the future of EITI: forward with focus

Remarks by Stuart R. McGill
Senior Vice President, Exxon Mobil Corporation
Extractive Industries Transparency Initiative; Norway
October 17, 2006

 

It is a pleasure to join you for the Extractive Industries Transparency Initiative’s third summit conference.

ExxonMobil is proud to support EITI, and we look forward to serving on its Governing Board next year.

I also look forward to the announcements this afternoon of additional governments' endorsement of EITI. They are taking an important step in ensuring their countries’ resources will better the lives of their countries’ citizens.

The number of countries committed to EITI has increased to more than half of the IMF's list of 53 resource-rich nations, representing millions of people who stand to benefit from the initiative’s successful implementation. 

This testifies to EITI’s value and the lessons learned as its structure was shaped. By developing a process for effective disclosure of payments and revenues that is workable, useful, and respectful of participating countries’ sovereignty and supporting companies’ autonomy, we have laid a firm foundation. 

That is a tribute to all the stakeholders who worked together in this process, and especially the leadership provided by the U.K.’s Department for International Development.

We now have the opportunity to build on this foundation and further advance EITI’s founding principles through its effective expansion and improved implementation. These are the recommendations of the International Advisory Group under consideration at this year’s summit, recommendations that ExxonMobil supports. 

In my remarks this morning, I will discuss the best means of implementing these recommendations and of moving EITI forward with focus. And in doing so, I will comment on what we have learned from EITI implementation to date.

If, as we expand our ranks and strengthen our procedures, we stay true to the core mission of EITI and not stray from our current course, this initiative can continue to play an instrumental role in promoting effective transparency that facilitates responsible resource development.

Good corporate citizenship by EITI’s supporting companies is important to the initiative’s continued successful implementation. Sound corporate governance and adherence to high ethical standards is imperative. 

Our industry strives constantly to meet this standard. We try to learn from each other in industry forums by sharing best practices, many of which were suggested by NGOs, international organizations and governments represented here today. 

ExxonMobil's approach to meeting this standard starts with our straightforward business model, our governance structure, and our uncompromising ethics. 

Each and every employee within our organization, from senior management to entry level, must comply with our Standards of Business Conduct, which encompass 18 foundation policies ranging from equal employment opportunity, to safety and the environment, to conflicts of interest, to gifts and entertainment. 

We believe that “a well-founded reputation for scrupulous dealing is a priceless corporate asset.”

This ethic of accountability is embedded in all our management systems, demonstrated through our training and discipline, and clearly tied to our business objectives and planning. It is also reflected in our safety, health and environmental performance, as well as our approach to community relations.

And it is reflected in our dealings with resource-owning governments with whom we partner. ExxonMobil has long supported transparency, on a bilateral basis as well as through multilateral initiatives such as EITI. 

In 1999, before EITI was launched, our Chadian affiliate facilitated implementation of a Revenue Management Plan developed by the government of Chad and the World Bank which included monitoring by representatives of civil society. Since first oil production in Chad in 2003, more than $420 million in revenues have been managed in accordance with the RMP. 

Late last year, the government sought reforms of the plan, and engaged with the World Bank to consider these reforms. It is a testament to the RMP’s sound framework that changes were ultimately arrived at in a constructive manner.

ExxonMobil is also partnering with four other petroleum-rich countries participating in transparency initiatives – Azerbaijan, Kazakhstan, Nigeria, and Sao Tome and Principe…we are working with the Governments of Equatorial Guinea and Angola to encourage their participation…we are continuing to support the World Bank’s and the U.K.’s Department for International Development transparency workshops worldwide…and we are supporting the G-8 transparency initiative. We applaud the U.S. Government for its role in giving birth to the G-8 initiative and for its constructive support for EITI from its beginning.

Our ongoing support for transparency in general and EITI in particular has been both encouraged and acknowledged in our engagement with external audiences. It is one of the most prominent issues raised in our dialogue sessions with NGOs and other opinion leaders around the world. I know that several of you present today have participated in those sessions and we very much appreciate your input.

The EITI is succeeding with the support of participating companies and of governments, committed to transparency themselves in word and deed. 

Citizens of resource-owning countries often have the most at stake in their effective management. If revenues are managed in a way that best benefits citizens, participating countries have much to gain economically. 

Why? Because transparency can be a key factor in improving the investment climate required to launch and sustain projects for producing natural resources.

This economic rationale for transparent revenue streams is apparent in the EITI’s 7th founding principle, which recognizes the “enhanced environment for domestic and foreign investment that financial transparency may bring.” 

And it is inherent in the projects the international energy industry undertakes. The International Energy Agency estimates that $17 trillion in investment will be required through 2030 to meet the world’s growing energy needs.

The projects which such massive sums support have lifecycles spanning decades and are exceedingly complex in character. Given these realities, stable business frameworks – today and tomorrow – are imperative. A country’s commitment to transparency gives investors confidence in its overall business environment.

This economic rationale also underscores the importance of keeping EITI focused on its core mission. 

Should we compromise this mission by failing to respect national sovereignty… by failing to protect truly proprietary information… by failing to safeguard the sanctity and privacy of contracts… or by failing to apply standards evenly, we will compromise the outcomes. 

EITI’s success to date in keeping its focus points the way to success going forward. Allow me to provide a few examples.

We have learned from Azerbaijan's reporting process that the core mission of EITI can be met through aggregated disclosure. I applaud the comprehensive program by the NGO community to publicize these reports in Azerbaijan and enhance comprehension among the general public. The Azeri Government is to be commended for being the first to implement EITI and set a sound example for others to follow.

In Nigeria, we recognize the circumstances that have long engendered distrust among the public in petroleum reporting and processes. However, we also learned that, as is done in Azerbaijan and planned for in Kazakhstan, attempts to reconcile any reporting discrepancies should be made before reports are issued. 

There was a lot of needless adverse publicity for Nigeria and companies when it became clear that reconciliations were easily achieved through meetings among the reporting company, the audit firm, the Department of Petroleum Resources and the Central Bank.

For all implementing countries, we have found that support from the government leadership is vital. Equally crucial, however, is having a senior government official champion the initiative and oversee its implementation. We had those champions in Azerbaijan, Nigeria and Kazakhstan, and we will hear from some new country champions this afternoon.

As we strive to grow EITI to encompass more countries and more companies, especially national oil companies, it is important that we not try to place too much under the organization’s umbrella. 

Nigeria's extension of EITI to include a three-part audit of volumes, financials and management processes makes good sense in light of its historical context. But trying to form concrete alliances for EITI at the international level with entirely different initiatives will unduly complicate the EITI expansion process. 

Another lesson learned from comes from attempts by governments to define transparency in awarding oil and gas rights. Transparency in licensing requires governments to explain how they made their decisions in awarding licenses, not that they be awarded solely on the basis of bidding on one or two fiscal terms, without regard for other competencies. 

It is counterproductive to make a commitment to transparency regarding revenues to help ensure those revenues benefit citizens in the best way possible and then commit to an oil and gas licensing system in the name of transparency that does not maximize the long-term value of those revenues.

To do so would contradict EITI’s first founding principle – that the “prudent use of natural resource wealth should be an important engine for sustainable economic growth.”  

Some say that natural resource wealth is a “curse,” inevitably leading to economic practices that ultimately impoverish the nations endowed with it. 

In fact, when managed properly, natural resource wealth is a blessing, not a curse. The Extractive Industries Transparency Initiative is part of the solution to ensuring all citizens in resource-endowed countries share in this blessing.  

EITI is necessary, but it is not sufficient. The rule of law, civil liberties, and a public voice, are also needed to help combat poor economic policies and poverty.  Together with transparency, such good governance policies discourage corruption and encourage the better management of resources to the betterment of the societies endowed with them.   

I know that many of you here today have been active in pursuing these factors of good governance accountability. They are important.

As a forum for promoting transparency, the EITI has shown progress, progress ExxonMobil is proud to support. To continue this progress, we must maintain the initiative's integrity and stay true to our mission. As we move forward, we must do so with focus.

Thank you.