[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

                                     


                     U.S. GOVERNMENT PRINTING OFFICE
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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.
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                              ----------                              


                              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\
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    \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.
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    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\
---------------------------------------------------------------------------

    \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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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\
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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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    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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            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\
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    [ . . .] 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\
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    \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.
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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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    [. . .] 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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    [. . .] 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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    [. . .] 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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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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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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    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

                                    

      
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