32ND EITI BOARD MEETING
International Secretariat
LIMA, 23 FEBRUARY 2016
9 February 2016
Board paper 32-7-C
Review of EITI’s funding –
Consultation paper
Summary
The EITI faces unprecedented financial challenges due to a recent significant decline in contributors and
revenues. The Finance Committee and the Secretariat are concerned about the existing revenue shortfall
and strongly recommend that the ongoing Funding Review concludes with a new and sustainable funding
"model" for the International Secretariat. This paper contains a set of questions to form the basis for a
consultation process to inform this funding review.
The proposed questions have been updated based on feedback from working group members who briefly
consulted with some members of their (sub)constituencies.
The Funding Review Working Group recommends the new Board complete the funding review as outlined
in this paper in time for its second meeting in May/June for adoption of the new funding model shortly
afterwards.
Table of Contents
Summary ................................................................................................................................................ 1
Introduction ........................................................................................................................................... 2
1.
Implementing countries questions for the review consultation ........................................................ 5
Overview ............................................................................................................................................. 5
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
Brief comments ................................................................................................................................... 5
Questions ............................................................................................................................................ 6
Methodology ....................................................................................................................................... 7
2.
Supporting countries questions for the review consultation ............................................................ 8
2.1
Overview ............................................................................................................................................. 8
2.2
Brief comment ..................................................................................................................................... 8
2.3
Questions ............................................................................................................................................ 9
2.4 Methodology ........................................................................................................................................... 10
3.
Supporting companies questions for the review consultation ........................................................ 11
3.1
Overview ........................................................................................................................................... 11
3.2
Brief comment ................................................................................................................................... 11
In conclusion, the EITI Board might consider introducing a mandatory fee for supporting companies. In preconsultation, it appeared that the mining sub-constituency was broadly supportive of this approach. ............. 11
3.3
Questions .......................................................................................................................................... 12
3.4 Methodology ........................................................................................................................................... 12
4.
Civil society questions for the review consultation ........................................................................ 14
4.1
4.2
4.3
4.4
Overview ........................................................................................................................................... 14
Brief comment ................................................................................................................................... 14
Questions .......................................................................................................................................... 15
Methodology ..................................................................................................................................... 15
ANNEX 1 ................................................................................................................................................. 16
Introduction
The Board decided at its meeting in Kiev on 10 December 2015 to set up a working group1 to review its
funding mechanisms with the agreed Terms of Reference (attached). It was tasked to present a skeleton
report to the Board meeting in Lima.
The need for a funding review was amplified by the subsequent results of the EITI 2015 annual accounts.
These showed revenue shortfall of USD 0.7m in 2015. Although spending was stable and 13% lower than
planned, the organisation received USD 1.4m less in 2015 than it originally budgeted for and USD 0.6m less
than in 2014. Although some spending cuts will be possible, the accounts confirm that the major challenge
is on the revenue side. The Finance Committee has recommended that the EITI Board consider a no
growth scenario which involves a first step in cost reductions. The Board will have to make tough decisions
that will severely affect the core activities of the Secretariat if the revenue shortfall continues. The severe
consequences of continued shortfall have been included in an update to the new EITI Board.
There working group has looked at three key challenges of the existing funding formula:
1
The working group is made up of David Diamond, Marine de Carne de Trecesson, Nico van Dijck, Ali Idrissa, Alan McLean,
Anwar Ravat, Duncan Robertson, and Natalya Yantsen.
2
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
1. Impact: given the limit to expected revenue from companies in 2016, the current funding formula
effectively places a ceiling on its overall budget. In other words, the funding formula has become
financially unsustainable with the Secretariat's mandate.
2. Equity: in these constrained times, an increasing number of supporters – governments and
companies are not paying the advised contribution and some are not paying at all.
3. Managing uncertainty: given the voluntary nature of the contributions to the Secretariat, there is
uncertainty of both short-term and multi-year funding, making budget planning more challenging.
In summary, the current arrangements are no longer sustainable. Furthermore, the working group wishes
to explore the current practice of governance representation without taxation. The working group preconsultation puts particular emphasis on whether implementing countries and whether supporting
companies should pay a membership fee, and whether supporting countries should be required to
provide support at a minimum level.
A main aim has to be to ensure that the EITI has funding arrangements that ensure reliable income. The
current dependence on voluntary contributions from supporting countries and companies has some
considerable advantages and disadvantages. It offers supporters extensive flexibility, not only in how much
they may pay but when and how they make financial contributions and whether they for example wishes
to earmark financial support to certain aspects of the EITI’s activities. In the early years of the development
of the EITI, it offered a flexibility that allowed countries and companies to engage and express political
support while their financial support varied. Some supporters have preferred voluntary contributions as
they claim it brings significantly less bureaucracy. Amongst the disadvantages with voluntary contributions
is that it makes it difficult to plan for the EITI and it puts the Secretariat in a difficult position sometimes
having to negotiate with countries and companies about the size of their support. This has been brought
into stark light during the present fall in commodity prices and strains on aid budgets.
Voluntary contributions from both countries and companies are increasingly also resulting in lack of
fairness. Some countries and companies pay and are asked to increasingly do so, while other supporters
are not providing any funding. The number of contributors to the EITI fell from 66 in 2014 to just 50 in
2015 . The notion of association without taxation appears increasingly unfair.
It has also been suggested that the EITI should seek to build an endowment. Given the above funding
challenges, it is not clear to the Secretariat where the resources for such a fund would come from. Most of
the financial resources the EITI obtains are required to be spent during the financial year of the grant. If
the EITI is to be mainstreamed and put itself out of business over time, it would also make little sense with
a longer arrangement with an endowment.
At its meeting on 14 January, the Secretariat was asked to put together this paper for the working group to
use to consult within their own constituency before the meeting on 3 February. Comments were received
by France, Germany, and the United States (through Marine de Carne de Trecesson); Belgium, Norway,
Sweden, and United Kingdom (through Nico van Dijck); mining companies (through Duncan Robertson),
and civil society (through Ali Idrissa). Based on these pre-consultations, the working group via the
Secretariat has developed a set of questions for each constituency and sub-constituency that might be
used for a consultation to inform the design of a new funding model.
3
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
Each constituency is now asked to undertake a consultation with their (sub)constituencies.
Proposed timeline for the final review:
March – establishment of a working group of the in-coming Board to complete the consultation
of the constituencies.
April – consultation stage leading to a draft funding review paper.
May/June – presentation of funding review at Board meeting and possible adoption of a new EITI
funding model.
4
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
1. Implementing countries questions for the review consultation
Overview
Of the 49 countries implementing the EITI, a significant majority obtain support for their implementation
from outside sources, although most countries fund at least part of their implementation through the
ordinary state budget. Some 35 have a bilateral grant agreement with the World Bank. The regional
development banks - African, Asian, European Bank of Reconstruction and Development, Inter-American,
etc. - support a number of implementing countries. Even though many countries obtain external financial
support for their implementation, it has always been the intention that implementing countries
increasingly should fund implementation themselves. Under the EITI Rules, Validation had to be paid for by
the implementing countries themselves.
Except for Norway and the UK, none of the implementing countries provides funding to the EITI
International Management.
EITI implementation costs
The International EITI Secretariat has estimated that the cost of EITI implementation exceeds
USD 50 million per year. This figure is based on a survey of 43 workplans. Implementation costs
vary widely, from around USD 100k per annum in several countries, to several million dollars in
countries with more ambitious workplans. In many cases, the figures are only a rough estimate.
Workplans often include items that are not fully funded. That said, workplans often exclude
significant costs such as salaries for government staff working on EITI implementation (e.g. in
national EITI secretariats). Moreover, this estimate does not include EITI compliance costs, i.e.,
the time and costs incurred by government, industry and civil society organisations in supporting
EITI implementation.
The cost of the international management, of less than USD 6 million is relatively small
compared to the overall costs for EITI.
Brief comments
It seems reasonable that implementing countries themselves increasingly fund their own implementation.
Development assistance is almost always intended to be temporary, until countries have reached further
levels of development. There have been extensive discussions throughout the years about whether
implementing countries should pay for Validation themselves which they did until 2013. This system was
dismantled as it created a conflict of interest for the consultants to assess their client’s work. The World
Bank had initially indicated that it would be able to cover the cost of validations procured in line with Bank
procurement requirements by the International Secretariat. It seems that this will not be possible in the
long term. One subsequent suggestion has been that validators should be contracted by the Secretariat,
which in turn should charge implementing countries.
A fee for implementing countries to the international management could be considered. This fee could
either be compulsory – with some consequences for implementation if it was not paid - or voluntary and
5
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
for example strongly recommended. When the funding arrangements were agreed in 2006, which are
largely still in place, the EITI was not to the extent it is today a Standard implemented by a wide range of
countries. With growing emphasis on implementing country ownership, it appears reasonable that these
countries also increasingly pay for the EITI including its international management.
If implementing countries paid on average USD 100 000 a year, this would cover a large part of the EITI’s
funding requirements, perhaps over time including validations. There are however many issues that would
need to be considered. The paying of an annual fee is likely to strengthen implementation in some
countries and assist with embedding the EITI in government systems, as a larger number of government
officials would become acquainted with the EITI. On the other hand, a fee is likely to generate significant
questions and administration. It may be difficult for a developing country to justify payments to an
organisations headquartered in Oslo. It might create some challenges over the Board’s role in suspending
and de-listing countries. Some implementing countries may welcome a fee, whereas others are likely to
have strong reservations. It might lead to a reduction in the number of implementing countries. An
introduction of a fee for implementing countries is likely to call into question whether it continues to be
justified to have the category of “supporting countries”.
In pre-consultation, some membership fee for implementing countries was broadly supported by
supporting countries and by civil society. The latter commented that “the current approach to have as
many countries in the EITI family as possible does have an impact on quality and that this is part of the
problem - reduced resources but too much emphasis on bringing more countries in, instead of getting
those that are in up to the right standard”.
In conclusion, it reasonable that the Board discusses the possibility that implementing countries, at least to
some degree, contribute towards the international management of the EITI. If there are political and
administrative arguments against a mandatory fee, a phased approach could be considered, beginning
with a strongly recommended fee.
Questions





Under a fee-based model, what should happen to implementing countries that do not pay the
required funding within a certain year? How much grace should they be provided before losing
their status?
What should the level of fee be set at?
Should some countries be expected to pay more than others or should membership fees be flat? If
they are at different levels, should this be based on their population, their wealth, the size of their
extractives industry, or their status within the EITI? How might low income and fragile and conflictaffected countries be considered?
In the case of supporting countries which are also implementing countries, should some kind of
“waiver system” be introduced?
Should greater contributions be related to greater influence within the constituency? If so, how
might this be reflected – Board seats, shareholding, etc.?
6
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper


Should implementing country support be earmarked, perhaps for technical assistance, validation,
or some core support?
How can the long term funding of Validation be assured? Whilst the Board is considering costeffective methods for Validation, it will still be a significant additional cost to the Secretariat which
is not assured in the long term.
Methodology
Who to be consulted? Clearly all implementing countries should be consulted.
How to be consulted? Whilst a handful of direct conversations using the implementing countries internal
coordination body, might be useful, it might be more efficient for stakeholders to be invited to contribute
to on-line questionnaire. Implementing countries should also be represented in the incoming working
group and will, of course, be on the Board.
7
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
2. Supporting countries questions for the review consultation
2.1
Overview
17 countries have expressed support for the EITI. Of these, 10 provided financial support in 2015: Australia,
Canada, Denmark, France, Germany, the Netherlands, Norway, Sweden, Switzerland and the United
Kingdom. Australia, Denmark, Norway, Sweden and the United Kingdom have provided USD 250,000 or
more in one or several years, which is the recommended level of support. Two of those countries – Norway
and the UK – are implementing countries as well.
Most of these countries have also provided support in the past for the World Bank’s EITI Multi-Donor Trust
Fund and are considering support to the World Bank’s Extractive Governance Programme Support (EGPS)
facility. The focus of the World Bank’s funding was on EITI national implementation rather than the
international funding. EGPS donors have indicated that they do not wish for international activities to be
funded through the facility, not least because of the World Bank administrative fee. In theory, this means
that funding that was previously channelled through the World Bank should now be available to the EITI
international management. Nonetheless, in pre-consultation, most countries felt that contributions to the
EGPS should be considered as ‘support’ of the EITI at the international level.
The USD 250k requested contribution has not changed since the establishment of the EITI budget in 2008.
This was established at the time by the Secretariat as a calculation required to fulfil the funding formula.
In the meantime, the number of implementing countries has increased fivefold. In addition, their
contribution to the World Bank to support activities such as validation, training and the Global Conference,
is likely to drop significantly, yet are essential to EITI having an impact.
In 2009 the OECD Development Assistance Committee considered that financial support to the EITI
International Management in its entirety is to be considered Overseas Development Assistance. This is
significant for a number of supporting countries.
In pre-consultation, Norway and the UK explicitly supported contributions from supporting countries
becoming mandatory. Belgium believed that more thinking should be put into a system that combines
voluntary contributions for specific purposes and (systematic) contributions through/from the EGPS.
That sub-sub-constituency also noted that should contributions from supporting countries becoming
mandatory, a flat minimum contribution would probably be easiest to manage. A graduated membership
system was probably too complicated. France, Germany and the US emphasised the need to keep it
voluntary and that recommended contributions should take in GDP and budget constraints, etc.
They added that supporting and implementing countries should not pay twice.
2.2
Brief comment
The current arrangements with voluntary contributions are increasingly leading to uneven levels of
funding, with some providing significant funds with others not providing any financial resources. While in
the early days of the EITI voluntary contributions may have been important to widen the group of
8
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
supporting countries, this may no longer be as relevant. Several supporting countries are Board members
or alternate members. This illustrates that the EITI grants representation without taxation.
It is possible that a membership fee may hinder access to financial contributions from some governments.
Membership fees can confer legislative and contractual obligations on them and on the EITI that may be
best avoided. A way of getting around this might be that the funding review looks at whether noncontributing countries can be considered as supporters.
There is, of course, the question of whether implementing countries should be required to pay a fee. This
decision has knock on effects for the definition of a supporting country.
In conclusion, it would seem timely for the Board to consider whether it makes sense that countries can be
considered supporters of the EITI without providing financial support.
2.3






Questions
Should contributions become mandatory for supporting countries? What are the pros and cons of a
fee-based membership model compared to a voluntary contribution model? Under a fee-based
model, what should happen to supporters who do not pay the required funding within a certain
year? How much grace should they be provided before losing their supporting status?
Should some kind of graduated membership system be considered with more rights for something
called perhaps ‘supporting partners’ vis-à-vis ‘supporters’? Should greater contributions be related
to greater influence within their own constituencies? If so, how might this be reflected – Board
seats, shareholding, etc?
Should the level of contributions from countries be based on factors other than the indicated USD
250,000 as today? These might include size of development budget, focus of development
programme, whether they support in-country EITI activities, etc. Given that this requested amount
has not changed since 2008, should the level change? Should a minimum ‘entry’ fee be considered
as with the EGPS? Should contributions to the EGPS or bilateral support to in-country activities be
taken into account?
Should a supporting country not be required to pay a fee separate from that of whether they also
implement?
How can project-specific funding for activities beyond the core budget that often ensure impact be
better assured (e.g. training, publications, Conference, etc.)? Now that most donors have indicated
that they would prefer to fund the EITI directly rather than through the World Bank mechanism,
how can those funds be best accessed – annual donor pledging sessions, etc? Should training be
considered to be core, rather than project-specific, funding?
How can the long term funding of validation be assured? Whilst the Board is considering costeffective methods for validation, it will still be a significant additional cost to the Secretariat which
is not assured in the long term. Should validation be considered to be core rather than projectspecific, funding?
9
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
2.4 Methodology
It would be welcome if this consultation was used as an opportunity to make supporting countries reflect
on the value of the EITI. The EITI can be proud of its record of impact for relatively low investment. The
2016 Progress Report will be an important document to evidence this.
Who to be consulted? Again, it seems sensible in this limited field that all supporting countries are
consulted.
How to be consulted? Whilst a handful of direct conversations amongst supporting countries might again
be useful, it might be more efficient for consultations to be invited contribute to on-line questions to key
contact points. Supporting countries should also be represented in the incoming working group and will,
of course, be on the Board.
10
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
3. Supporting companies questions for the review consultation
3.1
Overview
The EITI has 87 supporting companies. Of these, in 2015 21 pay the recommended amount, 33 (including
ICMM’s 21 members) paid less than the recommended amount and 33 paid nothing. For 2014 the
corresponding numbers were 90, 39 paid the recommended amount, 29 (including ICMM’s members) paid
less than the recommended amount and 22 paid nothing.
Of the 95 institutional investors, only 3 contributed in 2015 (5 in 2014) and they did so with a total of USD
7,500.
3.2
Brief comment
It is becoming increasingly hard to manage voluntary funding from the companies. Low commodity prices
have contributed to this. A consequence, as with the supporting countries, is that some pay, others less
and some not at all. The revenue sharing burden is not fair.
It is also somewhat unusual to have an organisation that has ‘supporters’ where the ‘supporters’ are not
required to make a financial contribution. There is an increasing concern about some supporting
companies not paying the expected contribution. The Governance Committee has for a long time been
discussing whether there can be any approval mechanism for EITI supporting companies.
The Secretariat has compared the current requested contributions of USD 60,000 for large companies and
less for smaller ones with fees and contributions to other organisations. Given the slightly unique character
of the EITI, being a Standard implemented by governments and supported by companies, it appears
difficult to make such comparisons.
The UN Global Compact relies largely on support from donor countries, but welcomes voluntary
contributions, which are often less than USD 50,000. Business for Social Responsibility, a non-profit
membership organisation promoting responsible business practices, relies on corporate funding and
charges USD 36,000 for large companies and less for smaller companies. BSR charges quite significantly for
tailored services and, for example, attendance at its conference. ICMM also relies on corporate funding
and charges its members on average USD 430,000 per year. Most other membership organisations, such as
the American Petroleum Institute, charge significantly higher fees.
In pre-consultation, civil society expressed concerns about companies “funding the EITI especially those
that do not practice what they preach”. It noted that some of these companies get free PR for a relatively
small donation (or in the case of 33 companies no donation) and “yet do not actually fulfil some of the EITI
requirements or encouraged issues such as BO - despite declaring publicly that they were in favour of
beneficial ownership transparency. We also think we should look closely again at the criteria for sign-up”.
In conclusion, the EITI Board might consider introducing a mandatory fee for supporting companies. In preconsultation, it appeared that the mining sub-constituency was broadly supportive of this approach.
With the exception of the Board member and his alternate, it has been difficult for the organisation to
reach out to the institutional investor community. It may be timely to consider if the EITI should not have
11
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
a wider approach to non-extracting companies. This group could include not only institutional investors,
but also banks lending to extracting companies, auditing firms, rating agencies, insurance companies and
reinsurance syndicates and commodity trading companies.
3.3







Questions
Should contributions become mandatory for supporting companies? What are the pros and cons of
a fee-based membership model compared to a voluntary contribution model? Under a fee-based
model, what should happen to supporters who do not pay the required funding within a certain
year? How much grace should they be provided before losing their supporting status?
Should some kind of graduated membership system be considered with more rights for something
called perhaps ‘supporting partners’ vis-à-vis ‘supporters’? Should greater contributions be related
to greater influence within their own constituencies? If so, how might this be reflected – Board
seats, shareholding, etc?
Should the level of contributions from companies be based on market capitalization as today? If so,
should the level of contributions in each market cap bracket be changed from today’s USD 20,000;
USD 40,000 and USD 60,0002? Should the market cap brackets be changed? How do we handle
companies that choose to contribute USD 10,000? What about those companies with no or underrepresentative market cap (e.g. privately owned or state-owned)?
What other considerations should be considered for establishing supporting companies’
contributions egg. the number of countries in which they operate, whether or not they are or wish
to be eligible for Board representation, sales, profits, number of employees, etc.
Should there be conditions for grouped contributions, such as those provided by ICMM (eg.
discount on a per company basis, in exchange for a commitment of x years of funding)? What is the
effective value to the EITI of these grouped contributions as a supporting channel?
Should the EITI seek funding from other organisations – non-extractive companies, foundations,
etc, even if this has previously not been successful? And if so, how would they be represented in
the governance of the process?
Should supporting companies pay for validation as, according to civil society, there would be less
potential for conflict of interest?
3.4 Methodology
Restating the value of EITI? Seeking guidance from companies, individually and as industry, on the value of
their participation in global EITI – as a good business strategy; as effective CSR and as a valuable
contribution to a global public good The 2016 Progress Report will be an important document to evidence
this.
2
• Market capitalisation above US $10bn: $60,000
• Market capitalisation between US $5bn and $10bn: $40,000
• Market capitalisation below US $5bn: $20,000
12
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
Who to be consulted? It will be challenging to obtain inputs from all 87+95 supporting countries and
investors that should be consulted. Furthermore, any survey needs to be framed in such a way that EITI
does not look desperate. . The working group may wish to seek a balance between key players and
contributors, and those who do not make contributions or little contributions. It is essential that those
stakeholders who make small contributions and who are not close to the process do not come away from
the discussion thinking that the EITI is just about raising money, is in dire straits, and has little impact, but
focus on the value of the EITI. Clearly a discussion with ICMM would be essential.
How to be consulted? A handful of direct conversations and group meetings might be useful with this
group. An online survey would need to be carefully framed but could be considered. The working group
concludes that this is best undertaken by peers i.e. supporting companies and institutional investors.
Since there are so many variables and many of the stakeholders are somewhat detached from the details,
with this group it might be best to present these options as a series of scenarios. These might include the
following:



Keep to present advised contributions of USD 20/40/60k for companies. The challenge here is
whether this would generate enough money.
Move to membership fees, but keep to present levels of USD 20/40/60k for companies. The
challenge here is whether this would generate enough money and whether it would lead to a fall in
number of supporters. There would also be enforcement challenges.
Move to membership fees for supporting companies and increase size of the contribution.
13
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
4. Civil society questions for the review consultation
4.1
Overview
Almost 500 civil society organisations are on the Members Association register. The PWYP coalition which
is the largest single coalition of activists that supports the EITI, has “over 800 members and currently 41
affiliated coalitions according to the 2014 governance survey. All are listed on our web site 3”. . Therefore,
whilst it is difficult to put an exact figure on the number of civil society supporters of the EITI, it is clearly
the largest of the constituencies in terms of organisations.
In the early years of the EITI the Revenue Watch Institute provided some funding to the EITI and Cordaid
provided some funding 2014. Apart from that there has been no funding from the civil society
constituency to the EITI International Management.
4.2
Brief comment
The working group considers is unlikely that civil society organisations to any great extent will provide
financial support to the EITI. All of the civil society organisations supporting the EITI, rely themselves on
conditional grants from bilateral donors and private foundations. If for example the Norwegian
government wishes to support the EITI financially, which it does, it may not be reasonable to also channel
financial support to the EITI via NORAD and PWYP.
It has on a number of occasions been suggested that the EITI should make a greater effort in securing
support from private foundations. It was for example mentioned in the Governance Review. It is possible
that the engagement with such funds could be strengthened. However, the Secretariat’s experience is
that private foundations are generally not inclined to give core support to an organisation like the EITI.
Several foundations appeared not inclined to support governments or an effort with such significant
corporate involvement. Many of these foundations often have quite specific areas of engagement, which
in many cases may not include governance, transparency and the fight against corruption.
In pre-consultation, civil society concluded that they should not have to pay for the right to access
information.
3
Marinke van Riet, International Director of PWYP, in an e-mail on 4 February 2016.
14
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
4.3


4.4
Questions
Should contributions become mandatory for implementing countries, supporting countries, and
supporting companies? What are the pros and cons of a fee-based membership model compared to
a voluntary contribution model?
Should civil society supporters be expected to contribute financially – individually or through a
pooled mechanism or in association with supporting foundations?
Methodology
The working group concludes that civil society input should be invited via the EITI website, through the
working group and at the Board table. Civil society members of the EITI Association should specifically be
invited to contribute.
15
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
ANNEX 1
Terms of Reference for EITI Funding Review
1
Introduction ...................................................................................................................................16
2
Purpose of the Review ...................................................................................................................16
3
Background ....................................................................................................................................17
4
The Review .....................................................................................................................................19
Introduction
Following a recommendation by the Committee to the Board in Berne in October 2015, the Committee has been
tasked to review the revenue principles and processes again. This followed a Governance review which “strongly
recommended” that the Board revisit the issue of whether funding should remain voluntary, noting that the current
status of “funding being at some undefined point between voluntary and mandatory appears to be creating tension
within EITI, not to mention it makes it very difficult to predict future income. It also poses the interesting challenge
that some organisations can commit to supporting the EITI but at the same time make no financial contribution to its
upkeep.” This proposal reflected the need to either reaffirm the funding formula or revise it. Alternatively the Board
may need to move to some sort of membership fee structure.
The EITI Board has a Finance Committee to advise the EITI Board on strategic issues relating to the financing of the
EITI International Management (Board and Secretariat). This includes advising on the securing of funding to the
levels agreed by the EITI Board when approving EITI Secretariat workplans and budgets. The Finance Committee is
tasked with reviewing the revenue and expenditure principles and processes adopted by the Board. In 2009, the
Finance Committee reviewed the EITI’s expenditure processes and in 2011 it reviewed the revenue principles and
processes of the International Management. Working on a principle of voluntary contributions has been a challenge
for budgeting. Furthermore, the organisation has faced some significant strains on the funding formula in recent
years.
Purpose of the Review
It is expected that this review will address whether the present funding principles are fit for purpose including
whether more long term funding arrangements can be achieved.
The present funding principles are given in the Background section below. Are these principles still appropriate for a
well-established and expanding organisation, should they be recast, or should the organisation move to a system of
membership fees? Working on a principle of voluntary contributions has been a challenge for budgeting. Private
sector companies are struggling with lower commodity prices while Western European countries are seeing budgets
cut due to fiscal consolidation. The amount expected from countries is expected to grow even further in 2016 as
companies continue to struggle with low commodity prices. Some companies also argue that the requested
contributions are not evenly applied e.g. ICMM members get a discount. In such circumstances, the funding formula
has proven unsustainable and the need for an alternative becomes increasingly necessary. How then can the EITI
ensure more certain predictability and security of medium to long term funding? Should the EITI consider some
16
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
system of membership fees rather than voluntary contributions? Should the EITI explore the possibility of an
endowment fund enabling regular withdrawals from the invested capital?
Increased risks and needs on the funding side include discussions around Validation models and funding challenges
for these and the inherent risks in project specific funding which is more likely to be affected by lower budgets with
donors. For example, validations costs for 2016 range from USD 1.0m to USD 2.7m depending on the model chosen.
Project specific funding fills an important role particularly on training and enables growing needs for support to
implementing country and civil society representation to the Board.
Background
Most EITI funding supports implementation in EITI countries. The total cost across almost 50 countries was
estimated to be at least USD 50m4 a year. Funding of the International Management is around 10% of that. The
funding at the international level reflects the multi-stakeholder nature of the EITI.
A core budget of about USD 5.0m a year covers the salaries and associated costs for a team of 20-25 staff, Board
meetings, travel and conference costs, consultants, and communications. The EITI International Management is
considered lean and the core budget is seen necessary to fulfil the mandate given by the Board. A funding formula
which can sustain the core budget at a viable level is required. This budget is raised from all the supporters of the
EITI according to a funding formula. The principles of the funding formula are as follows:
1. The private sector and supporting countries share the principal responsibility for the International
Management costs of the EITI with the support of civil society organisations and the host government,
Norway. The companies and supporting countries should pay the same.
2. The EITI International Management will cover the costs of validation. This was planned to be covered through
a specific grant from the World Bank administered Multi-Donor Trust Fund.
3. The Board will ensure that no single constituency or single stakeholder dominates the level of funding.
Based on these three principles, the charts below show how the costs of the EITI International Management have
been funded.
4
This figure is based on a survey of EITI workplans from 43 (of 49) countries. EITI workplans often include costed elements that
are not taken forward due to a lack of funding. However, they also often exclude some costs, particularly the salary costs of the
national secretariat. For additional information on the survey, contact Sam Bartlett [email protected].
17
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
In 2014, the EITI received funding from 65 organisations and countries. The number of supporting organisations has
grown every year. The EITI also receives a considerable number of EITI project-specific and in-kind support, such as
the funding regional training seminars for the multi-stakeholder groups and National Coordinators from
implementing countries, communications materials, and much of the preparations for the Global Conference held
every two to three years.
In-country efforts are funded from a wide range of sources, including the implementing country governments
themselves, the World Bank-administered Multi-donor Trust Fund (MDTF)5 and other multilateral agencies, and
bilateral development agencies. The World Bank will from 1 January 2016 replace the MDTF under their new multidonor administered trust fund, the Extractives Global Programmatic Support (EGPS)6. Recent concerns have been
raised by donors regarding the efficiency of funding the EITI International Management through the EGPS. The
5 The World Bank-administered Multi-donor Trust Fund for the EITI was established in 2004. Its goal of the EITI Multi-Donor
Trust Fund (EITI-MDTF) was to broaden support for the EITI principles and process in countries that have signed on to EITI
through programmes of cooperation among the government, the private sector, and civil society.
It is supported by the following governments (in order of joining): the UK, Germany, the Netherlands, Norway, France,
Australia, Belgium, Canada, Spain, the US, the European Commission, Finland, Switzerland, Denmark and Japan. A
Memorandum of Understanding was signed between the MDTF and the EITI International Secretariat in 2008 to ensure
complementarity of efforts with the MDTF mainly focused on in-country technical and financial support to on-going EITI
implementation. The Fund came to an end in December 2015.
6
The EGPS, officially launched in October 2015, is comprised of four Components to cover issues and challenges encountered
by resource-rich countries across the Extractive Industries Value Chain, including support previously provided through the
Extractive Industries Transparency Initiative Multi-Donor Trust Fund (EITI MDTF) and the Extractive Industries Technical
Advisory Facility (EI-TAF).
18
EITI Board paper 32-7-C
Review of EITI’s funding – Consultation paper
International Secretariat will therefore have to seek increased funding from the supporting countries to compensate
for the funding it was receiving for projects from the MDTF.
The Review
The review will be conducted by the Finance Committee, assisted by the Secretariat. It will be submitted to the
Board prior to a Board meeting during Q2 2016.
The Secretariat will compile and review all relevant documents.
The Committee will together with Secretariat staff interview current and previous Board members and others
involved in the funding of the EITI International Management.
The Committee will prepare a draft report to be presented to the EITI Board at its meeting in Lima in February 2016,
alongside the EITI 2015 annual accounts.
Drawing on the comments and feedback of the Board, the Committee will produce a final report. The final report
should when considering whether the funding formula is fit for purpose include but not necessarily be limited to, the
elements outlined below:
a) Executive summary (maximum 2 pages)
b) Review purpose.
c) Methodology.
d) Recommendations, in particular addressing whether the EITI should alter the current funding formula.
e) Annexes to include key documents consulted.





EITI Budgets for 2012-2016.
EITI Workplans for 2012-2016.
2011 Revenue review.
The EITI Governance review 2015
Proposals for review of validation options.
19