State ownership

State-owned enterprises (SOEs) are most common in the oil and gas sectors and they may own and operate projects, either outright or through joint ventures. State equity is used by many countries to secure additional government take (beyond tax revenue) from extractive projects. Countries must report on SOE payments according to Requirements 3.6 a. and c., 3.11 c., 4.1 c. and 4.2 c. Here you can find the guidance note, providing a step-by-step approach to MSGs for reporting on state participation in the extractive industries, and examples from countries.

Requirement 3.6

3.6 Where state participation in the extractive industries gives rise to material revenue payments, the EITI Report must include:

  1. An explanation of the prevailing rules and practices regarding the financial relationship between the government and state owned enterprises (SOEs), e.g. the rules and practices governing transfers of funds between the SOE(s) and the state, retained earnings, reinvestment and third-party financing.
  2. Disclosures from SOE(s) on their quasi-fiscal expenditures such as payments for social services, public infrastructure, fuel subsidies and national debt servicing. The multi-stakeholder group is required to develop a reporting process with a view to achieving a level of transparency commensurate with other payments and revenue streams, and should include SOE subsidiaries and joint ventures.
  3. Disclosures from the government and SOE(s) of their level of beneficial ownership in mining, oil and gas companies operating within the country’s ’s oil, gas and mining sector, including those held by SOE subsidiaries and joint ventures, and any changes in the level of ownership during the reporting period. This information should include details regarding the terms attached to their equity stake, including their level of responsibility to cover expenses at various phases of the project cycle, e.g. full-paid equity, free equity, carried interest. Where there have been changes in the level of government and SOE(s) ownership during the EITI reporting period, the government and SOE(s) are expected to disclose the terms of the transaction, including details regarding valuation and revenues. Where the government and SOE(s) have provided loans or loan guarantees to mining, oil and gas companies operating within the country, details on these transactions should be disclosed in the EITI Report.
Guidance note on SOE participation in EITI Reporting

Example

Extent of SOE participation - Ghana reporting on changes in ownership
Ghana’s Public Interest and Accountability Committee (PIAC) produces annual reports on the management of Ghana’s petroleum revenues. The reports notes changes in ownership structures where the government has a participating interest and consequences in terms of Ghana’s oil entitlements (table I). It also provides details about carried and participating interest (table 2), as well as transfers from the government to GNPC, the SOE (table 10).

Example

Extent of SOE participation - Kazakhstan shows ownership held by Kazatomprom NAC in extractive companies

Example

Addressing the role of SOEs in Albania
Reporting on payments by oil and gas companies to SOEs, and payments by SOEs to other government entities.

Figure 2 – Revenue flows covered in Albania’2 2010 EITI Report
Figure 3 – Reconciliation of transactions between private oil and gas companies and Albpetrol, and reconciliation of transactions between Albetrol and other government entities.

Example

Addressing the role of SOEs in Norway
Norway: Reporting on transfers between SOEs and government entities

The Norwegian government has large holdings in oil and gas licences on Norway’s continental shelf. The government participates in Norway’s petroleum sector directly as an investor through an arrangement called the State’s Direct Financial Interest (SDFI), which currently includes interests in 158 licenses. Through SDFI, the state owns a share of the oil and gas fields, pipelines and onshore constructions. As an owner, the state covers its part of the investments and expenses, and receives a share of the revenue from the license permits. The state owned company Petoro manages the SDFI arrangements.

Statoil markets and sells the Norwegian state’s share of oil and gas production from SDFI. The Central Bank of Norway receives, on behalf of the state, all cash flows from SDFI including cash flows generated from the sales and marketing of the state’s share of oil and gas production managed by Statoil.

Figure 4 below illustrates the revenue flows between Petoro, Statoil and the Central Bank of Norway. For the purpose of Norway’s EITI reporting, Petoro reports all payments made to the state in relation to SDFI. Statoil reports all payments made to the state as a result of their role relating to the sale and marketing of the state’s share of oil and gas production. Petoro’s net payments to the Central Bank include revenues from marketing and sale of petroleum, tariff revenues and other revenues minus cash outflows from operating costs and capital expenditures. Cash outflows from the Central Bank include field costs and investment related to SDFI and payments from the state to Statoil for transportation, purchase of gas, etc. related to the sales and marketing of the state’s petroleum. Transfers to the Government Pension Fund Global are also disclosed. Detailed reconciliation is available in Norway’s 2012 EITI Report.

Figure 4 – Revenue flows from Norway’s petroleum sector

Example

Reporting procedure for the sale of the state’s share of production in Iraq
Iraq: Volumes sold and revenue received from the sale of the state’s share of production or other revenues collected in kind.

Iraq is the only implementing country that reconciles payments made by companies that buy oil and revenues received by the government from the sale of the government’s oil in the EITI report (see figure 5). The report also includes a reconciliation of volumes sold as well as a description of the sale process, and average monthly prices and export quantities for the four main buying markets: North America, Europe, Asia and the special bilateral deal with Jordan.

Figure 5 – Reconciliation of payments and revenues from the sale of oil in Iraq

Example

Case Study on SOE - Ghana
3. Case study: Ghana

Ghana’s 2010-2011 Oil & Gas EITI Report describes the role, mandate, funding and the investment structure of the Ghana National Petroleum Corporation (GNPC). Additionally, the report shows that the Government of Ghana has equity participation of 13.64% in the Jubilee field project through the SOE. GNPC made a settlement payment of US$ 132.48 million for its share of Jubilee proceeds. The report indicates that GNPC will transfer the income received from all the revenue streams, in accordance with Section 6 of Act 815. Further, it explains that for the 2011 exercise the state through the Parliament allocated 47% of the total Government oil receipts to GNPC. As a consequence, the balance of the transfers that were due to be received by the Petroleum Holding Fund was reduced (Ghana 2010-2011 EITI Oil & Gas EITI Report, page 35.). Additional information is available in the 2010-2011 Oil & Gas EITI Report.

The Ghana National Petroleum Corporation (GNPC) was responsible for collecting revenues in-kind the following revenue streams: royalties, carried interest and additional participating interests for the fiscal year 2011. GNPC is also mandated to monetize this income, in other words to convert these barrels of oil in cash. The Ghana 2011 Oil & Gas EITI Report discloses the revenues collected in-kind by the GNPC and the equivalent monetary value for each revenue stream.

To reconcile these in-kind payments with the monetary value disaggregated by revenue stream (see table 7.4), the EITI Report includes explanations for how the values were calculated.

  1. Table 6.6 offers an estimated calculation of the government receipts for 2011.
  2. Table 7.1 reconciles the amounts of barrels of oil lifted by the oil companies on behalf of GNPC and the records from the Ghana Revenue Authority in 2011.
  3. Table 7.4 reconciles the proceeds of GNPC for selling the barrels of oil lifted and the Government’s receipts.

To provide complete disclosure, the report provides information on the exchange rates (figure 6.1), references to the oil price (figure 6.2) and information on the transactions showing the amounts received in US dollars, the exchange rates applied for converting the values to Ghanaian Cedi, and eventual discrepancies caused by currency conversion (see Table 6.5).

Figure 4 – Monetary value of revenues per revenue stream
Source: Ghana 2010-2011 Oil & Gas EITI Report, page 26
Figure 5 – Reconciliation of oil liftings
Source: Ghana 2010-2011 Oil & Gas EITI Report, page 26.
Figure 6 – Reconciliation of in-kind and in cash payments
Source: Ghana 2010-2011 Oil & Gas EITI Report, page 29.
Figure 7 – Oil price and exchange rate
Source: Ghana 2010-2011 Oil & Gas EITI Report, page 22.
Figure 8 – Monetary values and exchange rate impact

Ghana's 2010 EITI Mining Report also includes details on the government’s share in mining operations. According to the report, Ghana retains a 10% non-contributing shareholding in every mining lease holder.

The government’s percentage holding (10%) may be altered in circumstances where special agreements exist. The Government’s share of dividends when declared by the companies is collected by the Non-Tax Revenue Unit of the Ministry of Finance and Economic Planning.

The table below shows the government’s shareholding in the mining companies participating in the 2010 EITI Report.

According to the report, the government received dividends from four companies in 2010- Anglogold Ashanti, Ghana Manganese Co. Ltd; Gold Fields Tarkwa and Abosso Goldfields Ltd.

The table below show the total dividends paid and received in 2010. According to the report, the discrepancy related to dividends was mainly due to the fact that Government/Non Tax Revenue Unit’s reported receipt of dividends from Abosso Goldfields Ltd which was not corroborated by the company.

Validation of this provision

As per the Standard Terms of Reference for Validators,

  • The validator is expected to document whether there are any state-owned enterprises engaged in the extractive sector, and if so, whether the prevailing rules and practices regarding the financial relationship between the government and state-owned enterprises have been disclosed (3.6.a). This could include rules and practices governing transfers of funds between the SOE(s) and the state, retained earnings, reinvestment and third-party financing.
  • The validator is expected to document whether the government and SOE(s) have disclosed their level of ownership in mining, oil and gas companies operating within the country’s oil, gas and mining sector, including those held by SOE subsidiaries and joint ventures, and any changes in the level of ownership during the reporting period in accordance with provision 3.6.c. Where changes to ownership have occurred, the validator is expected to confirm whether the terms of the transactions have been disclosed and the reasons for any gaps in disclosure. Reporting on changes to ownership is expected, but not required and should not be considered in assessing for compliance with the EITI Standard. Where information about changes to ownership is not disclosed, the validator is expected to evaluate whether the MSG has documented and explained the barriers to provision of this information and any government plans to overcome these barriers.
  • The validator is expected to document whether details about any loans or loan guarantees to mining, oil and gas companies

Value Chain

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