A transparency tool we can use

Tricia Yeoh, The Sun Daily

DURING the 2015 Budget Consultation, the World Bank representative said explicitly that Malaysia would have to cut its annual budget down by 2.5% each year starting immediately, if it is serious about fiscal prudence. This is highly unlikely, given that the budget has always grown and never shrunk, not to mention the need for very large supplementary budgets too each year.

In a sense, Malaysia has never quite needed to exercise great fiscal prudence, since we have been able to rely upon revenues reaped from the expansive oil fields off Peninsular and East Malaysia. As stated in my previous column, Malaysia is highly dependent on oil and gas revenues, contributing more than a third of our government coffers.

And as predicted, the debate surrounding the issue of oil royalties in oil-producing states is growing, having begun in Sarawak, and creeping slowly to Kelantan, Terengganu and Sabah. The federal government has largely maintained its silence on the issue, but the reality is that it may well have to engage with civil society and other opinion shapers in the near future. After all, the discussions are already taking place, especially so in cyberspace and ignoring it would only contribute to further speculation.

One of the main reasons there is growing dissatisfaction is the perception that the lucrative returns from oil and gas have not been put to their best use. Of course, it is difficult for a neutral party to conduct a fair assessment of this without sufficient information. Although some figures can be found from Petronas’ annual report and other government documents, they do not contain other information that would be crucial in determining the benefits accrued by each of the states.

Some examples are information on licences that are given out to companies (emphasis is usually placed on upstream companies, although increasingly information on downstream companies such as service providers have also been published), production data that is disaggregated by company and state, details on state-owned enterprises, as well as social and infrastructure investments.

In fact, in an international tool called the Extractive Industries Transparency Initiative (EITI), many of these are requirements that would help to clarify the benefits received by any one country resulting from its natural resources. In Malaysia’s case, this is most useful when investigating the oil and gas industry.

On that note, lDEAS had the pleasure of hosting Jonas Moberg, head of the EITI International Secretariat based in Norway, for a two-day visit in Kuala Lumpur last week. This is part of a research and awareness-building project to introduce the EITI to Malaysian stakeholders.

Several roundtable discussions were conducted with government officials, members of the media, several parliamentarians and civil society. Whilst it is positive that representatives from government agencies were present, it is too soon to tell whether or not they were receptive to using the EITI to benchmark Malaysia against.

In its simplest form, the EITI is an international standard that governments voluntarily subscribe to, in committing to a platform where an agreed-upon set of information is published transparently each year. It started out by adhering to the simple principle of “publishing what you pay”, wherein companies would publish what they pay to governments and governments would publish what they receive – and see if there are any discrepancies between the two. It has now grown to become much more than that, requiring licence information, transfers between federal and state governments, and even encourages contract transparency.

The EITI is also a very unique arrangement in that it is government-initiated, but multi-stakeholder in composition. It is required for the government to form a multi-stakeholder group with representatives from civil society, oil and gas companies, and government itself. The ownership varies from country to country, for instance the EITI secretariat in Afghanistan is parked under its Finance Ministry, whilst in Indonesia it falls under the Coordinating Ministry for Economic Affairs.

Many questions were asked throughout the various engagement sessions, chief of which was how the EITI could help to improve economic conditions, since it is just a transparency tool. And perhaps this is an argument that needs to be made about transparency itself – what is the benefit of transparency?

Transparency itself does nothing to advance the cause of reform without consequent use of such transparency. But equipped with the right information, facts and figures, citizens have the opportunity to carry out their own analysis and keeping the relevant parties on their toes. The EITI is similar in this respect, where it is useful only to the extent that an active civil society community will make use of the information to reveal discrepancies, if any, in payments made to and received by government.

More importantly perhaps is that government has an opportunity to build trust with civil society, taking the initiative in making more information available than less. This would be a timely move, seeing as there is some public distrust surrounding the financial agreements between the federal government, Petronas and the various oil-producing state governments. Educating the public with information will surely mitigate some of these misgivings.

44 countries around the world are either implementing or candidate EITI countries. In the region, this includes countries like Indonesia, Timor Leste, the Philippines and most recently, Myanmar. What is most interesting is that Petronas has agreed to be part of the Myanmar EITI multi-stakeholder group, which means that in time to come, it will have to publish how much funds it is paying to the Myanmar government. In that one step, Malaysians will also have such information available when investigating our involvement there. This applies for other EITI-implementing countries in which Petronas operates.

We are still a long way from seeing the EITI coming close to being considered for adoption in Malaysia. But it will certainly be a boost to our international reputation, since we are already well known as a country that has used our oil revenues well, relative to other “resource-curse” nations. We could do more on both counts: in being proactive to promote transparency as well as set high standards that show the international community that Petronas practices the same level of integrity, transparency and accountability as other international oil companies.