19 Oct INTERVIEW- With the Head of the EITI National Secretariat Mr. Tërpo
Extractive Industries Transparency Initiative (EITI): Albania’s standard towards the transformation the oil and gas industry
The oil and mineral industry is one of the most important sectors of the Albanian Economy. It is one of the leading exports and among the most important employers in the country. One of the most important developments for the industry in recent years is the Extractive Industries Transparency Initiative (EITI).
To better understand the importance of this initiative for the oil and mineral industry in Albania, Europa Magazine has interviewed Mr. Genci Tërpo, the head of EITI in Albania.
Mr. Tërpo how would you describe to the general public where exactly the work of the Extractive Industries Transparency Initiative for Albania consists of?
The Extractive Industries Transparency Initiative (EITI) is an international initiative institutionalized in September 2020, with the strong efforts and lobbying from Mr. Tony Blair, first launched at the World Summit for Sustainable Development in Johannesburg since he was the Prime Minister of Great Britain.
The EITI initiative arose as a concern for the economically poor countries but having large underground resources. This concern has always conceded with the fact that most of the countries which are rich in natural resources were characterized by ongoing problems in terms of economic and social development. In this context, the question is: where do all these material goods coming from the extractive industry go, as long as the economy of these countries remains low?
In the year 2003, in London, at the first international conference of EITI with the participation of 140 delegates representative from the civil society and companies operating underground assets were drafted the 12 principles of EITI on which this initiative would operate to increase transparency on the payments and revenues coming from the extractive industry.
On this basis was created the global initiative EITI, which had two main goals. One of which related to the fact if it is possible to control the incomes coming from the extractive industry and underground assets? And secondly: Do all the incomes go to benefit the community and the development of the country, or do they simply end up in the hands of corrupt governments and companies?
The EITI initiative asked the governments to make transparency in the way they use and distribute the incomes generated from the use of these underground assets, owned by the public.
In March 2005, in London was held the second conference of EITI, where there were approved 12 principals drafted in the first conference of 2003 and moreover were approved 6 main criteria that had to be met, by the countries, to be a member of Extractive Industries Transparency Initiative (EITI).
Then, in October 2006 in Oslo was held the third international conference of Extractive Industries Transparency Initiative. There was created the Board with participants from the civil society and companies, as well as the independent EITI Secretariat, which is headquartered in Oslo, Norway. In March 2011, at the fifth conference of the Extractive Industries Transparency Initiative, a set of 23 criteria was approved now known as EITI rules.
Albanian has joined the initiative EITI after going through a process in several stages starting from the singing of the agreement with the government, drafting a work plan that sets out the objectives and the reason why this country has an interest in becoming an EITI member, creating a group with the participants of the civil society, government mechanism and companies operating in the field of extractive industry (MSG) and the establishment of the local EITI secretariat.
Then moved from a candidate country where it has expressed its willingness to respect all the standards set by EITI and then is accepted by the international EITI board. This journey concluded with Albanian’s membership in the EITI on 2 May 2013 which was formalized after the process of monitoring and meeting EITI requirements.
The Albanian EITI Secretariat was established by the decision of the Council of Ministers on 07.07.2010. Also, by order of the Prime Minister, on 21.07.2011 was established the interinstitutional working group, with the participation of the civil, companies operating in the extractive industry and government. The interinstitutional workgroup is chaired by the Minister of Energy and Industry, in charge of implementing and supervising this initiative in Albania.
In Aprile 2011, Albania published its first report on payments in the extractive industry for the fiscal year 2009. The report shows there are insignificant discrepancies between the company payments and state declared revenues. In August 2011 the validation report on the implementation of EITI in Albania was published.
In June 2012 Albania prepared the second payment report for the fiscal year 2010. With the membership of the country in EITI, the DCM of the Secretariat was changed: DCM no.993 dated 09.12.15 on the organization and functioning on the National Secretariat of Extractive Industry Initiative (EITI Albania), in the context of the membership in the international organization EITI International.
Compliance with the EITI standards means that the country has an effective process for annual declaration and reconciliation of all revenues coming from the extractive industry. This process allows citizens to see how much revenue their country receives from oil gas and mining companies.
Within 2014 Albania published two EITI reports. Further, on December 23, 2015, Albania published the EITI Report for two fiscal years 2012 and 2014, in accordance with the EITI Standards and where for the first time the Hydropower Sector was included. On February first, 2017 Albania published the report for the fiscal year 2015 in accordance with the new EITI standards.
During 2017, Albania went through the International Validation process by the Oslo-based EITI International Board for the implementation and performance of the EITI Standards. In February 2018, EITI Board came out with the official decision that Albania has made a significant process on the implementation of the EITI Standard.
The official validation process states that Albania in 55% of the Chapters has a very satisfactory performance (which includes government engagement, business engagement, legal framework, contribution to the economy, public debate, etc) in almost more than 45% of the Chapters there is a significant performance (MSG leadership, civil society engagement) and only 5% are assessed as insufficient or no progress.
In February 15, 2018, The National EITI Secretariat published the EITI report for 2016, and soon, at the end of October 2020, the report for 2017 and 2018 in accordance with the new EITI Standard 2019 will be published.
This year, 2020 is characterized by the situation of the Covid-19 virus pandemic bringing surprises and new ways of carrying out activities and for the international organization EITI and in parallel for the Secretariat of the Extractive Industries Transparency Initiative in Albania. Taking into consideration the difficulties that are faced globally in the context of obtaining the reports and the validation process, International EITI has accorded to postpone deadlines for the submission and publication of EITI Reports.
What does EITI aim to achieve?
EITI aims to develop and implement an efficient mechanism to make an efficient declaration of the incomes coming from the usage of natural resources through the extractive industry and the publication of this data in an understandable format for the general public and the monitoring of them in order to access the public to take more information regarding revenues as well as public expenditure, thus contributing in a public debate and creating a mechanism for the right administration of the revenues and the benefit of the public.
EITI as a permanent institution has an international board, which consists of three main groups, civil society, companies, and state institutions. EITI standard means establishing business transparency in the extractive industry so that the income from this business can contribute more to the development of the country.
In order to be transparent, EITI monitors the revenues of the companies operating in the extractive sector, as well as the payments that these companies make to the state institutions, which are considered revenues for the state, through an annual report, prepared by an independent administrator. The annual EITI report is public.
The EITI principles are made on the belief that the prudent use of natural resources contributes to economic growth, sustainable development, and poverty reduction in countries rich in natural resources. The EITI aims to promote transparency to prevent corruption as well as provide citizens a base for demanding the fair usage of revenues. Also, this transparency is expected to contribute positively to the ground investments in this sector.
The EITI has a flexible methodology that ensures a consistent global standard for all countries. The EITI rules set out the methodology that the countries should follow to be a member of EITI. The main rule of EITI is open cooperation between the government, civil society, and the companies in the extractive industry. The basic standard of EITI is the regular publications of payments that gas, oil, and mining companies make to the state as well as the publication of all the revenues that the government takes from these companies.
More specifically, what benefits come from the EITI?
EITI as an international standard has accompanied the improvement of the investment climate in every country that is implemented. The transparency clearly assures investors and financial institutions that the government and the country guarantee optimal conditions in doing business. EITI standards convey economic and political stability and at the same time provide good governance and accountability.
Companies that invest have fewer political risks and minimize the threats avoiding and preventing a crash in the extractive industry sector.
Companies through making public and transparent investments in the extractive industry and the contribution of the payments made to the state offer a clearer view of the evidence that especially these payments and investments are legible and tangible to the country they are applied to.
This contribution is necessary and the importance of transparent expanded and certified information according to the EITI standard in the public sphere provides conditions for responsible government.
Also, in terms of research and project development, this information mostly helps civil society which has the control and development mechanism to convey good practice and suggestions to the state as well as the business actors in the field of transparency in the extractive industry.
Mr.Tërpo, what impact had the pandemic of Covid-19 for the extractive industry in Albania?
The Covid-19 virus has had a global impact on the economy and no doubt this is also reflected in the extractive industry in the world. At the same time, Albania as a country affected by the pandemic of Covid-19 was affected in terms of economic development. The necessary and effective measures taken by the Albanian government in the fight against Covid-19 were the result of international protocols of WHO, which gave priority to life protections. On the other hand, as in any country of the world, the temporary closure stopped or reduced the level of production by companies operating in the extractive industry. I want to emphasize that the extractive industry (oil and minerals) contributes about 2.5% to the Gross Domestic Product, being the largest of all other industries in the country.
The oil and refining industry found itself in a very difficult situation, perhaps the most difficult in its history since 1929 when it began to extract from the Albanian subsoil. The price fall in the international markets and filling of the deposits due to the slowdown of the consumption worldwide, has forced the companies to cease their activities. The closure of the activities is related to the fall in the oil prices at the stock exchange that reached high levels of losses globally.
The extractive industry, specifically oil extraction was paralyzed for a short period of time, due to the declaration force majeure by a refinery in Spain that bought a large part of the oil produced by Bankers Petroleum.
The companies of the extractive industry, with the reopening of several months, are trying to catch the rhythm before the pandemic, which over time will significantly and positively affect the economy of our country, given the situation that will coincide with the fight against COVID-19.
How has ALBEITI performed in the situation of COVID-19?
EITI in Albania in the situation of COVID-19 has strictly implemented care and safety protocols approved by the state instances in order to guarantee at the same time the accomplishment of its duties.
Of course that, the coming period with the closure of the activities in the extractive industry, made it difficult for the raptors of transparency for the year 2017-2018, but we have tried our best to gain a significant level of reporting in order to respect the deadlines of the validation process during 2021.
On the other hand, ALBEITI has accurately implemented the work plan for 2020 completing all the procedures for starting this year’s projects. We are currently in the phase of their implementation which will meet the objectives set to us before this year.
In your opinion, what is the impact that the gas and oil industry has in Albania?
It has a huge impact on the country’s economy. The revenues coming from the oil and gas industry in Albania have a visible and positive impact on economic and social development.
Albania is known as one of the richest countries in Europe in the hydrocarbon reserves on the continental shelf with reserves of up to 220 million barrels and 5.7 billion cubic meters of natural gas.
According to the Albania Energy Association (AEA), Albania is estimated to have oil reserves of up to 277 million barrels. The Patos-Marinëz-Kolonjë oil field is known as the largest oil field in continental Europe.
Several agreements have been signed for the exploration of oil and gas with production sharing (MNP), of some companies engaged in the extraction of crude oil in the southern part of Albania and some others very serious companies engaged in the exploration activities.
The total investment in oil and gas exploration is in recent years estimated to be over 1.25 billion euros. In this context, this has brought further encouragement of the foreign investors to consider Albania as a strategic place to invest their capitals, automatically following the increase of jobs in Albania and other investments in different areas.
What is the importance of the Tap pipeline in Albania?
TAP will transport natural gas from the Shah Deniz II field in Azerbaijan to European markets. The TAP pipeline will indisputably access the gas supply for several places in Southeast Europe, in addition to Albania, Bosnia and Herzegovina, Bulgaria, Montenegro, Croatia, etc.
The exit of TAP in Italy, the third-largest market in Europe, creates further opportunities for the transportation of natural gas from the Caspian region to some of the biggest European markets such as Italy, Germany, France, Switzerland, Austria, and the United Kingdom.
Successful implementation of these projects affects directly the absorption of foreign investors to invest in Albania.
TAP is the largest direct foreign investment in Albania and has strategic importance for Southeast Europe, especially for Albania. Tap has seated Albania on the energetic map. The International Monetary Fund has described Tap as an opportunity to diversify energy sources and also increase industrial production in Albania, reducing energy costs and supporting local business.
The implementation of the TAP Pipeline projects will indisputably encourage other investments in the country while promoting stability. This will contribute to the country’s trade and physical integration in Europe.
Tap will contribute to the development of energetic infrastructure in Albania and is currently working with Albanian institutions, the Ministry of Infrastructure and Energy, the Ministry of Economy and Finance, and Albgaz to prepare the development of the Albanian gas market according to the Mater Gas Plan.
Also, Tap helps and creates conditions in achieving the government’s goals to make our country an important hub in Southeast Europe for gas distribution. Tap will contribute to the Gross Domestic Product through the payment of taxes to be paid during the years of operation.
From another perspective, another important contribution of the project is decarbonization. Tap will enable the use of cleaner energy sources, thus helping to reduce carbon emissions and protect the environment. Natural gas transported and powered by Tap can contribute to the decarbonization of the economies.
On the other hand, through the development of this high potential project, social and environmental investments have been identified (ISM), which have helped in the improvement of the quality of life in the areas affected by this project.
TAP has invested in social and environmental projects worth several million euros. TAP has invested in the complete reconstruction of several schools, creating the commodities for modern learning and raising safety standards, as it has also invested in infrastructure that promotes tourism development and has supported a number of communities that have faced natural emergency situations.
It is worth noting that in terms of environmental protection, TAP has done a very good job in restoring the land to its original state for the farmers to use it again.
Furthermore, TAP has improved cadastral records in areas along the project trail, assisting more than 12,000 families in obtaining the ownership certificates. Also in terms of employment TAP gas Pipeline has played and continues to play an important role as it significantly helps Albanian service providers and their subcontractors to continue to employ more and more Albanians in this important project.