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EITI Report Analysis. Baku, Azerbaijan 15-17 June 2012. Welcome and introduction. Welcome!. Motives for this workshop. We need reliable data and strong understandings of the extractives sector in order to do good oversight. EITI can service this purpose, if: Reports are high quality

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EITI Report Analysis

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Eiti report analysis

EITI Report Analysis

Baku, Azerbaijan

15-17 June 2012


Welcome and introduction

Welcome and introduction

Welcome!


Motives for this workshop

Motives for this workshop

We need reliable data and strong understandings of the extractives sector in order to do good oversight.

EITI can service this purpose, if:

Reports are high quality

Reports are actively used


Objectives

Objectives

Better understanding what makes a good EITI report

Readiness to analyze the EITI report and use its data to learn about oil and mining sector operations.

Better prepared to push for the improvement of EITI reports.

Have concrete ideas about how to use EITI reports in future advocacy work


Program

Program

Analyzing Report Data- Answering 5 key questions using EITI reports


Analyzing report data answering key questions using eiti reports

Analyzing Report Data- Answering key questions using EITI reports


Using eiti data

Using EITI data

Questions that EITI reports can help to answer

IMPORTANT to remember:

EITI data quality is weak; limited comparability

Findings are suggestive only, especially about whether government gets a good deal

They identify important further questions (not many answers)


Using eiti data1

Using EITI Data

Gathering complementary information

PRICE data

EITI reports

Country specific prices

Global prices (oil, gold, copper; less so with gas)

PRODUCTION and EXPORT data

Quite easy to find

ECONOMIC data

GDP, total government revenues, financial flows

Internal and external sources


Checking eiti data where to look

Checking EITI Data: Where to look?

National budget reports

EITI country websites thru EITI Secretariat

IMF country reports for Article IV consultations

Publish What You Pay coalition country websites

World Bank EITI MDTF country progress reports

State-owned companies (financial statements and audits where available)

Reports from the Supreme Audit Authority (e.g. Auditor General)

Multinational companies (financial statements as well as reports to society)

BP Statistical Reviews (for production quantities and prices in oil and gas sectors)

US Energy Information Administration (for prices in all sectors)

UNCTAD(for export data)

Platts and Argus for price and export data


Eiti report analysis

5 questions to answer using EITI reports

For each:

5 minute introduction

30 minute groups

10 minute discussion


Q 1 does government get a good deal

Q 1. Does Government get a good deal?

EITI numbers can give a very rough calculation of government “take”

Total net EI revenues (earnings minus costs)

/

Total value of production (production x price)


Q 1 does government get a good deal1

Q 1. Does Government get a good deal?

Example. Ghana & Mali. Gold. 2006

  • Need to ask more questions!

  • Does Mali’s EITI report cover more than Ghana’s?

  • Are Ghana’s costs higher or mines at a different stage of production?

  • Do the contract terms differ?


Q 1 does government get a good deal2

Q 1. Does Government get a good deal?

Most differences can be explained.

  • Comparing Oil Producers (average of all EITI data years)


Question 1 does government get a good deal

Question 1. Does Government get a good deal?

Exercise

In groups (30 minutes)

Review the worksheet for Question 1

Discuss and answer questions


Q 2 where do ei revenues come from

Q 2. Where do EI revenues come from?

Use revenue stream data to determine:

Which revenue streams are largest?

If possible, which agencies collect these revenues?

Findings

Understand the fiscal regime

Observe changes in fiscal regime over time

Observe differences in fiscal regime across contracts

Identify oversight priorities


Q 2 where do ei revenues come from1

Q 2. Where do EI revenues come from?

Use analysis to identify oversight priorities.


Q 2 where do ei revenues come from2

Q 2. Where do EI revenues come from?

Need to scrutinize the associated transactions

Often barely covered by EITI

Domestic refineries

Export

Oil

PRICE?

$

$

Profit Oil

National Oil Company

$

National Treasury

and/or

Oil Savings Fund


Group exercise question 2 where do ei revenues come from

Group Exercise:Question 2. Where do EI revenues come from?

In groups (30 minutes)

Review the worksheet for question 2

Discuss and answer questions


Question 3 how do in kind revenues become financial revenues

Question 3. How do in-kind revenues become financial revenues?

Some important questions to ask…..

How do governments end up with oil?

Profit oil. In production sharing contracts, governments and companies agree to split the profit oil.

Government

Profit Oil

taxes, royalties, fees, etc

Cost Oil

Operating Company


Question 3 how do in kind revenues become financial revenues1

Question 3. How do in-kind revenues become financial revenues?

2. Equity oil – oil that is owned and sold by the state

JV share

E.g. Nigerian national oil company NNPC holds 55% share in producing joint venture, receives 55% of production.

Produced itself

E.g. Saudi Aramco owns and produces oil from most fields in Saudi Arabia.

Service contracts

E.g. Iraqi state owns the oil and hires companies to produce it. It then receives all production.

3. Tax or royalty oil

Sometimes companies pay taxes or royalties with crude instead of money.


Question 3 how do in kind revenues become financial revenues2

Question 3. How do in-kind revenues become financial revenues?

How do national oil companies sell their oil?

Spot contracts. Sale of individual cargoes at prevailing market price

or

Term contracts. Identify a list of buyers over a set period of time

Who buys their oil?

Traders. The middle-men of the oil world, usually used by NOCs that lack a trading desk

or

End-Users. Entities capable of refining the crude.

or

Domestic users, often government owned refineries, etc.


Question 3 how do in kind revenues become financial revenues3

Question 3. How do in-kind revenues become financial revenues?

How is the price determined?

Iraqi export price usually equals:

international benchmark

Europe: Dated Brent

US: WTI, now ASCI

Asia: Dubai/Oman

+

differential (difference in quality, market factors)

set monthly by government

Term contract holders can usually alter their volumes to a limited degree based on these changes.

Domestic prices often much lower due to subsidies!


Question 3 how do in kind revenues become financial revenues4

Question 3. How do in-kind revenues become financial revenues?

Example

Iraqi oil sold to the Europe, Dated Brent + differential

June ‘11July ‘11

Basrah Light -2.10 -2.00

Kirkuk +0.25 +0.00

----------------------------------------------------

Dated Brent$113.76$116.46

So, selling price is:

June ‘11July ‘11

Basrah Light $111.66$114.46

Kirkuk $114.01 $116.46


Question 3 how do in kind revenues become financial revenues5

Question 3. How do in-kind revenues become financial revenues?

Where do sale revenues go?

National oil company finances are crucial!

How much money do they transfer to the state?

Direct transfers (e.g. Iraq)

Dividends

Transparency and reporting

annual reports with full financial statements

audit reports


Question 3 how do in kind revenues become financial revenues6

Question 3. How do in-kind revenues become financial revenues?

Exercise

In groups (30 minutes)

Review the worksheet for question 3

Discuss and answer questions


Question 4 how dependent is the country on oil

Question 4. How dependent is the country on oil?

Calculate total revenues

Be sure to include physical receipts

Use reconciled figures

Trace changes from year to year

Can these be explained by price and production changes?

Assess resource dependency

EI Revenues as % of total government budget

EI revenues as % of GDP


Question 4 how dependent is the country on oil1

Question 4. How dependent is the country on oil?

Cameroon oil receipts over time, 2002-2008.

  • Period of sharply rising prices, slowly declining production

  • What explains the drop in 2006?


Question 4 how dependent is the country on oil2

Question 4. How dependent is the country on oil?

  • EITI Report says 2008 oil revenues = $1.3 billion

  • How dependent is Cameroon on EI revenues?

  • 1. EI revenues as a % of GDP

    • $1.3 billion / $23 billion (IMF) = 5.6%

  • 2. EI revenues as a % of total government revenues

    • $1.3 billion / $4.9 billion (IMF) = 27%

  • 3. EI revenues per capita

    • $1.3 billion / 19 million = $68 per person


Eiti report analysis

  • Oil receipts growing, but declining as % of GDP…. so economy is growing?

  • 2006 – what happened? Oil revenues stay stead but total government revenues skyrocket (IMF: $2.9 billion in 2005; $8.5 billion in 2006; $4b in 2007)…. Why?

  • Oil provides big share of public revenues….what happens when oil runs out?


Question 4 how dependent is the country on oil3

Question 4. How dependent is the country on oil?

How does Cameroon compare?


Question 4 how dependent is the country on oil4

Question 4. How dependent is the country on oil?

Exercise

In groups (30 minutes)

Review the worksheet for question 1

Discuss and answer questions


Q 5 where do ei revenues go

Q 5. Where do EI revenues go?

Once collected, do the revenues end up in the budget?

Compare EITI revenue numbers with other revenue numbers:

Government budget documents

Natural resource savings funds

IMF and World Bank reports

Relies on the availability of other information. EITI not enough!


Q 5 where do ei revenues go1

Q 5. Where do EI revenues go?

Company

Company

Company

Collecting Agencies

Company

Collecting Agencies

Company

Collecting Agencies

Company

Gov’t Collecting Agencies

Company

Extra-budgetary transfers

EITI

Services

InfrastructurePublic goods

Spending

Budget


Q 5 where do ei revenues go2

Q 5. Where do EI revenues go?

Where might EI revenues go, other than the budget?

Natural Resource Funds (e.g. Sovereign Wealth Fund)

Retained by the State-Owned Company for their operations or equity obligations

Profit oil can be sold to national refineries at a discount, or given for free

Extra-budgetary accounts held by the executive or the SOC

“Front-line” charges, such a fuel subsidy

Stolen or misappropriated

ADVOCACY and OVERSIGHT PRIORITIES


Group exercise question 5 where do ei revenues go

Group Exercise:Question 5. Where do EI revenues go?

In groups (20 minutes)

Review the worksheet for question 5

Discuss and answer questions


Other questions to ask using eiti data

Other questions to ask using EITI data

Discrepancies

What is causing discrepancies?

What’s done about them?

Do they improve over time?

Volatility

How volatile are EI revenues? How do changes in global commodity prices affect government revenues?

Does the fiscal regime increase or decrease the country’s vulnerability to volatility?


Other questions to ask using eiti data1

Other questions to ask using EITI data

How much does each company pay?

Which companies pay the most?

Are the fiscal regimes the same?

Do payment levels correspond with production levels?

Do the differences make sense?


Other questions to ask using eiti data2

Other questions to ask using EITI data

Mysteries….

EITI reports contain confusing information, things that don’t make sense

Seek out explanations!

Examples:

Cameroon royalties in 2006-08 were negative; government paid royalties to the oil companies.

Ghana’s and Sierra Leone’s mining revenues appear lower than expected.

Azerbaijan’s royalty receipts: $400 million in 2004; $52.6 million in 2005. Why the drop?


Final thoughts on analyzing eiti data

Final thoughts on analyzing EITI data

Analyze with other relevant data, such as IMF reports, national budgets, publicly-available production data, etc.

Use reports to identify questions for further investigation and establish oversight priorities

Vital importance of IMPROVING REPORT QUALITY!

EITI data is not comparable across countries. Should it be?


Evaluation

Evaluation

Thank you!


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