In many Eurasian and Eastern European countries, revenues from the transit of oil, gas and minerals play an important but underrecognized role in the economy. Income from the transport of oil and natural gas through Eurasian countries, en route to their ultimate market destinations in Europe, is often as opaque as oil revenues—and as vulnerable to misuse or corruption—but transit revenues have long been left off the transparency agenda. RWI's Eurasia Regional Coordinator Galib Efendiev talks about RWI's work to promote transit revenue transparency as an integral part of the Extractive Industries Transparency Initiative (EITI).
What efforts is RWI making on transit revenue transparency?
Three years ago, RWI published a report, Expanding the EITI Agenda to Transportation of Hydrocarbon Resources, to make the case for including transit revenues in the minimal framework of EITI. Pipeline, railroad and tanker transport all lack transparency in the contracts between producing and transit countries, in fees, and in the actual payments being made.
At the time, EITI was gaining its first momentum, and people were more concerned with revenues from oil production. But now, there's increasingly a sense that EITI should widen its approach. We need upstream to downstream transparency in this industry. We need to know how much countries are making when producing oil, how much is being paid to transport it, and in the end, how much the buyers pay.
What are the most important steps for transit countries?
In the 2009 report, we argued that countries like Azerbaijan and Kazakhstan should ensure that their resources reach the market transparently. Now we're looking at the transit counties themselves, where a web of pipelines carries resources from Azerbaijan, Kazakhstan, Russia and Turkmenistan.
The governments in these countries—Bulgaria, Georgia, Turkey and Ukraine—say they don't need EITI because they have all the necessary legislation and methods to make sure that information about public finances is available to the public. To test that, we designed a template that would cover most significant and material payments for transit countries, as well as the commitments between governments and companies, the availability of contracts, and the regulation of fees for different seasons and regions.
As we expected, this information was not regularly available from conventional sources such as websites or government and company reports. We went a step further and submitted written requests for information to government agencies and companies. In many cases, those requests were ignored or the information we received was incomplete.
Our findings indicate that in order for these transit countries to really be transparent they must adopt EITI reporting requirements.
How will EITI-style reporting help?
In Azerbaijan, which was the first EITI Compliant country, you have a simplistic report that does not help citizens know what happens to that oil—how much it is being sold for and how much is being earned. You have to try to calculate and guess if this was really the amount that was produced because this volume of oil was reported. That's always a place for possible manipulation and for public suspicion. All this information is supposed to be out there, but without EITI reporting that will not be possible.
In countries that are not yet implementing EITI, like Ukraine, some experts say that adopting European Union transparency regulations should be enough, but it's much more coherent to have the same kind of reporting in both producing and transit countries. EITI can also bring added value because it doesn't just involve the government but also civil society. This is the best thing about EITI: it ensures legitimacy and at the same time gives the actual public a say in the process.
Another added benefit of EITI in transit countries is that even if Russia, the largest supplier of gas to Europe, does not implement ETII, reporting from transit countries like Bulgaria and Ukraine can shed the light of transparency on Russia's transit routes and its state-owned gas company, Gazprom.
Will this impact conflicts between transit and producing countries, such as Ukraine and Russia?
Definitely. One of those main reasons for the 2009 conflict, when Ukraine and Russia were unable to negotiate and Russia turned off its gas supply, was the lack of transparency.
Former Ukraine Prime Minister Yulia Tymoshenko is being jailed for supposed wrongdoings in negotiating the transit of natural gas, so it's an indication that, without a proper system of transparency and accountability, there is the risk that this conflict will come up again.
Russia is now trying to build a pipeline that will avoid Ukraine, but there is no guarantee that going through Bulgaria or Romania will not create the same problems. It's not a matter of routes but a matter of whether the particular policy mechanism that's supposed to prevent the conflict is in place.
How can advocates and policymakers use the report once it's complete?
We hope this report will offer messages for all stakeholders. We will release the report in Brussels during a conference for different agencies in the European Commission, the EU, the EITI Secretariat, members of the European Parliament and representatives from producing countries. There's a good chance of it being received well because the EITI itself is in a moment of transition and opportunity.
In countries like Bulgaria, Georgia, Turkey and Ukraine, we will conduct advocacy with the governments. And hopefully the EITI itself will more actively consider making transit revenues a part of the process. Because transit is not part of EITI framework, for now, EITI is seen as a club for producing countries, while transit countries that could dramatically benefit from the initiative are being left out.
