Using the EITI to Attract Investment

Before oil and gas investors decide to bankroll projects in a country they usually take a piercing look at the prospective country’s fiscal terms, general taxation regime, cost of regulatory compliance, political stability as well as existing initiatives to promote transparency and sound corporate governance. For countries seeking to woo investors, participating in the Extractive Industries Transparency Initiative (EITI) can send a positive signal. Trinidad and Tobago recently attained EITI Compliant Country status and has demonstrated its commitment to resource revenue transparency. For the very first time all citizens, or potential investors, can review revenues paid by each of the major oil and gas companies to Government as well as actual Government receipts of these payments. If there is any variance between the two figures our EITI report will give reasons for the discrepancy. The report is a powerful tool and EITI participation in general is an important indicator for us, especially as it relates to gauging where we rank in global benchmarking surveys and how we position our country against our regional and global competitors.

For instance, in the 2013 Resource Governance Index (RGI), Trinidad and Tobago ranked 10th out of 58 countries (see box). The RGI measures the quality of governance in oil, gas and mining economies, focusing on resource revenue disclosure, transparency, accountability and economic stewardship. The index pays particular attention to the enabling environment, whether a country’s laws and institutional arrangements facilitate transparency and if there are mechanisms in place to guard against conflicts of interest and corruption. Trinidad and Tobago was ranked fourth in the Latin American region and it is important to note that the 2013 RGI country report recommended that the country prioritize gaining EITI Compliant Country status. Given the country’s current status coupled with corruption scandals at Brazil’s Petrobras it will be interesting to see how we fare in next year’s RGI.

Figure 1: Where Does Trinidad and Tobago Rank in the Resource Governance Index?

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Box: How Does Trinidad and Tobago Perform in the Resource Governance Index?

Ranked 10th out of 58 countries – Score 74/100

Institutional and Legal Setting (Rank: 23rd Score: 64/100)

Reporting Practices (Rank: 5th Score: 83/100)

Safeguards and Quality Controls (Rank: 5th Score: 86/100)

Enabling Environment (Rank: 19th Score: 52/100)

State-owned companies (Rank: 17th/45 Score: 66/100)

Natural Resource Fund (Rank: 2nd/23 Score: 98/100)

Another bench-marking survey used to gauge a country’s attractiveness is the Fraser Institute’s Global Petroleum Survey. In the 2014 survey, 710 respondents, mostly senior managers in upstream companies rated 156 jurisdictions, identifying the countries and regions with the greatest barriers to investment in oil and gas exploration. T&T ranked 44th and respondents rated whether indicators such as our fiscal terms, taxation, regulatory enforcement and cost of regulatory compliance encouraged or deterred investment.

The Commercial Environment Index ranks jurisdictions on five factors (fiscal terms; taxation; trade barriers; quality of infrastructure; labour availability and skills) that affect cash flow and the cost of undertaking exploration and development activities. It is calculated by averaging the negative scores for each of these factors. A high index value means that respondents consider these factors significant barriers to investments. In our analysis we compared this country to regional competitors (Colombia, Guyana and Venezuela) and countries in the early stages of developing their oil and gas acreage (Ghana and Tanzania). In 2014, Trinidad and Tobago was given a Commercial Environment Index score of 35.38. Figure 2 below shows how this compares to our competitors.

Figure 2:  Commercial Environment Index 2014

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Among the other factors measured in the survey is the cost of regulatory compliance – the time required for project applications to be approved. When regulatory compliance cost is high, economic and social benefits are foregone.  In 2014, as shown in Figure 3, Trinidad and Tobago’s score on this factor was 26, which compares well against the other countries shown, and is a significant improvement from its 2013 score of 97 (higher score means the factor is considered a greater barrier to investment). In 2014, respondents also gave Trinidad and Tobago a score of 21 when comparing the level of uncertainty regarding the administration, interpretation, stability or enforcement of existing regulations.

Figure 3: Cost of Regulatory Compliance 2014

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Conclusion

Despite Trinidad and Tobago’s favourable rankings on the survey, more investors look at not only a country’s performance on fiscal terms, regulatory compliance and general taxation indices, but also whether the country displays commitment to sound governance and transparency. The EITI is one way to demonstrate your country’s commitment to transparency and sends the right message to investors. Gaining EITI Compliant Country status is definitely beneficial to the country’s brand, however, it is important to sound a note of caution. If a country misses its reporting deadlines and fails to adhere to the guiding EITI Standard, suspension from the EITI is a reality and can stunt the progress achieved. The EITI is about long term reform. Incorporating the initiative into our laws, policies and operating processes is key and we can only maintain momentum if the public, civil society, Industry, Government and Parliamentarians continue to support the initiative.