Growth
            [. . .]

        80. Raw materials produced by the Extractive Industries
    Transparency Initiative sector are a key factor for sustainable
    growth in industrialised, emerging and developing economies.
    They are a particularly valuable asset for sustaining growth
    and reducing poverty in many of the poorest countries in the
    world. It is in our common global interest that resource wealth
    be used responsibly so as to help reduce poverty, prevent
    conflicts and improve the sustainability of resource production
    and supply. We firmly agree that significant and lasting
    progress in this area can only be achieved on the basis of
    transparency and good governance. Against this background, we
    support increased transparency with regard both to the
    Extractive Industries Transparency Initiative sector and the
    subsequent trade and financial flows. In doing so, we will work
    closely together with resource rich economies as well as
    important raw-material consuming emerging economies.

        82. Mineral resources have a great potential to contribute
    to poverty alleviation and sustainable development. In some
    cases, nonetheless, extraction and processing of resources are
    associated with misuse of revenues, environmental destruction,
    armed conflict and state fragility. We firmly agree on the need
    to further enhancing the contribution of mineral resources to
    sustainable growth and will continue to support resource rich
    countries in their efforts to further expand their resource
    potential while promoting sustainable development and good
    governance. To this end we will build capacity for good
    governance of mineral resources consistent with social and
    environmental standards and sound commercial practices by
    reducing barriers to investment and trade, through the
    provision of financial, technical and capacity building support
    to developing countries for the mining, processing and trading
    of minerals. Based on sound life cycle analyses, we will also
    encourage conservation, recycling and substitution of raw
    materials, including rare metals, for sustainable growth.

        83. Increased transparency in the Extractive Industries
    Transparency Initiative sector, is of crucial importance for
    achieving accountability, good governance and sustainable
    economic growth worldwide. We welcome the proposal of the G-8
    Presidency to convene in 2007 a global conference on
    transparency in the Extractive Industries Transparency
    Initiative sector with the participation of governments,
    business, civil society and science from industrialised,
    emerging and developing economies.

        84. The development of a consolidated set of principles and
    guidelines that apply to the international mining sector in
    developing countries would help ensure that the sector
    contributes to development while at the same time providing a
    clear and more predictable set of expectations for investors.
    It is important that all stakeholders be involved in a process
    to build consensus around a set of recognised principles and
    guidelines in the mining sector. In order to encourage such a
    consensus among key stakeholders we:

              --reaffirm our support of the OECD Guidelines for
            Multinational Enterprises as important international
            benchmark for corporate social responsibility,

              --will promote wider understanding of and support for
            the following standards, tools and best practices for
            the mining sector: the OECD Risk Awareness Tool for
            Multinational Enterprises in Weak Governance Zones, the
            Voluntary Principles on Security and Human Rights and
            the International Finance Corporation (IFC) Performance
            Standards,

        [. . .]

        85. Certification systems can be a suitable instrument in
    appropriate cases for increasing transparency and good
    governance in the extraction and processing of mineral raw
    materials and to reduce environmental impacts, support the
    compliance with minimum social standards and resolutely counter
    illegal resource extraction. Therefore, we reaffirm our support
    for existing initiatives such as the Kimberley Process, Green
    Lead, the Intergovernmental Forum on Mining, Minerals, Metals
    and Sustainable Development, the International Council on
    Mining and Metals or the International Cyanide Management Code,
    and encourage the adaptation of the respective principles of
    corporate social responsibility by those involved in the
    extraction and processing of mineral resources,

        86. The artisanal and small-scale mining sector provides
    important livelihoods to many people in developing countries,
    and also contributes to global production of minerals. We are
    concerned that these activities often are conducted in an
    informal manner and do not meet minimum social and
    environmental standards which apply to the Extractive
    Industries Transparency Initiative sector. In order to better
    support the development of sustainable livelihoods and positive
    developmental impacts associated with artisanal and small-scale
    mineral production, we

              --encourage collaborative partnerships between
            public, civil society and private actors in the mining
            sector in order to develop systems for the transparent
            use of funds for local development from mining
            companies and donors, consistent with aid effectiveness
            principles,

              --support a pilot study, in co-operation with the
            World Bank and its initiatives, concerning the
            feasibility of a designed certification system for
            selected raw materials. In taking this initiative we
            will focus on the artisanal and small scale mining
            sector and work in close partnership with governments
            from mineral resource rich developing countries as well
            as industry on the basis of their voluntary
            commitments. The pilot study shall strive on the basis
            of the existing principles and guidelines, in order to
            comply with internationally recognised minimum
            standards by verifying the process of mineral resource
            extraction and trading. We invite major emerging
            economies to work with us on this issue,

              --encourage support for the Communities and Small-
            scale Mining (CASM) initiative, housed at the World
            Bank, and for the multistakeholder Diamond Development
            Initiative (DDI), which emerged from the Kimberley
            Process to strengthen the developmental impacts
            associated with artisanal diamond mining in Africa, [.
            . .]

        87. We emphasise our determination to fight corruption and
    mismanagement of public resources in both revenue raising and
    expenditures. As part of our ongoing efforts to foster
    transparency with regard to resource-induced payment flows, we
    will continue to support good governance and anti-corruption
    initiatives, such as the Extractive Industries Transparency
    Initiative (EITI), and we

              --commit to provide continuous assistance to
            strengthen EITI, as appropriate through financial,
            technical and political means. Equally, we invite all
            stakeholders to provide support for the implementation
            of the EITI,

              --call on implementing countries and companies
            participating in EITI to implement the Initiative and
            comply with their disclosure commitments. Equally, we
            encourage further countries to participate in EITI as
            appropriate,

              --welcome the fact that an independent validation-
            process has been initiated to monitor the national
            implementation measures. We encourage prompt
            application and further development of the validation
            methodology,

              --welcome the fact that a number of large banks have
            already signed the United Nations Environmental Program
            (UNEP) Finance Initiative and the Equator Principles.
            We call on further major banks to follow suit to adopt
            the Equator Principles for project finance and
            implement the International Finance Corporation (IFC)
            standards, particularly those standards that relate to
            transparent payments and contracts in the Extractive
            Industries Transparency Initiative sector, and finally

              --initiate, within the framework of the 2007 global
            conference on transparency, a dialogue with the major
            emerging economies to enlist the governments and
            especially the state-owned companies domiciled in these
            countries as participants in EITI.

              G-8 SUMMIT HEILIGENDAMM, GERMANY, JUNE 6-8, 2007\73\
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        \73\ Source: http://www.g-8.de/Content/EN/Artikel/_g8-summit/
    anlagen/chairs-summary,templateId=raw,property=publicationFile.pdf/
    chairs-summary
    ---------------------------------------------------------------------------

    Chair's Summary

        [. . .] Freedom of Investment, Investment Environment, and
    Social Responsibility: We concluded our discussion on
    investment with a strong commitment to the freedom of open and
    transparent investment.

        [. . .] Open markets need social inclusion. We therefore
    agreed on the active promotion of social standards, of
    corporate social responsibility, and on the need to strengthen
    social security systems in emerging economies and developing
    countries.

        Responsibility for Raw Materials--Transparency and
    Sustainable Growth: We discussed the situation on world
    commodity markets and recent price increases and reaffirmed our
    commitment to free, transparent and open markets. We will
    support increased transparency and build good governance in
    developing countries with social and environmental standards.
    We therefore express our continuous support for EITI and we
    will launch a certification pilot project. We acknowledge that
    promoting a consolidated set of principles and guidelines that
    apply to the international mining sectors in the developing
    countries would help ensure that the sector contributes to
    development.

        Good Governance and the Reform-Partnership with Africa: We
    paid tribute to the Regional and Pan-African institutions,
    especially the African Union (AU), and underlined our strong
    intention to further support African institutions at the pan-
    African and regional level. [. . .] The G-8, together with
    their African partners, also welcomed the Extractive Industries
    Transparency Initiative Industries Transparency Initiative
    (EITI) and agreed to implement an Action Plan for Good
    Financial Governance.

      G-8 FINANCE MINISTERS' MEETING IN POTSDAM, GERMANY, MAY 19, 2007\74\
    ---------------------------------------------------------------------------

        \74\ Source: http://www.g8.utoronto.ca/finance/g8finance-africa.pdf
    ---------------------------------------------------------------------------

    G-8 Action Plan for Good Financial Governance in Africa

        [. . .] This plan outlines ten areas for action drawing on
    the principles of the Paris Declaration on Aid Effectiveness
    and on ongoing initiatives to support the reform of public
    finance systems in Africa. [. . .]

    5. Increasing accountability for revenues from Extractive Industries
            Transparency Initiative industries

        We give our full backing to the Extractive Industries
    Transparency Initiative Industries Transparency Initiative
    (EITI) and support it in its efforts to optimise its
    implementation and monitoring mechanisms and to contribute to
    enhanced participation by all stakeholders. We encourage other
    resource-dependent countries and industries from the Extractive
    Industries Transparency Initiative sector, especially from
    emerging market economies, to participate in the EITI. We
    welcome the fact that an independent validation process has
    been initiated to monitor the national implementation measures.
    We encourage a prompt application of arrangements to identify
    countries which have achieved the target levels of transparency
    and those which are making progress towards them. The
    applicability of EITI principles to other sectors should be
    examined more closely. Moreover, measures could be considered
    to use revenues from Extractive Industries Transparency
    Initiative industries for the long-term benefit of the
    respective countries by establishing stabilisation funds or
    funds for future generations.

              G-8 SUMMIT, ST. PETERSBURG, RUSSIA, JULY 15-17, 2006

    Update on Africa (St Petersburg, July 16, 2006)\75\
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        \75\ Source: http://www.g8.utoronto.ca/summit/2006stpetersburg/
    africa.html
    ---------------------------------------------------------------------------
        Our commitments: [. . .]

              Promoting Good and Responsive Governance: We have,
            with our international partners, secured the entry into
            force of the UN Convention against Corruption in
            December 2005: 22 African and 3 G-8 countries are among
            those who have ratified. 25 African countries have
            signed up to the African Peer Review Mechanism and 3
            have completed the process. Good progress has been made
            in improving transparency and accountability including
            in the oil and gas industries through the Extractive
            Industries Transparency Initiative Industries
            Transparency Initiative (EITI), in which 15 African
            countries and 23 companies take part. We have
            successfully completed work at the OECD to strengthen
            significantly anti-bribery requirements for those
            applying for export credits and credit guarantees. [. .
            .]

    Continuing work

        We have made substantial progress since Gleneagles. Our key
    steps over the next year include: [. . .] encouraging wider
    implementation of the EITI and other resource transparency
    programmes in resource-rich African countries;

              G-8 SUMMIT, ST. PETERSBURG, RUSSIA, JULY 15-17, 2006

    Plan of Action on Global Energy Security\76\
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        \76\ Source: http://www.g8.utoronto.ca/summit/2006stpetersburg/
    energy.html
    ---------------------------------------------------------------------------
                I. Increasing Transparency, Predictability and Stability of
                        Global Energy Markets
        4. As a critical tool in the fight against corruption, we
    will also take forward efforts to make management of public
    revenues from energy exports more transparent, including in the
    context of the Extractive Industries Transparency Initiative
    Industries Transparency Initiative (EITI) and the IMF Guide on
    Resource Revenue Transparency (GRRT).

        [Note: Apart from the above excerpt, other provisions of
    the Plan of Action on Global Energy Security may be of
    interest]

     Unofficial View Non-Governmental Groups Statement on Sidelines of G-8
                Summit, St. Petersburg, Russia, July 15-17, 2006

     TRADE, FINANCE FOR DEVELOPMENT AND AFRICA: RECOMMENDATIONS TO THE G-8
                                     SUMMIT

    Civil G-8 International NGO Forum, March 9-10, 2006, Moscow\77\
    ---------------------------------------------------------------------------

        \77\ Source: http://www.g8.utoronto.ca/summit/2006stpetersburg/
    civil8/cg8060310-trade.html
    ---------------------------------------------------------------------------
        [ . . .] The G-8 should take firm steps to implement
    mandatory codes of conduct that ensure responsibility by
    private enterprise. At the same time, good governance is an
    important aspect to addressing building stable and secure
    societies. We support all countries ratifying and implementing
    the provisions in the UN Convention of Corruption, and support
    the Extractive Industries Transparency Initiative Industries
    Transparency Initiative.

        G-8 SUMMIT, GLENEAGLES, SCOTLAND, UNITED KINGDOM, JULY 6-8, 2005

    Gleneagles Communique on Africa, Climate Change, Energy and Sustainable
            Development, with leaders' signatures\78\
    ---------------------------------------------------------------------------

        \78\ Source for entire document: http://www.g8.utoronto.ca/summit/
    2005gleneagles/communique.pdf. Source for sub-portion, Communique on
    Africa: http://www.g8.utoronto.ca/summit/2005gleneagles/africa.pdf. See
    also: Related unofficial document by G8 Research Group, ``A Comparison
    between the Recommendations of the Commission for Africa Report and the
    G8 Commitments,'' http://www.g8.utoronto.ca/summit/2005gleneagles/
    africa_g8-vs-cfa.pdf.
    ---------------------------------------------------------------------------

    Communique on Africa

        [. . .] Promoting Good and Responsive Governance

        13. We welcome African institutions' engagement in
    promoting and enhancing effective governance, including NEPAD's
    strong statements in support of democracy and human rights.
    Well-governed states are critical to peace and security;
    economic growth and prosperity; ensuring respect for human
    rights and promotion of gender equality and the delivery of
    essential services to the citizens of Africa. We will support
    African countries' efforts to make their governments more
    transparent, capable and responsive to the will of their
    people; improve governance at the regional level and across the
    continent; and strengthen the African institutions that are
    essential to this.

        14. In response to this African commitment, we will:

              (d) As part of our work to combat corruption and
            promote transparency, increase support to the
            Extractive Industries Transparency Initiative
            Industries Transparency Initiative and countries
            implementing EITI, including through financial and
            technical measures. We call on African resource-rich
            countries to implement EITI or similar principles of
            transparency and on the World Bank, IMF and regional
            development banks to support them. We support the
            development of appropriate criteria for validating EITI
            implementation. Transparency should be extended to
            other sectors, as the G-8 is doing in pilot projects.

        G-8 SUMMIT, SEA ISLAND, GEORGIA, UNITED STATES, JUNE 8-10, 2004

    G-8 Action Plan: Applying the Power of Entrepreneurship to the
            Eradication of Poverty Sea Island (June 9, 2004) \79\
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        \79\ Source: http://www.g8.utoronto.ca/summit/2004seaisland/
    poverty.html
    ---------------------------------------------------------------------------
        [. . .] The G-8 will work with developing countries to
    develop pilot projects and support actions to:

              18. Promote adoption of measures to improve
            transparency in fiscal policy and public procurement,
            to improve the climate for investment and responsible
            use of government resources.

    Fighting Corruption and Improving Transparency (Sea Island, June 10,
            2004) \80\
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        \80\ Source: http://www.g8.utoronto.ca/summit/2004seaisland/
    corruption.html
    ---------------------------------------------------------------------------
        [. . .] Country-led Transparency Compacts Launched

        G-8 governments are working with a number of developing
    countries with a view toward building voluntary partnerships to
    assist their efforts to increase transparency and thereby to
    use public resources wisely. These efforts will focus on
    transparency in public budgets, including revenues and
    expenditures, government procurement, the letting of public
    concessions and the granting of licenses. Special emphasis will
    be given to cooperation with countries with large Extractive
    Industries Transparency Initiative industries sectors. These
    partnerships will be put in place through voluntary compacts
    that lay out commitments on both sides in support of country-
    owned strategies and in full complementarity with ongoing
    initiatives and programs.

              The Governments of Georgia, Nicaragua, Nigeria and
            Peru have come forward with the first such compacts to
            achieve these important goals. Other interested
            countries are actively pursuing compacts. We task our
            relevant ministries to develop in partnership with
            these countries implementation plans.

              Partner governments have specified, in concrete
            terms, what they intend to do to bring greater
            transparency and accountability to the management of
            public resources.

              Participating G-8 countries will support them by
            providing bilateral technical assistance and political
            support. With each compact partner, participants will
            develop action plans that set forth our joint efforts
            to achieve measurable improvements in these areas.

              Participating G-8 governments will work with partner
            countries to enlist the support and engagement of
            private companies, organizations and civil society, as
            well as international institutions.

              For partner countries rich in oil, natural gas, and
            mineral resources, the compacts will pay particular
            attention to the transparency of revenue flows and
            payments in these sectors, while protecting the
            necessary confidentiality of business operations. Our
            shared goal is to help combat the harmful effects on
            development when national resources and revenues are
            misused. Complementary efforts to promote transparency
            are also taken forward by countries participating in
            the Extractive Industries Transparency Initiatives
            Industry Transparency Initiative.

    Chair's Summary (Sea Island, June 10, 2004) \81\
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        \81\ Source: http://www.g8.utoronto.ca/summit/2004seaisland/
    summary.html
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        [. . .] We supported progress in the multilateral effort
    against corruption and welcomed the completion of Comprehensive
    Anti-Corruption Compacts with Georgia, Nicaragua, Nigeria, and
    Peru. We noted the role information technology can play in
    promoting transparency.\82\
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        \82\ On these compacts, see: http://www.g8.utoronto.ca/summit/
    2004seaisland/road.html
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    Related U.S. Document:

    Fact Sheet: Fighting Corruption and Improving Transparency, June 10,
            2004\83\
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        \83\ Source: http://www.whitehouse.gov/news/releases/2004/06/
    20040610-31.html
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    G-8 Summit, EVIAN-LES-BAINS, FRANCE, JUNE 1-3, 2003

    Chair's Summary

        1. Strengthening Growth World-Wide

        [. . .] we therefore reaffirm our commitment to:

              strengthen investor confidence by improving corporate
            governance, enhancing market discipline and increasing
            transparency;

              the principles of our Declaration on Fostering Growth
            and Promoting a Responsible Market Economy, accompanied
            with specific actions to improve transparency and to
            fight corruption more effectively, including a specific
            initiative on Extractive Industries Transparency
            Initiative industries.

    Fighting Corruption and Improving Transparency: A G-8 Declaration\84\
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        \84\ See various parts of the document, but especially the excerpt
    herein. Source: http://www.g8.utoronto.ca/summit/2003evian/corruption--
    en.html
    ---------------------------------------------------------------------------
        5. We recognise the importance of promoting Transparency in
    Government Procurement and the Awarding of Concessions. To this
    end, we will: [. . .]

              6. Consistent with these principles and recognizing
            the importance of revenues from the Extractive
            Industries Transparency Initiative industries (oil, gas
            and mining), we have agreed to pilot on a voluntary
            basis an intensified approach to transparency. To this
            end, we will:

              6.1. encourage governments and companies, both
            private and state-owned, to disclose to the IMF or
            another agreed independent third party such as the
            World Bank or Multilateral Development Banks, in a
            consistent fashion and common format, revenue flows and
            payments from the Extractive Industries Transparency
            Initiative sectors. This information should be
            published at an aggregated level, in accessible and
            understandable ways, while protecting proprietary
            information and maintaining contract sanctity.

              6.2. work with participating governments to develop
            and implement agreed action plans for establishing high
            standards of transparency with respect to all budget
            flows (revenues and expenditures) and with respect to
            the awarding of government contracts and concessions

              6.3. assist those governments that wish to implement
            this initiative with capacity building assistance;

              6.4. encourage the IMF and the World Bank to give
            technical support to governments participating in the
            initiative and to develop linkages with other elements
            of this Action Plan.

    G-8 Summit, Kananaskis, Alberta, Canada, June 26-27, 2002

    G-8 Africa Action Plan

                [. . .] I. Promoting Peace and Security
        [. . .] We are determined to make conflict prevention and
    resolution a top priority, and therefore we commit to:

              1.5 Working with African governments, civil society
            and others to address the linkage between armed
            conflict and the exploitation of natural resources--
            including by:

                      Supporting United Nations and other
                    initiatives to monitor and address the illegal
                    exploitation and international transfer of
                    natural resources from Africa which fuel armed
                    conflicts, including mineral resources,
                    petroleum, timber and water;

                      Supporting voluntary control efforts such as
                    the Kimberley Process for diamonds, and
                    encouraging the adoption of voluntary
                    principles of corporate social responsibility
                    by those involved in developing Africa's
                    national resources;

                      Working to ensure better accountability and
                    greater transparency with respect to those
                    involved in the import or export of Africa's
                    natural resources.
    Appendix IV--Excerpt from Accountability Report: Implementation Review
                     of G-8 on Anti-Corruption Commitments

    Appendix V--Extractive Industry Transparency Initiative U.N. Resolution

                    Appendix VI--World Oil Consumption and
                             Production, by Country

                    Appendix VI--World Oil Consumption and
                      Production, by Country--(continued)

                     Appendix VII--Origins of U.S. Imports
                                  of Crude Oil

                   Appendix VIII--Acronyms and Abbreviations

    ADIA -- Abu Dhabi Investment Authority

    AfDB -- African Development Bank

    AGO -- Attorney General's Office

    AsDB -- Asian Development Bank

    AU -- African Union

    AusAid -- Australian Government Aid Program

    BEAC -- Banque des Etats de l'Afrique Centrale

    b/d -- barrels per day

    BIC -- Bank Information Center

    BP -- British Petroleum

    BPA -- Banking and Payments Authority

    BTA -- Bilateral Trade Agreement

    BTC -- Baku-Tbilisi-Ceyhan

    CASM -- Communities and Small-scale Mining

    CIC -- China Investment Corporation

    CIMATS -- Certain Maritime Arrangements in the Timor Sea

    COCPO -- Oil, Gas, and Mining Policy Division

    COFE -- Committee of Financial Experts

    D.C. -- District of Columbia

    DFI -- Development Fund for Iraq

    DFID -- United Kingdom's Department for International
            Development

    DOJ -- Department of Justice

    DPR -- Indonesian Parliament

    DRC -- Democratic Republic of Congo

    EBRD -- European Bank for Reconstruction and Development

    EFCC -- Economic and Financial Crimes Commission

    E.G. -- Equatorial Guinea

    EIA -- Energy Information Administration

    EIR -- Extractive Industries Review

    EITI -- Extractive Industry Transparency Initiative

    EITI++ -- Extractive Industry Transparency Initiative Plus Plus

    ENAP -- Chilean National Oil Company

    ESF -- Economic Support Funds

    Exim -- Export Import Bank of the United States

    FCPA -- Foreign Corrupt Practices Act

    FDI -- Foreign Direct Investment

    FEES -- Economic and Social Stabilization Fund

    FESS -- Foundation for Environmental Security and
            Sustainability

    FMIS -- Financial Management Information System

    FNC -- Federal National Council

    FRP -- Pension Reserves Fund

    FSD -- Social Development Fund

    FY -- Fiscal Year

    GEITI -- Ghana-EITI

    GDP -- Gross Domestic Product

    GNP -- Gross National Product

    GOB -- Government of Brazil

    GOI -- Government of Iraq

    GOP -- Government of Peru

    GOTL -- Government of Timor-Leste

    G-8 -- Group of Eight (Canada, European Union, France, Germany,
            Italy, Japan, Russia, United Kingdom, United States)

    H.R. -- House Resolution

    IAG -- International Advisory Group

    IAMB -- International Audit and Monitoring Board

    ICI -- International Compact with Iraq

    ICPC -- Corrupt Practices and Other Related Offences Commission

    IDA -- International Development Association

    IDB -- Inter-American Development Bank

    IFC -- International Finance Corporation

    IFI -- International Financial Institution

    IMF -- International Monetary Fund

    IOSCO -- International Organization of Securities Commissions

    KRG -- Kurdistan Regional Government

    LNG -- Liquefied Natural Gas

    MAE -- Mainstreaming Anti-Corruption for Equity

    MCC -- Millennium Challenge Corporation

    MDB -- Multilateral Development Bank

    MDTF -- Multi-Donor Trust Fund

    MERCOSUR -- Common Market of the South

    MMS -- Minerals Management Service

    MOF -- Ministry of Finance

    MPLA -- Popular Movement for the Liberation of Angola

    NEPAD -- New Partnership for Africa's Development

    NEITI -- Nigeria-EITI

    NDRC -- National Commission for Development and Reform

    NGO -- Non-Governmental Organization

    NRC -- National Resource Companies

    NSWG -- National Stakeholders Working Group

    OECD -- Organization for Economic Co-operation and Development

    OPEC -- Organization of the Petroleum Exporting Countries

    OPIC -- Overseas Private Investment Corporation

    OTA -- Office of Technical Assistance

    PDVSA -- The Venezuelan Oil Company

    PIF -- Public Investment Fund

    P.L. -- Public Law

    PPP -- Purchasing Power Parity

    ROSC -- Report on Standards and Codes

    SAMA -- Saudi Arabian Monetary Agency

    SCP -- South Caucasus pipeline

    SEC -- Securities and Exchange Commission

    SIGIR -- Special Inspector for Iraqi Reconstruction

    SOCAR -- State Oil Company for Azerbaijan

    SOE -- State Owned Enterprises

    SOFAZ -- State Oil Fund for the Republic of Azerbaijan

    SWF -- Sovereign Wealth Fund

    Tcf -- trillion cubic feet

    TSC -- Technical Service Contracts

    UAE -- United Arab Emirates

    UK -- United Kingdom

    UN -- United Nations

    UNDP -- United Nations Development Program

    UNEP -- United Nations Environment Program

    UNICEF -- United Nations Children Fund

    U.S. -- United States

    USG -- United States Government

    USAID -- United States Agency for International Development

    WTO -- World Trade Organization