Transparency in Natural Resource Governance (MW0010)

Brief Description of the Commitment

The commitment will increase transparency on all aspects of the natural resource chain. This includes the status of existing known resources, contracting and licensing processes and agreements, production, exports, employment, revenue and expenditure, and social and environmental governance. It builds on but modifies and extends the Extractive Industry Transparency Initiative (EITI) in that the EIT largely focuses only on one component of the resource chain, namely, revenues.

Problem Definition

3. What problem does the commitment aim to address? The commitment will address two related problems. Firstly, the opacity that characterizes the natural resource chain in Malawi. In particular, the contracting process is not transparent and there is a widespread perception that mining and oil and gas contracts, in particular, are not sufficiently negotiated to the long term economic benefit of the country and its citizens. Beneficial ownership transparency is also weak in the licencing process, which increases the risk of corruption. While there is some delayed transparency on tax and non-tax revenue derived from some companies in the extractive industries, there is no information on expenditure from mining-related revenue as the revenue comingles with revenue from other sources. Further, responsibilities for environmental rehabilitation/regeneration are either not clearly delineated or are not enforced and affected communities do not have information. Secondly, citizen engagement in natural resource governance is minimal because of the unavailability of information that would be the basis for effective engagement and the pervasiveness of misinformation. Furthermore, there is the lack of clarity of how citizens can take action to improve the situation – both mining affected communities as well as civic actors.

4. What are the causes of the problem? Insufficient transparency across the mineral resource chain is partly attributed to a lingering culture of secrecy in the public sector as well as in mining corporations. For example, between 2007 when the Kayerekera Mining Agreement was signed and 2016 when the contract was disclosed, Government officials claimed that the contract could not be made public, not even to Parliament, because of a confidentiality clause when the contract did not have such a clause. Furthermore, despite having the mandate and power to exercise oversight in ways that would enhance transparency over the mineral resource chain, the parliamentary committee on natural resources and climate change has been slow, if at all, on exercising its mandate to benefit transparency in the mining sector, particularly after a disclosure regime kicked in. One reason for this is that Parliamentarians are not well versed with mining discourse and practice to enable them to engage in meaningful oversight to benefit transparency and accountability.

Commitment Description

4. What has been done so far to solve the problem?

Disclosure of all mining development agreements and licenses. Malawi is required to disclose any contracts and licenses that are granted, entered into or amended that provide the terms attached to the exploitation of oil, gas and minerals. However, the model of disclosure (uploading to a resource contract repository) does not sufficiently disseminate to the majority of Malawians and relevant Malawian authorities such as Parliament. It also only includes mining development agreements and not all licenses issues. Even though licenses are typically standard and are not negotiated, these should all be disclosed to provide information on licence holders, date of issuance, minerals, tenement, and other information that is of particular interest to mining-affected communities. Thus opacity still prevails, much more so because the language of the contracts is not easily accessible to people without mining acumen. Furthermore, contract disclosures only cover the first part of the resource chain and are made public after execution of the contracts with minimal opportunities to influence the fiscal regime embedded in them. The second part of the resource chain is disclosed, again post facto, through the Extractive Industry Transparency Initiative (EITI) through which Government agencies declare their receipts of payments from mining companies and the companies publish what they pay to government agencies. However, there is still no transparency on how and for what resources from mining are expended. Through the Malawi EITI (MWEIT), Malawi has also committed to the disclosure of beneficial owners; disclosures in the report are voluntary, they are not verified and they do not always include the names of the real owners. In the most recent report published in 2019, only legal ownership was reported. Further, only a small proportion of companies are involved in the reporting. The Mines and Minerals Act (2019) also requires applicants for specific licences to disclose the beneficial owners of the applicant entity (with a 5% threshold). In the absence of a central beneficial ownership register, the beneficial owners for all companies with licences in Malawi’s natural resources sector should be disclosed to the public by the Ministry of Mines and not only in the annual MWEITI report, which is not accessible to all people. Malawi recently achieved a moderate overall score in implementing the EITI Transparency Standard. Malawi continued using EITI implementation to further extractive industry accountability, support the country’s anti-corruption efforts, strengthen transparency of the mining, petroleum, transportation and forestry sectors, license and contract allocations, distribution of revenues as well as social and environmental expenditures. Identified areas for further improvements on disclosing data on extractive licensing activities, including transfers and non-trivial deviations from statutory procedures, transparency in the full texts of licenses and contracts, and beneficial ownership disclosure.

5. What solution are you proposing?

1. Creation of a Regulatory framework for the sector to ensure that disclosure of natural resource contracts and beneficial owners should entail responsible duty bearers explaining each contract to the parliamentary committee on Natural Resources and Climate change as a proxy of the people, in live broadcast public hearings to equip the MPs and interested citizens and civil society organisations to exercise meaningful oversight, identify loose ends and loopholes that can be tightened to ensure responsible natural resource governance;
2. The creation of a sovereign fund with clear and transparent rules of deposits and withdrawals to ensure that proceeds from mineral wealth are invested in public goods that connect the present to the future.
3. For future natural resource contracts, require the draft contracts to be scrutinized by the parliamentary committee on natural resources during which process the Ministry of Finance would be required present a financial model of each proposed fiscal regime especially if it deviates from the Taxation Amendment Act (mining fiscal regime), 2016, to understand and ensure optimization of government revenues from each mining project.

6. What results do we want to achieve by implementing this commitment?

The main result to be achieved from this commitment is transparency across the entire natural resource chain which will catalyze active and critical citizenship. The benefits of transparency across the resource chain include better ability to collect payments due to the government; more efficient negotiation and management of minerals extraction agreements; stronger protections against financial crime such as corruption, money laundering, and tax evasion; and greater access to international markets where expectations for responsibly sourced mineral and accountable governance of mineral resources are increasingly becoming the norm. Transparency will optimize the revenue collected from minerals and generate greater value for money expenditures that invest in public goods for the long-term economic development of the country.

Commitment Analysis

5. How will the commitment promote transparency? How will it help improve citizens’ access to information and data? How will it make the government more transparent to citizens? Parliamentary committee proceedings will enable many people understand what’s going on with each mining agreement and will also enable MPs and other civil society actors to carry out effective oversight of mineral resource governance

6. How will the commitment help foster accountability? How will it help public agencies become more accountable to the public? How will it facilitate citizens’ ability to learn how the implementation is progressing? How will it support transparent monitoring and evaluation systems? Disclosure of information along the extractive sector value chain (including, for example mining contracts, beneficial owners and revenue figures) will enhance accountability for payments and receipts from mining activities and also for utilization of the proceeds from mining

7. How will the commitment improve citizen participation in defining, implementing, and monitoring solutions? How will it proactively engage citizens and citizen groups? The commitment will make information and insight available to citizens and groups and enable them to engage in policy advocacy on any grey areas in the resource chain for any mineral and any mining contract.

Commitment Milestones

Enhanced Regulatory Framework for the Mining Sector [Regulations under the Mining Act and Enforcement mechanism]

Improved role of parliament and oversight institutions in natural resource governance. [Interface with Natural Resource committee of parliament; MOU between MWEITI, Parliament and other oversight bodies to facilitate frequent information sharing and capacity building to enhance the role of oversight bodies in natural resource governance.]

Creation of a mining sovereign fund. [Stakeholder Interface with Budget and Finance Committee of Parliament; Ministry of Finance]

Disclosure of all contracts and licenses in the extractive industries [All contracts and licenses in the extractive industries are made available to the public online on a government website]

Disclosure of all beneficial owners of entities in the extractive industries [A list of beneficial owners of entities with licences in the extractives industries are made available to the public online on a government website]