2017-resource-governance-index

2017 Resource Governance Index

© 2017 Natural Resource Governance Institute

2017 Resource Governance Index

2017 Resource Governance Index Foreword E ffective governance of the oil, gas and The staff of our institute have worked hard to mining sectors is a persistent challenge, provide evidence and documentation to assist especially for low- and middle-income in the critical struggle for better natural resource countries. But as the Resource Governance governance. Hopefully the insightful data Index reveals, it is not an insurmountable one. In provided by the index will contribute to the work the index we see many examples of developing of those committed to economic prosperity and countries defying expectations and stereotypes— social justice in resource-producing countries. sometimes in one policy area, sometimes in many—making progress toward a more judicious Ernesto Zedillo Ponce de León use of their natural resources for national development. Unfortunately, this is not true for Professor in the Field of International Economics all countries, some having experienced in recent and Politics, Yale University years worrisome setbacks in the proper use of their natural resources. Former President of Mexico Poor management and corruption can take Chair, Board of Directors root anywhere, in countries rich or poor. These Natural Resource Governance Institute scourges cannot be eliminated everywhere, all of the time. But citizens, journalists, legislators, politicians, companies, investors and academics can work to mitigate them, and expose them early on—and that is where the data carefully compiled here by the Natural Resource Governance Institute become so valuable. 2 | WWW.RESOURCEGOVERNANCEINDEX.ORG

Introduction T he extraction of oil, gas and minerals is So what does the index tell us? The data show one of the most politically, socially and that despite substantial efforts from governments, economically complex undertakings in advocates and the international community, in development. It is a business that connects the most countries governing resources remains a world and sates much of our hunger for energy and major challenge. Every country could improve in at raw materials. It produces inputs to almost every least one important area of governance, and most physical product manufactured. It has contributed countries have significant room for progress in to one of the most fundamental challenges in multiple areas. human history—climate change. It has produced trillions of dollars in revenues. At the same time, reformers have achieved a great deal. The index shows that many countries— These vast sums of money contrast cruelly with even some in very challenging situations—have the poverty of many countries where resources taken concrete steps in the form of rules and are found—1.8 billion people live in poverty in procedures. Those promoting change need not the scores of countries assessed in this index.1 look far to find inspiration on how to better The empirical evidence is clear: changing this dire govern—there are countries pursuing innovative situation requires improving governance—the approaches and progressing in every region. The institutions, rules and practices that determine evidence shows that more progress is taking how company executives and government officials place in the adoption of rules than in their make decisions and engage and affect citizens, actual practice; often those who seek improved communities and the environments they inhabit. governance should in many places focus on implementing existing legal frameworks. We also To improve governance, one has to diagnose learn that better resource governance emerges in in detail what works and what does not, and that countries where civic space is safeguarded and requires measurement. The Resource Governance corruption risks are mitigated. Index assesses the quality of natural resource governance in 81 countries that together produce, Considering the imperative of inclusive growth among other commodities, 82 percent of the in resource-rich countries, improvements at the world’s oil, 78 percent of its gas and 72 percent international level are also called for—including of all copper.2 The index has as its intellectual by members of the G7, multinational companies foundation the Natural Resource Charter; both are and international financial institutions. Work the product of the expertise of NRGI staff and a remains for producing countries that seek further network of external scholars and practitioners. economic transformation and diversification, better protection of the environment and assurance The index is the sum total of 89 country-level that citizens benefit from extraction. assessments (in eight countries we assess both oil and gas and mining sectors), formulated using The main priorities and preferred pathways to a framework of 149 critical questions answered action will vary across countries and actors, which by 150 researchers, drawing upon almost means that informed and inclusive public debate is 10,000 supporting documents. Researchers’ essential. These dialogues must incorporate politi- careful assessments of extractive sector factors cal, economic, social and environmental consider- are combined with pre-existing data, from ations. We trust that the evidence in this index will other sources, on countries’ broader enabling inform such debates and the resulting decisions. environments. The findings presented in this report reflect highlights from a much larger set Daniel Kaufmann of data and country profiles available online at www.resourcegovernanceindex.org. President and CEO Natural Resource Governance Institute WWW.RESOURCEGOVERNANCEINDEX.ORG | 3

4 | WWW.RESOURCEGOVERNANCEINDEX.ORG SCORE 86 81 77 75 74 71 71 71 70 69 68 68 67 64 64 62 61 61 60 59 58 57 57 56 56 56 56 55 55 54 54 54 54 54 53 53 52 51 50 50 50 49 49 49 100 Resource Governance Index country scores and rankings 2017 Resource Governance Index 80 60 40 20 1st | Norway | Oil and gas 2nd | Chile | Mining 3rd | United Kingdom | 4th | Canada (Alberta) | 5th | United States of America (Gulf of Mexico) | 6th | Brazil | 7th | Colombia | 8th | Australia (Western) | 9th | India | 10th | Colombia | 11th | Indonesia | 12th | Indonesia | 13th | Ghana | 14th | Trinidad and Tobago | 15th | Mongolia | 16th | Peru | 17th | Mexico | 18th | Botswana | 19th | Mexico | 20th | Burkina Faso | 21st | Philippines | 22nd | Argentina | 23rd | South Africa | 24th | Ghana | 25th | Kazakhstan | 26th | Tunisia | 27th | Malaysia | 28th | Côte d’Ivoire | 29th | China | 30th | Cameroon | 31st | Niger | 32nd | Ecuador | 33rd | Kuwait | 34th | Bolivia | 35th | Mali | 36th | Tanzania | 37th | Morocco | 38th | Kyrgyz Republic | 39th | Oman | 40th | Zambia | 41st | Mozambique | 42nd | Tanzania | 43rd | Timor-Leste | 44th | Ukraine |

Good ≥ 75 A country has established laws and practices that are likely to result in extractive resource wealth benefiting citizens, although there may be some costs to society. Satisfactory 60-74 A country has some strong governance procedures and practices, but some areas need improvement. It is reasonably likely that extractive resource wealth benefits citizens, but there may be costs to society. Weak 45-59 A country has a mix of strong and problematic areas of governance. Results indicate that resource extraction can help society, but it is likely that the eventual benefits are weak. Poor 30-44 A country has established some minimal procedures and practices to govern resources, but most elements necessary to ensure society benefits are missing. Failing < 30 A country has almost no governance framework to ensure resource extraction benefits society. It is highly likely that benefits flow only to some companies and elites. 48 47 47 46 46 45 44 44 43 42 42 41 40 39 39 39 38 38 38 38 36 36 36 36 36 35 34 34 33 33 33 32 31 30 30 29 29 29 27 25 22 21 18 11 10 45th | Vietnam | 46th | Papua New Guinea | 47th | Azerbaijan | 48th | Tunisia | 49th | Sierra Leone | 50th | Russia | 51st | Uganda | 52nd | Liberia | 53rd | Qatar | 54th | United Arab Emirates | 55th | Nigeria | 56th | Guatemala | 57th | Ethiopia | 58th | Congo | 59th | Bahrain | 60th | Egypt | 61st | Iraq | 62nd | Iran | 63rd | Guinea | 64th | Lao PDR | 65th | Gabon | 66th | Cuba | 67th | Bangladesh | 68th | Madagascar | 69th | Saudi Arabia | 70th | Angola | 71st | Afghanistan | 72nd | Chad | 73rd | Algeria | 74th | Venezuela | 75th | Democratic Republic of Congo | 76th | South Sudan | 77th | Myanmar | 78th | Yemen | 79th | Cambodia | 80th | Uzbekistan | 81st | Zimbabwe | 82nd | Mauritania | 83rd | Myanmar | 84th | Democratic Republic of Congo | 85th | Equatorial Guinea | 86th | Sudan | 87th | Libya | 88th | Turkmenistan | 89th | Eritrea | WWW.RESOURCEGOVERNANCEINDEX.ORG | 5

2017 Resource Governance Index Creating the 2017 Resource Governance Index Creating the 2017 Resource Governance Index 1. NRGI creates a questionnaire 2. One hundred and fifty experts, in consisting of 149 questions. 81 countries, research the issues, compile documentation and complete the questionnaire. 4. NRGI translates raw data into scores for the two 3. NRGI collates and bespoke components of the Resource Governance assesses the quality of Index―value realization and revenue management. all collected data. 7. NRGI analyzes 5. NRGI collects additional data to capture countries’ “enabling results and environments”―the broader institutional governance and generates key transparency context. findings. 6. NRGI calculates the index using the primary and secondary data. 8. NRGI publicizes and disseminates the 9. Governments, index and provides recommendations journalists, civil society to key stakeholders. actors and companies use the findings from 6 | WWW.RESOURCEGOVERNANCEINDEX.ORG the index to improve resource governance 3.40 YUOP▲60.29 RETR▲67.89 for the benefit of 3.40 YUOP▲60.29 RETR▲67c.i8ti9zens and investors.

WHAT THE INDEX MEASURES The score for each of these three components is based on the scores given to its subcomponent policy areas. Each of The Resource Governance Index assesses policies and prac- the subcomponents within value realization and revenue tices that authorities employ to govern their countries’ oil, management focuses on distinct areas of governance and gas and mining industries. The index provides a composite relates to a precept in NRGI’s Natural Resource Charter score for each assessment. For most countries, the index and its benchmarking framework—analytical and assesses either the oil and gas sector, or the mining sector. diagnostic tools that represent the chain of decisions that For eight countries, the index assesses both. governments and societies must make to benefit from their resources. For each assessment, NRGI has calculated the compos- ite score using the scores of three index components. Two Scores are on a scale of zero to 100 at each level of the of the components comprise new research based on expert index, allowing users to benchmark the quality of resource answers to a detailed questionnaire, and directly measure governance across the composite, components and sub- governance of countries’ extractive resources. The first components—both within and between countries. component—value realization—covers the governance of allocating extraction rights, exploration, production, envi- As with any exercise of this type, there is some in- ronmental protection, revenue collection and state-owned herent uncertainty around the index scores. In practical enterprises. The second—revenue management—covers terms this means it may not be sensible to make conclu- national budgeting, subnational resource revenue sharing sions based on small differences in scores. For this reason, and sovereign wealth funds. The index’s third component results are grouped into performance bands: good, satis- assesses a country’s enabling environment. This compo- factory, weak, poor and failing. nent draws on pre-existing research to measure the broader governance context.3 Local impactR E A LVIAZ LA TU E E VAEGNEUMEE N TIONMAN RSurebrsneoavuteirnocuneealsharing Taxation bNuadtigoetnianlgStaetnet-eorwprniseeds RESOURCE Licensing GOVERNANCE wSeoavletrhefigunnds Open data acVcooiucnetaanbdility INDEX E NEVNI RAOB NL IMNEGN T ControalPbooslfietincccoaerlrsoftuavpibtiiollioteynnacend Goevffeercntmiveenntess Rule of law Regulatory quality Index composite Index component Index subcomponent WWW.RESOURCEGOVERNANCEINDEX.ORG | 7

2017 Resource Governance Index Resource Governance Index composite and component scores Index Country Assessed Index Value Revenue Enabling rank sector score realization management environment Norway 1 Chile 86 score score score 2 United Kingdom 81 77 84 97 3 Canada (Alberta) 77 74 81 90 4 United States of America (Gulf of Mexico) 75 70 68 95 5 Brazil 74 69 59 97 6 Colombia (oil and gas) 71 66 63 93 7 Australia (Western) 71 62 78 72 8 India 71 59 85 67 9 Colombia (mining) 70 65 51 96 10 Indonesia (mining) 69 75 66 69 11 Indonesia (oil and gas) 68 59 82 67 12 Ghana (oil and gas) 68 64 76 65 13 Trinidad and Tobago 67 64 76 65 14 Mongolia 64 65 65 70 15 Peru 64 64 57 71 16 Mexico (oil and gas) 62 63 54 73 17 Botswana 61 68 57 62 18 Mexico (mining) 61 64 54 65 19 Burkina Faso 60 40 62 81 20 Philippines 59 62 53 65 21 Argentina 58 66 54 57 22 South Africa 57 55 52 67 23 Ghana (mining) 57 58 54 58 24 Kazakhstan 56 50 40 80 25 Tunisia (oil and gas) 56 61 37 70 26 Malaysia 56 53 54 61 27 Côte d'Ivoire 56 60 40 67 28 China 55 49 41 77 29 Cameroon 55 60 60 46 30 Niger 54 52 54 59 31 Ecuador 54 59 70 33 32 Kuwait 54 55 60 47 33 Bolivia 54 51 58 52 34 Mali 54 44 51 67 35 Tanzania (oil and gas) 53 61 51 49 36 Morocco 53 48 70 42 37 Kyrgyz Republic 52 65 40 53 38 Oman 51 56 35 64 39 Zambia 50 57 51 44 40 Mozambique 50 32 43 76 41 Tanzania (mining) 50 58 35 58 42 Timor-Leste 49 66 42 43 43 Ukraine 49 54 40 53 44 Vietnam 49 49 57 42 45 48 61 40 45 57 30 59 8 | WWW.RESOURCEGOVERNANCEINDEX.ORG

Index Country Assessed Index Value Revenue Enabling rank sector score realization management environment Papua New Guinea 46 Azerbaijan 47 score score score 47 Tunisia (mining) 47 50 50 40 48 Sierra Leone 46 49 43 49 49 Russia 46 40 30 67 50 Uganda 45 62 35 40 51 Liberia 44 47 40 47 52 Qatar 44 42 42 47 53 United Arab Emirates 43 59 30 41 54 Nigeria 42 33 19 77 55 Guatemala 42 32 16 78 56 Ethiopia 41 50 44 31 57 Congo 40 42 35 46 58 Bahrain 39 46 38 37 59 Egypt 39 45 44 29 60 Iraq 39 27 26 63 61 Iran 38 45 30 41 62 Guinea 38 52 47 16 63 Lao PDR 38 36 45 34 64 Gabon 38 53 24 37 65 Cuba 36 42 30 41 66 Bangladesh 36 18 47 44 67 Madagascar 36 29 23 57 68 Saudi Arabia 36 39 35 34 69 Angola 36 36 34 38 70 Afghanistan 35 23 24 60 71 Chad 34 50 31 25 72 Algeria 34 58 31 14 73 Venezuela 33 39 43 19 74 Democratic Republic of Congo (mining) 33 40 25 35 75 South Sudan 33 48 34 17 76 Myanmar (oil and gas) 32 52 35 12 77 Yemen 31 42 47 5 78 Cambodia 30 44 30 19 79 Uzbekistan 30 50 28 11 80 Zimbabwe 29 31 18 40 81 Mauritania 29 40 25 22 82 Myanmar (mining) 29 37 30 20 83 Democratic Republic of Congo (oil and gas) 27 41 10 36 84 Equatorial Guinea 25 33 30 19 85 Sudan 22 44 20 12 86 Libya 21 29 18 17 87 Turkmenistan 18 26 26 11 88 Eritrea 11 27 20 6 89 10 11 0 21 15 5 10 WWW.RESOURCEGOVERNANCEINDEX.ORG | 9

2017 Resource Governance Index Findings Most countries still face daunting Resource governance differs significantly governance challenges within regions Having billions of dollars’ worth of oil, gas or The index shows that countries with similar minerals below ground would suggest that citizens historical and geographical characteristics govern in a country should be well off, but the economies their extractive resources differently. There is of countries rich in resources have grown more a large variance in governance performance for slowly than the economies of countries that are example in Eurasia; Mongolia achieves a score of resource-poor.4 One reason for this disparity is 64 of 100 points but Turkmenistan scores only the quality of governance.5 Of the 81 countries 11. In Latin America, Chile scores 81 points, and included in the Resource Governance Index, 47 are Colombia’s oil and gas sector 71, in contrast to classified by the International Monetary Fund as its neighbor Venezuela, which scores only 33. resource-rich, with oil, gas or minerals dominating Generalizations about the performance of a whole the economy.6 The majority of these countries region can be misleading since there is significant exhibit weak, poor or failing resource governance variation across countries—but the better in index assessments. But this is not a universal performers show others in the vicinity that good paradox. Countries like Botswana, Indonesia, governance in extractives is possible. Mongolia and Norway are all resource-rich, but sit in the good or satisfactory performance bands. Resource governance varies significantly within countries Wealth is not a precondition for good governance Looking past a country’s composite score to the components and subcomponents of the The index shows that rich countries are not assessment reveals a great deal of variation. In immune to resource governance problems. over half of the assessments there is a difference Western Australia scores low in governance of of more than 20 points between the strongest and licensing and taxation. The U.S. scores only 50 weakest components: Sierra Leone’s satisfactory of 100 points for its policies and practices in value realization score of 62 is vastly superior to protecting the local environment in the Gulf of its revenue management score of 35, for example. Mexico. Of the 13 high-income countries in the But this pattern can also be seen in rich countries index, 6—all in the Middle East—fail to achieve such as the U.S. and Canada (with weaker scores either good or satisfactory composite scores. The in their revenue management components), and worst-performing in this group is Saudi Arabia, in oil-rich countries in the Persian Gulf. which scores only 36 points. Furthermore, very few countries achieve Conversely, several middle- and low-income a good or satisfactory score across all economies do comparatively well: Brazil, India subcomponents evaluated in the index. These and Colombia are in the top ten. Even many of the differences matter because effective resource poorest countries in the index—while failing to governance (and consequent benefits from achieve good or satisfactory composite scores—do extraction) requires a broad-based foundation of perform well in specific subcomponents. strong policies and procedures.7 For instance, in its oil and gas sector Colombia scores 100 points for governance of its sovereign wealth fund, but only 36 for protecting local communities and the environment. The country may have instituted 10 | WWW.RESOURCEGOVERNANCEINDEX.ORG

robust measures to manage its Savings and risks, significantly weakening the case that oil Stabilization Fund, but without better regulation extraction has benefited Colombians overall. and protection, communities living near oil extraction sites may be exposed to intolerable Composite scores mask varying performance at the subcomponent level Nigeria Lowest Composite index score Highest subcomponent subcomponent score: score: Sovereign Taxation wealth fund 80 4 42 60 70 80 90 100 0 10 20 30 40 50 76-point range Colombia (oil and gas) Highest subcomponent Lowest Composite index score subcomponent score: 71 Sovereign score: wealth fund Local impact 100 36 90 100 0 10 20 30 40 50 60 70 80 64-point range Vietnam Lowest Composite index score Highest subcomponent subcomponent score: National score: budgeting Local impact 30 48 88 0 10 20 30 40 50 60 70 80 90 100 58-point range WWW.RESOURCEGOVERNANCEINDEX.ORG | 11

2017 Resource Governance Index Resource governance around the world Resource Governance Index country scores and rankings 4th | Canada (Alberta) | | 75 1st | Norway | | 86 3rd | United Kingdom | | 77 44th | Ukraine | | 49 5th | United States of America (Gulf of Mexico) | | 74 26th | Tunisia | | 56 48th | Tunisia | | 46 37th | Morocco | | 52 73rd | Algeria | | 33 87th | Libya | | 18 17th | Mexico | | 61 66th | Cuba | | 36 60th | Egypt | | 39 19th | Mexico | | 60 82nd | Mauritania | | 29 35th | Mali | | 53 56th | Guatemala | | 41 20th | Burkina Faso | | 59 63rd | Guinea | | 38 14th | Trinidad and Tobago | | 64 49th | Sierra Leone | | 46 74th | Venezuela | | 33 7th | Colombia | 52nd | Liberia | | 44 10th | Colombia | | 71 28th | Côte d’Ivoire | | 55 | 69 13th | Ghana | | 67 24th | Ghana | | 56 32nd | Ecuador | | 54 55th | Nigeria | | 42 30th | Cameroon | | 54 85th | Equatorial Guinea | | 22 16th | Peru | | 62 6th | Brazil | | 71 65th | Gabon | | 36 58th | Congo | | 39 70th | Angola | | 35 34th | Bolivia | | 54 Index Assessed Index rank sector score 14th | Country | | 64 Good Oil and gas 2nd | Chile | | 81 Satisfactory Mining Weak 22nd | Argentina | | 57 Poor Failing

61st | Iraq | | 38 33rd | Kuwait | | 54 78th | Yemen | | 30 47th | Azerbaijan | | 47 69th | Saudi Arabia | | 36 59th | Bahrain | | 39 53rd | Qatar | | 43 54th | United Arab Emirates | | 42 50th | Russia | | 45 62nd | Iran | | 38 25th | Kazakhstan | | 56 15th | Mongolia | | 64 38th | Kyrgyz Republic | | 51 80th | Uzbekistan | | 29 88th | Turkmenistan | | 11 71st | Afghanistan | | 34 29th | China | | 55 77th | Myanmar | | 31 83rd | Myanmar | | 27 67th | Bangladesh | | 36 9th | India | | 70 64th | Lao PDR | | 38 45th | Vietnam | | 48 39th | Oman | | 50 21st | Philippines | | 58 89th | Eritrea | | 10 86th | Sudan | | 21 72nd | Chad | | 34 79th | Cambodia | | 30 31st | Niger | | 54 27th | Malaysia | | 56 57th | Ethiopia | | 40 11th | Indonesia | | 68 12th | Indonesia | | 68 76th | South Sudan | | 32 51st | Uganda | | 44 75th | Democratic Republic of Congo | | 33 84th | Democratic Republic of Congo | | 25 36th | Tanzania | | 53 46th | Papua New Guinea | | 47 42nd | Tanzania | | 49 40th | Zambia | | 50 43rd | Timor-Leste | | 49 68th | Madagascar | | 36 41st | Mozambique | | 50 8th | Australia (Western) | | 71 81st | Zimbabwe | | 29 18th | Botswana | | 61 23rd | South Africa | | 57

2017 Resource Governance Index Countries with the weakest resource governance are least likely to implement the rules they set Score out of 100 ••G••ood Sa••ti•s•f•a•c•t•o•r••••• Legal 3-point gap 70 66 framework 64 2-point gap •••••••••••••••••••••••••••••••73 • Practice 14-point gap 22 y • 36 59 Failing 50 1 country assessment 9-point gap Index •••••••••• 34 performance Weak Good Satisfactory 47 Weak 13-point gap Poor Failing Poor ••••••••••••••••••••••••••••• 14 | WWW.RESOURCEGOVERNANCEINDEX.ORG

Countries fail to follow their own rules A few countries follow good practices without corresponding legal requirements. This is the The data in the index also inform the computation case in Malaysia, which—more so than any other of a country’s scores for legal framework and country—performs better in practice than it does implementation. The legal framework score in its legal framework. State oil company Petronas’ includes all indicators relating to the coverage financial reporting and contracting practices are and quality of the laws and regulations that shape good, but no rules require the company to report resource governance (e.g., whether a country in this manner. Yet more generally, good practices has a rule requiring the disclosure of contracts). in the absence of legal requirements could be more The practice score covers indicators regarding easily subject to reversal. actions taken by the government (e.g., whether officials have actually disclosed contracts). This The widest gap between law and practice is seen practice measure shows how well a government in two particular subcomponents of the index: implements the policies and laws it has established. local impacts and subnational resource revenue sharing. The average score for laws governing Good governance means having good rules, the local impacts of extraction is 64 points—but strong oversight to enforce the rules, and the countries score only 23 points for the application competence and willingness to follow them. The of these laws. This usually results from countries’ index data show the extent to which countries do failure to implement environmental regulations. this. Combining the legal framework questions Similarly, on average the countries assessed receive in the index questionnaire as one value and the 76 points for subnational resource revenue sharing implementation questions as another reveals two laws, but only 45 points for related practices. general conclusions. One is that countries must Twenty-three of the 33 national governments that improve the quality of their laws. The other is that transfer natural resource revenues to subnational countries often fail to follow rules that do exist. authorities are required to commission audits of On average, countries’ legal frameworks score 54 these transfers. But audits actually only took place of 100 points. For practice, countries score 45— in 12 of the assessed contexts. an average difference of nine points. And this gap is even wider for countries exhibiting the worst Analysis of the index data also shows that overall governance: in countries with failing countries are more likely to follow the rules they governance, the gap between the quality of legal set for themselves if they also control corruption framework and practice is on average 14 points. well. This suggests that a divergence between laws and practice is not merely a matter of poor technical implementation capacity. Performance in Gap between legal framework control of corruption and practice scores 3 Good/satisfactory 12 Weak 13 Poor/failing WWW.RESOURCEGOVERNANCEINDEX.ORG | 15

2017 Resource Governance Index Why resource governance matters W hy do the index results matter? Strong governance helps mitigate Are there dire consequences if environmental harms countries mismanage resources? Here are three reasons why resource governance Resource governance matters for the environment is important. and for the people who live close to extraction sites. Competent oil and mining companies in countries Mismanaging resources promotes poverty with strong resource governance may operate with relatively less local environmental impact Resource wealth and how it is managed could (even if the global impact from carbon emissions make a crucial difference in the lives of the 1.8 through the production chain is still immense). billion poor who live in countries assessed by the In countries with poor resource governance, index.8 Almost half of these people live in coun- companies are often lax in their efforts to protect tries with weak, poor or failing resource gover- local environments and local communities. From nance. For many of these countries, the dividends the pollution in Zambia’s Kafue River to the of well-governed resource extraction offer a path deforestation of the Amazon, many environmental from poverty. But without stronger institutions harms are at least partly caused by poorly regulated and policies, as well as a reduction in corruption, companies extracting resources. countries are more likely to fall victim to the “resource curse”—under which the poor stay Resource governance will matter even poor and elites accumulate further wealth. The more in the future results of weak institutions and policies and high corruption have become apparent in recent times. Over the past three decades the world’s extractive During the last commodity boom, from 2004 to wealth has been shifting from the global North 2014, despite the extraction of trillions of dollars’ to the global South—proven reserves have risen worth of oil, gas and minerals, the non-extractive more quickly in non-OECD countries than sectors of resource-rich economies grew no faster OECD countries.11 The proportion of resource than before the boom.9 This matters because in production carried out under poor, weak or failing most countries the non-extractive sectors are governance is likely to grow in the future. At the typically the source of job creation—usually a same time, fossil fuel producers in particular face primary means to reduce poverty.10 growing uncertainty. To combat climate change, humankind must transition away from fossil fuels. Indeed, if the world does not make this transition quickly enough, many of the world’s poor countries face the worst effects of climate change itself. The transition will test governance in countries that produce these fuels.12 16 | WWW.RESOURCEGOVERNANCEINDEX.ORG

Resource governance institutions I mproving governance means improving Sovereign wealth funds institutions. The index data allow close examination of the institutions commonly The index assesses 33 sovereign wealth funds found in countries extracting oil, gas and minerals. (SWFs) that collectively manage at least State-owned enterprises and sovereign wealth USD 3.3 trillion dollars in assets. These funds funds are two such key institutions. exhibit a broad range of governance quality. Colombia’s Savings and Stabilization Fund is State-owned enterprises the best-governed fund in the index. The top six performing funds are operated by a diverse group State-owned enterprises (SOEs) play a pivotal role of countries, including Ghana and Timor-Leste. By in many countries’ extractive industries. Some the index’s metrics, the sovereign wealth funds of harness oil and minerals for national development. Chile, Colombia and Ghana perform better than Others squander nations’ resources through those of Canada and Norway. inefficiency and corruption. The index covers both types, assessing the governance of 74 SOEs. Of particular concern are the 11 funds that Chile’s Codelco is the best-governed SOE in the are classified as failing. This includes the United index. The Eritrean National Mining Corporation is Arab Emirates’ Abu Dhabi Investment Authority, the worst, 1 of 14 that are classified as failing. This the second-largest fund assessed in the index; group includes Saudi Aramco, the largest energy it manages USD 590 billion. The funds with company in the world, which scores only 27 of 100 the weakest scores have suffered the most from points. One weakness is its opacity—if authorities excessive risk-taking, high management fees and in Saudi Arabia wish to sell shares of the company politically motivated investments.14 But there may in equity markets, greater transparency may be be many more cases of mismanagement that are necessary. Investors, like citizens, need more simply not apparent. Funds in Algeria, Angola, information. Chad, Equatorial Guinea, Gabon, Nigeria, Qatar, Saudi Arabia, Sudan and Venezuela are so opaque The granular index data on SOEs show several that there is no way to know how much may be lost problem areas. While SOEs on average score 56 to mismanagement—or who benefits from these points for disclosures and rules related to other funds’ investments. aspects of SOE governance, they score only 22 for their conduct in selling oil, gas and minerals. For instance, state operators in Ecuador, Kuwait, Mexi- co, Saudi Arabia, Sudan, United Arab Emirates and Venezuela provide minimal information on how they sell their countries’ oil. This is concerning because in many oil-producing countries such sales produce the majority of public resource revenues; without strong governance, these sales are suscep- tible to corruption.13 WWW.RESOURCEGOVERNANCEINDEX.ORG | 17

2017 Resource Governance Index State-owned enterprises Country State-owned enterprise Gross sales Score (USD millions, [/100] Chile Codelco selected years) India Oil and Natural Gas Corporation of India 90 Argentina Yacimientos Petrolíferos Fiscales 11,693 87 Norway Statoil 23,374 83 Morocco Office Chérifien des Phosphates 14,236 80 Indonesia (mining) Antam 45,873 79 Ukraine Naftogaz 4,890 78 Ghana (oil and gas) Ghana National Petroleum Corporation 680 76 Trinidad and Tobago Petroleum Company of Trinidad and Tobago Limited 6,596 75 Mexico (oil and gas) Petróleos Mexicanos 75 Colombia (oil and gas) Ecopetrol 180 74 Bolivia Yacimientos Petrolíferos Fiscales Bolivianos 3,047 73 Azerbaijan State Oil Company of the Azerbaijan Republic 52,2 41 70 Philippines Philippine Mining Development Corporation 18,998 70 Zambia Zambia Consolidated Copper Mines Investment Holdings 6,812 70 Indonesia (oil and gas) Pertamina 32,309 69 Tunisia (oil and gas) Entreprise Tunisienne des Activités Pétrolière 66 Iraq South Oil Company 2 66 Kuwait Kuwait Petroleum Company 163 66 Malaysia Petronas 41,763 65 Brazil Petrobras 621 65 South Africa African Exploration Mining and Finance Corporation Not available 65 Tanzania (oil and gas) Tanzania Petroleum Development Corporation 106,002 65 Vietnam PetroVietnam 63,412 64 Kazakhstan Kazmunaigaz 97,314 64 Côte d’Ivoire Société Nationale d’Opérations Petrolière de Cote d’Ivoire 18 63 Venezuela Petróleos de Venezuela 35 61 China China National Petroleum Company 7,232 58 Angola Sonangol 492 58 Russia Gazprom 539 56 Ecuador Petroecuador 55,339 56 Qatar Qatar Petroleum 68,419 56 Bangladesh Petrobangla 19,135 55 Mozambique Empresa Nacional de Hidrocarbonetos 90,571 54 Cameroon National Hydrocarbons Corporation 8,174 53 Timor-Leste Timor Gás & Petróleo, Empresa Pública 463,355 52 Kyrgyz Republic Kyrgyzaltyn 1,039 50 Papua New Guinea Petromin 115 50 1,096 49 10 485 76 18 | WWW.RESOURCEGOVERNANCEINDEX.ORG

Country State-owned enterprise Gross sales Score (USD millions, [/100] Algeria Sonatrach selected years) Chad Socièté des Hydrocarbures du Tchad 47 Zimbabwe Zimbabwe Mining Development Corporation 70,366 46 Nigeria Nigeria National Petroleum Corporation Not available 45 Uzbekistan Uzbekneftegaz National Holding Company 44 Ghana (mining) Sankofa Prestea Limited 307 41 Congo Société Nationale des Pétroles du Congo 6,992 41 Mongolia Erdenes Mongol Not available 40 Yemen Yemen Oil and Gas Corporation 40 Cuba Unión Cuba-Petroleo 19 40 Mauritania Société Nationale Industrielle et Minière Not available 39 Guinea Société Guinéenne du Patrimoine Minier 38 Madagascar Kraomita Malagasy 1,2 46 38 Egypt Egyptian General Petroleum Corporation Not available 36 Democratic Republic of Congo Not available 36 (mining) Gécamines Niger 1,117 35 Tunisia (mining) Société de Patrimoine des Mines du Niger 1 Myanmar (oil and gas) Compagnie de Phosphate de Gafsa 35 Tanzania (mining) Myanmar Oil and Gas Enterprise Not available 35 Libya State Mining Corporation Not available 35 Oman National Oil Corporation 33 Bahrain Oman Oil Company Not available 32 Botswana Bahrain Petroleum Company 32 South Sudan Debswana 127 32 Saudi Arabia Nile Petroleum Corporation 260 29 United Arab Emirates Saudi Aramco Not available 28 Democratic Republic of Congo Abu Dhabi National Oil Company Not available 27 (oil and gas) Not available 27 Ethiopia Société Nationale des Hydrocarbures (previously Cohydro) 72 4 Iran 5,310 25 Myanmar (mining) Adola Gold Mine 3,922 Sudan National Iranian Oil Company Not available 24 Uganda* Myanmar Gems Enterprise Not available 22 Gabon Sudanese Petroleum Corporation Not available 16 Turkmenistan Uganda National Oil Company 13 Equatorial Guinea Gabon Oil Company Not available 13 Eritrea Turkmengas State Concern 11 GEPetrol Not available 10 Eritrean National Mining Corporation Not available 7 Not available 4 Not available 0 Not available Not available Not available Not available *The Uganda National Oil Company came into being in mid-2016. It has not commenced activities and therefore most of the indicators in the index’s SOE subcomponent were deemed not applicable. Regulation concerning its governance is not fully completed and users of the index should note this when reviewing the company’s performance. WWW.RESOURCEGOVERNANCEINDEX.ORG | 19

2017 Resource Governance Index Sovereign wealth funds Country Sovereign wealth fund Asset value Score (USD millions, [/100] Colombia (mining) Savings and Stabilization Fund selected years) Colombia (oil and gas) Savings and Stabilization Fund 100 Ghana (oil and gas) Ghana Stabilization Fund 3,2 40 100 Chile Economic and Social Stabilisation Fund 3,2 40 93 Norway Government Pension Fund Global 208 92 Timor-Leste Petroleum Fund 13,966 90 Canada (Alberta) Alberta Heritage Savings Trust Fund 926,940 88 Trinidad and Tobago Heritage and Stabilization Fund 16,238 88 Iran National Development Fund of Iran 17,900 74 Peru Fiscal Stabilization Fund 5,880 70 Kazakhstan National Fund of Kazakhstan 53,307 69 Botswana Pula Fund 7,904 67 Australia (Western) Western Australian Future Fund 65 Kuwait Kuwait Investment Authority 62 61 Azerbaijan State Oil Fund of the Republic of Azerbaijan 6,040 61 Oman State General Reserve Fund 52 Mexico (oil and gas) Oil Revenues Stabilization Fund 300 47 Malaysia National Trust Fund 52 4,000 45 Mongolia Fiscal Stability Fund 33,600 42 Russia National Wealth Fund 34,000 42 Uganda Petroleum Revenue Investment Reserve 40 Libya Libyan Investment Authority 5,901 36 Bahrain Future Generations Reserve Fund 3,019 32 Angola Fundo Soberano de Angola 250 32 Fonds Souverain de la République Gabonaise, Fonds Gabonais 73,570 25 Gabon d’Investissements Stratégiques Fondo de Desarollo Nacional 72 23 Venezuela Abu Dhabi Investment Authority 67,000 United Arab Emirates Fonds de Régulation des Recettes 22 Algeria SAMA Foreign Holdings 400 21 Saudi Arabia Mécanisme de stérilisation des revenus pétroliers provenant de 4,882 21 l’exploitation des trois champs de Komé, Miandoum et Bolobo 18 Chad Fund for Future Generations 1,000 Oil Revenue Stabilisation Account 17 Equatorial Guinea Excess Crude Account 17,250 Sudan Qatar Investment Authority 589,800 7 Nigeria 7 Qatar 7,570 4 5 1 4,000 4 Not available 80 Not available 2,400 338,400 Note: Assets under management as of 2015 or 2016, depending on the country 20 | WWW.RESOURCEGOVERNANCEINDEX.ORG

Transparency and civic space If citizens are to know whether companies use corporate structures to avoid taxes and whether The index measures two important ingredients officials have personal interests in the companies for citizens seeking to hold their governments they regulate, it is necessary for government to account: transparency and “civic space,” the officials and companies to disclose information freedom and ability of citizens to influence the about a range of commercial interests. The index political and social structures around them. measures two such disclosures: reporting of government officials’ financial assets in companies, Transparency and disclosures of the identities of “beneficial owners” of companies — the individuals who The index measures the extent and quality of ultimately control or profit from corporate activity. disclosures across all of the main policy aspects of The index shows that in the majority of cases, laws extractive resource management. Three types of require public officials to disclose their financial disclosures are of particular importance: payments assets, either publicly or to a government authority. made to governments, the identities of individuals But only 11 of the index’s 89 assessments who personally benefit from companies with show that officials publish this information which the government does business, and the deals comprehensively and publicly. Public information governments and companies strike. on beneficial ownership is also scant. While many countries at least plan to require public disclosure Information about payments from companies of this information (often due to EITI processes to governments is crucial for citizens, journalists in these countries), only five countries assessed and parliamentarians seeking to learn how much currently have laws requiring public beneficial money their government has to spend, whether ownership disclosures and even fewer countries companies pay what they owe in taxes and have public registries containing this information. whether extractive projects benefit the country. Even in countries where beneficial ownership The granularity of this information determines laws or disclosures do exist, further refinements its usefulness. The index measures payments are needed to make the rules and implementation disclosed on a company-specific basis. In about most effective. half of the countries in the index, the government discloses payments by aggregating all transfers Citizens should know the terms on which from a company to the government. However, extraction occurs in their country; these terms are regarding more granular information, previous documented in contracts and license agreements. NRGI analysis indicates that project-level In only 22 of 89 assessments did researchers find reporting—disclosures of how much money flows rules requiring contract and license disclosure. to the government from individual extraction Contract disclosure rules are most common in sites—is much rarer. sub-Saharan Africa and least common in Eurasia, Western Europe and North America. And the Most company-specific disclosures were index confirms that having a disclosure rule in countries party to the Extractive Industries increases the frequency of contract disclosure. Transparency Initiative (EITI), which suggests that Among the 22 country settings with disclosure EITI has led the way internationally on company rules, governments in 16 have disclosed at least payment transparency—but countries still have some contracts. In contrast, in only 18 out of work to do to advance project-level transparency. 67 assessments without disclosure rules did governments publish contracts. WWW.RESOURCEGOVERNANCEINDEX.ORG | 21

2017 Resource Governance Index Civic space of expression, freedom of association and freedom of the press. Until journalists and Without an active and well-informed civil society citizens can use information for public debate to monitor and evaluate the information, the and to query governments, transparency will not impact of technical disclosures, like those of translate into accountability and hence the full contracts and licenses, is somewhat neutralized. benefits of extraction will remain unrealized. This necessitates a second ingredient—“civic space,” including citizens’ freedom to use Worse, in most countries the absence of civic disclosures to hold their governments space comes hand-in-hand with opacity and poor accountable. There are some governments that sectoral governance performance. The index have made some progress in technical disclosures, results suggest that on average governments yet heavily restrict civic space, as in Azerbaijan, that facilitate civic space do exhibit stronger China and Vietnam. They publish a reasonable governance performance. Indeed, more than amount of information, but these countries are any other of the index’s enabling environment marked by very poor voice and accountability subcomponents, voice and accountability is metrics, which measure the extent to which strongly associated with country performance a country’s citizens are able to participate in in the extractives-specific value realization and selecting their government, as well as freedom revenue management components. Countries with good or satisfactory voice and accountability perform better in value realization and revenue management Value realization and revenue 100 management average score 90 80 70 Weak Poor or failing 60 50 40 30 20 10 0 Good or satisfactory Voice and accountability performance bands 22 | WWW.RESOURCEGOVERNANCEINDEX.ORG

Recommendations T he index results point to a number of establishing independent governing boards; common challenges for countries and making appointments according to well-defined, the global community. Addressing these meritocratic processes; and emphasizing technical challenges requires a range of responses. Here are expertise rather than political patronage.15 six that are globally significant. 1 Focus on implementation 4 Protect civic space and combat corruption Governments should strengthen the implementation of laws and regulations in The analysis clearly shows that the challenges in extractives—particularly in areas where practice extractives are not only technical. Where citizens’ has been found to be lagging, such as those ability to participate in selecting and monitoring related to the environment, local communities their government, their freedom of expression, and and subnational resource revenue sharing. While their freedom of association is limited, governance significant progress is also needed in the adoption of the extractives sector is fundamentally impaired. and improvement of laws and regulations in A concerted effort to open civic space is needed in the extractive industries of many countries, the most resource-rich countries, where citizens and ultimate challenge is implementing these laws and journalists lack freedoms to speak up and hold their regulations. governments to account. And in countries where the enabling environment is lacking in areas such as 2 Continue to open governments rule of law, regulatory quality and corruption con- trol, laws specific to the extractives sector will have Countries have made significant progress in some limited impact in practice. areas of transparency, such as company payment disclosures—but more is necessary if data are to 5 Strengthen global norms and be comprehensive and granular enough to inform institutions policy debates and decisions. The next steps are to shed light on the true beneficial owners of Governments of countries home to extractive companies, the commercial interests of officials companies, international institutions and non- and their associates, the deals governments make, governmental organizations should work to and the detailed project-level payments companies further strengthen the global framework for make to governments. natural resource governance, including influencing how multinational companies behave. With 3 Bolster state-owned enterprise delay and uncertainty on implementation of governance the U.S. law requiring mandatory disclosure of project-level payments to governments, it Given SOEs’ weaknesses in most settings and is even more important that jurisdictions like their prominent role in resource-rich countries, the E.U. and Canada hold firm with their laws major reform is needed. The biggest weakness in and enhance them by including transactions state enterprises, according to the index, is the related to commodities trading.16 Further, the regulation and disclosure of oil sales. Further, their OECD Anti-Bribery Convention ought to be corporate governance is in need of improvement. safeguarded, and goverments should honor the SOE officials may wish to draw from practices commitments they made at the 2016 U.K. Anti- of the best-performing state companies Corruption Summit. Global initiatives such as assessed by the index. Such practices include EITI that are making a difference in key areas of transparency need to make further progress in WWW.RESOURCEGOVERNANCEINDEX.ORG | 23

2017 Resource Governance Index helping countries to institutionalize extractives that end, governments, think tanks, the media governance reforms within country systems and and civil society organizations should: measure also in making companies more accountable. and monitor the quality of governance and International financial institutions and multilateral effectiveness of resource and revenue management development banks should fully integrate throughout the “value chain”; design measures resource transparency—including in contracts and to improve institutions, policies and practices payments—in their lending criteria. based on such evidence-based assessments; and fund the development of institutional systems 6 Use data to drive reforms providing regular and timely gathering, analysis and dissemination of key data in resource-rich The index is just one of a growing number of countries. The power of data can also be further datasets that researchers, policy analysts, advocates unleashed in helping countries tailor their reform and reformers can use to understand and drive program plans to their realities in an evidence- change across the world. Among these are based manner. The international community ResourceProjects.org and ResourceContracts.org. should ensure that public information about the The open data revolution is making these data resource sector is released in line with the Open more accessible; the challenge now is to use Data Charter standards. them to help inform better policy decisions and improve governance and corruption control. To 24 | WWW.RESOURCEGOVERNANCEINDEX.ORG

Endnotes 1 Number of people in poverty is calculated as the multiplication of the World Bank Poverty headcount ratio at USD 3.10 a day (latest available data) with World Bank Population, total (2015) for all countries, summing the countries included in the index and dividing by world the sum of all countries. Sources for data available from: www.resourcegovernanceindex.org 2 Oil, gas and mineral production shares included in the index are calculated as a sum of country production data (sources for data available from: www.resourcegovernanceindex.org) in 2016, divided by global production in 2016. For jurisdictions— Australia (Western), Canada (Alberta) and United States of America (Gulf of Mexico)—only production from that jurisdiction is included. Production of each of the eight mined commodities is included if the sector assessed is mining; production of mined commodities is not included if the sector assessed is oil and gas and vice-versa. 3 The enabling environment component of the index is comprised of the six Worldwide Governance Indicators (voice and accountability; political stability and lack of violence; government effectiveness; regulatory quality; rule of law; and control of corruption) and a seventh open data subcomponent, comprised of the Global Open Data Index, Open Data Barometer and Open Data Inventory. For the methodological details of the six governance indicators, see Daniel Kaufmann, Aart Kraay, and Massimo Mastruzzi. The Worldwide Governance Indicators: Methodology and Analytical Issues. World Bank Policy Research Working Paper No. 5430. September 2010. 4 Andrew Warner, “Natural Resource Booms in the Modern Era: Is the curse still alive?” International Monetary Fund Working Paper No. 15/237 (2015). 5 Natural Resource Governance Institute, Natural Resource Charter (2014) and Marcartan Humphreys, Jeffrey Sachs and Joseph Stiglitz (editors), Escaping the Resource Curse (New York: Columbia University Press, 2007). 6 International Monetary Fund, Macroeconomic Policy Frameworks for Resource-rich developing countries (2012), Appendix 1, 48-50. 7 Natural Resource Governance Institute, Natural Resource Charter; and Paul Collier, The Plundered Planet (London: Allen Lane, 2010). 8 See end note 1. 9 Warner, “Natural Resource Booms in the Modern Era: Is the curse still alive?” 10 Claire Melamed, Renate Hartwig and Ursula Grant, Jobs, growth and poverty: what do we know, what don’t we know, what should we know? Overseas Development Institute (2011); Dani Rodrik, The past, present and future of economic growth, Global Citizen Foundation, Working Paper 1 (2013); World Bank, The Growth Report: Strategies for Sustained Growth and Inclusive Development, Commission on Growth and Development (2008); Margaret S. McMillan and Dani Rodrik “Globalization, structural change and productivity growth” National Bureau of Economic Research, Working Paper 17143 (2011). 11 Rabah Arezki, Rick van der Ploeg and Frederik Toscani, “The Shifting Natural Wealth of Nations: The Role of Market Orientation”, Oxford Centre for the Analysis of Resource-rich Economies, OxCarre Research Paper 180. (2017). 12 James Cust, David Manley and Giorgia Cecchinato, “Unburnable wealth of nations”, Finance & Development, Vol. 54, No. 1, (2017). 13 Alexandra Gillies, Marc Guéniat and Lorenz Kummer, Big Spenders: Swiss Trading Companies, African Oil and the Risks of Opacity, Natural Resource Governance Institute (2014). 14 Andrew Bauer (editor) Managing the public trust: How to make natural resource funds work for citizens, Natural Resource Governance Institute (2014). 15 Patrick R. P. Heller, Paasha Mahdavi and Johannes Schreuder, Reforming National Oil Companies: Nine Recommendations, Natural Resource Governance Institute and Columbia Center on Sustainable Investment (2014). 16 Daniel Kaufmann, “Trump should think again on mining transparency law.” Financial Times. 8 March 2017.

The Natural Resource Governance Institute, an independent, non-profit organization, helps people to realize the benefits of their countries’ oil, gas and mineral wealth through applied research and innovative approaches to capacity development, technical advice and advocacy. Learn more at www.resourcegovernance.org