Transparency and sustainable development model in the Albanian Mining Sector nga Dr. Sokol Mati

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Transparency and sustainable development model in the Albanian Mining Sector

Dr. Sokol Mati1

1Board adviser at Beralh ShA; Lector at the Faculty of Geology and Mines, Polytechnic University, Tirana, Albania.

Prof. SOKOL MATI,  has a PhD degree from the Faculty “Arte Mineraria” of the University “La Sapienza” in Rome, Italy. He got the title “Professor” on 2001 for his contribution as an author and coauthor in more than 190 studies and projects realized in the field of mineral processing, recycling technologies, mineral and mines assets evaluations, mineral database and promotion, mining legislation and strategy. He is the author and coauthor of more than 65 publications in different mining literature and magazines such as “Mining Journal”, “Mineral Engineering”, etc. Currently he is working as a board adviser at BERALB-ShA Company, and is a permanent Lector at the Faculty of Geology and Mines of the Polytechnic University in Tirana, Albania.

Abstract: This article intends to emphasize the importance of transparency in mining sector, and giving ideas for a development model of the mining sector in Albania, based also on the analysis and synthesis of the data gathered from ALBEITI reports. These reports are done under the Extractive Industries Transparency Initiative (EITI[1]) to which Albania is part since 2009.

The formulation of a development model for every branch or sector of the economy requires correct and wider information, in order to include all the elements or factors that directly or indirectly affect that branch or sector of the economy: this is the concept of transparency.

The article discusses aspects of this development model in Albania and how these elements must be addressed through institutional structures of mining service and legislation in order to create a clear vision for the role of the mining industry in the future Albanian economy.

Keywords: transparency, extractive, mining, initiative policy, Albania, sustainable development model.

Introduction

The concept of transparency in the mining industry was most of time related with the information disseminated to the governmental and technical mining institutions. Thus, it was simply related to small mining sector community represented by few people involved in the leadership and planning of mining activities, or dealing directly with its development models. However, it became associated with the need to address general good governance of the sector when dealing with financial transactions, but also relationship with the environment and local population. This concept started to get a new meaning in 2009 in Albania. Information and transparency are two very important elements in developing strategies and policies for sustainable economic growth.

In a prolonged period of global sector crisis, information and transparency take an important role due to price fluctuations; global competition between ore-production countries; pressure from the public for more sustainable and fair practices ; and new behaviors from States that enact new and tighter mining regulation so as to address the public and investors demands for a better governance. In many countries, money from oil, gas and mining is associated with poverty, conflict and corruption. Commonly referred to as the “resource curse”, this is often driven by a lack of transparency and accountability around the revenues that governments are receiving from extractive industries.

In this background, the Extractive Industries Transparency Initiative (EITI) is getting an important role globally. Guided by the belief that a country’s natural resources belong to its citizens and that bad corporate practices are counterproductive, the EITI has established a global standard to promote the open and accountable management of oil, gas and mineral resources. The EITI Standard requires the disclosure of information along the extractive industry value chain, from how extraction rights are awarded, to how revenues make their way through the government, and how they benefit the public. In each of the 51 implementing countries, the EITI is officially supported by a coalition of government, companies and civil society.

This initiative is a voluntary international association of governments, extractive industry companies and civil society organizations involved in the management and use of natural resources, such as oil, gas and minerals (see www.eiti.org). EITI’s final objectives is to promote transparency in order to prevent corruption as well as provide citizens with a general standard for demanding a fair use of revenues generated by the extractive industry. Transparency is also expected to positively contribute to growth of investments in the sector.

The transparency initiative is regulated through an international standard that ensures more transparency around countries’ oil, gas and mineral resources. The EITI standard was developed and overseen by this association of governments, companies and civil society. It is based on the belief that prudent use of natural resources contributes to economic growth, sustainable development and reduction of poverty in resource-rich countries. Under this standard, companies declare what they pay and governments declare what they receive. These payments are disclosed in an annual EITI Report that shall be comprehensive and actively disclosed, to allow citizens to see for themselves how much their government is receiving from their country’s natural resources and demand for fair use of the revenue.

The EITI process for Albania : transparency and  its role in government polices

The EITI process for Albania begun when the Albanian government became a candidate country in May 15, 2009 during the 4th EITI Global Conference. The Secretariat of Extractive Industries Transparency Initiative in Albania (Albeiti, www.albeiti.org) was established in 2009 by the government of Albania with the purpose of promoting good resource governance through the implementation of the international criteria and principles of the EITI. Albania obtained the EITI compliant status in May 2013. The Albanian Multi-stakeholder Group oversees the process and is chaired by the Ministry of Infrastructure and Industry, composed of various EITI stakeholders including the Government, extractive companies, civil society, etc and supported in its work by the Albeiti. This group is the decision-making body supervising the implementation of EITI in Albania.

Albania is a country with an important mineral wealth in the Balkan region: the mining sector is significant here. It is looking at the mining industry as a major source of profit and employment for the country, along the lines of sustainable development of the economy. Chrome, copper, nickel, titanium and magnetite are some of the main riches of Albania. A country’s natural resources belong to its citizens. Citizens should have the right to see what their government is receiving from these resources. However, in too many countries this information is not publicly available, which undermines the credibility of the industry and facilitates unruly practices linked to corruption, or poor sharing of revenues with the State and the local population.

The EITI is the global standard for the good governance of oil, gas and mineral resources. There are strong indications that EITI is having a positive impact in implementing countries (Scanteam 2011; Malden 2017). It is becoming a platform and tool for governments striving to reform and modernize their governance of the mining industry. The intention of the Albanian government to proceed toward EITI was to promote transparency and good management of natural resources wealth for the sustainable development of extractive industries in Albania. Effective and transparent management of natural resource wealth could help public debate and inform choice of appropriate and realistic options for the exploitation of natural resources, and guarantee a sustainable development. The respect for laws and transparency by the government and extractive companies should foster investments in this important sector of the Albanian economy.

Transparency, civil society and public debate

In the frame of the EITI process, the civil society must be actively engaged as a participant in the design, monitoring and evaluation of this process, and contributes towards public debate. The active participation of civil society in the EITI process is key to ensure that the EITI leads to greater accountability. For this process to be properly implemented, the government must publicize the transparency process and must respect a minimum of freedom of speech, as in repressive environments, transparency can be little more than an empty gesture (Aaronson 2011; Human Rights Watch 2013; Sequiera et al 2016). A public understanding of government revenues and expenditure over time can help public debate and inform choice of appropriate and realistic options for sustainable development. A review and an assessment of the impact of the EITI process in-country to date, shows that now due to pressure of the civil society in the EITI reports, public information on how many permits are given (fig. 5) is now available. The data includes information on the issuing of permits, what companies pays for environmental rehabilitation, where the permits are located in the country, etc. Civil groups are very active in the mining areas, such as Bulqiza, Southeast and Northeast of Albania, which are well known for their mining activities in metals as well as in the Fieri area where is mainly the oil production. Civil society, through NGOs, associations and local groups, during different public debates, repeatedly asked for open data in EITI Implementation, demanded the publication of contracts, with the government still replying this is restricted by a confidentiality clause that prevents these documents from being published. By the 2016 EITI standards, this process needs to be implemented in order to remain a compliant country.

Transparency and its role in company activities

From the beginning of the EITI initiative, the engagement of mining companies has been quite effective with regard to relevant laws, regulations, and administrative rules. It is in their very interest that they improve their social image. This process opened the road for the Corporate Social Responsibility (CSR) concept where companies integrate social and environmental concerns in their business operations and in their interaction with stakeholders on a voluntary basis. Corporate responsibility is the basis on which business renegotiates and realigns the boundaries of its accountability. In this framework, companies pledge they will embrace, support and enact a set of core values in the areas of human rights, labor standards, environmental sustainability and anti-corruption. The companies have different motives for practicing EITI and CSR behavior (Jenkins and Yakovleva 2006; Raufflet et al 2014). This process helps them to be visible to the community on what they pay to the government. In the Bulqiza area for instance, the companies, which have been more active with EITI as well as with CSR activities, are welcomed from the people. The industry largely recognizes that for-profit entities do not exist in a vacuum and that a large part of their success comes as much from actions that are congruent with societal values, as from the company’s competitiveness (Kemp 2009). Corporate social responsibility produces benefits for both sides. CSR strategy is focused on the international extractive sector, that why both EITI and CSR policy are becoming part of the company activities in the extractive industries.

The mining industry in the Albanian economy

Since Albania is candidate to the EITI, an independent consultant based on information gathered from companies and state institutions prepare annual reconciliation reports, giving data on mining sector’s performance and making transparent the activity in this branch of the economy. These reports provide information on the payments that mining companies make to the State, and declarations of what is received from financial State institutions, with reconciliation of these payments – making sure declarations do match. Over the years, reporting provided more information with the improvement of EITI’s standards. This information included mineral reserves, extractive industry revenue, applied legislation, production, mining rights (permits or contracts) granted for the exploitation of minerals, oil, gas and energy. Recently, data regarding the ownership of companies that own the exploitation rights for extractions of natural resources was also included.

By analyzing these reports, we see that this industry experienced a severe decline over the past years. Fig. 7 shows that in 1989 the revenue from the extractive industry in value was 12 times more that in 2017.

The share of this industry in the gross domestic product (GDP) was calculated in EITI reports since 2009 to 2016. The figures underline the very small share of the mining industry now in the Albanian economy, a value of less than 2% of GDP (Fig. 8). This is related to the new economic development directions of the country, the diversification of the economy and the regime change in 1991. Before 1990, the share of the mining sector was about 33-35 % of GDP.

It is true that this branch of the economy is not of priority interest, nor a strategic direction in Albania’s economic development, a point that still needs to be debated. It appears extractive industries are recovering following their collapse after 1993, an evolution apparent in Fig. 9. This industry has now more influence on the Albanian economy, especially in exports. Products from extractive industries represent a significant share of total exports (Fig. 10), as they represent about 60 to 80% of all exports of Albania. Besides, the industry is a source of employment for regions where other industries or activities are inexistent.

Transparency in the mining sector in Albania

The formulation of a development model for every branch or sector of the economy requires correct and substantial information, in order to include all the elements or factors that directly or indirectly affect that branch or sector of the economy. Field specialists shall implement the evaluation, synthesis and conclusions from this information up to the formulation of a sustainable development model. It should then be discussed between stakeholders and representatives of the general public to take into account the ideas and contributions of everyone, making the chosen model to be appropriate for a sustainable development. Divergent opinions about the proper model of development are a challenge to manage. Indeed, the mining industry is partly responsible for this situation but also had to face severe challenges during the economic transition after 1991, with a political system change, economic crises, liquidity shortages, large population movements, shifting global market situation, and political influence.

Transparency on information and decision-making with open public debate, are two very important elements in the formulation of development policies for a sustainable economic growth in every sector of the economy. Gaps in the implementation of a few steps in the process make applicable policies for the development of the sector to go wrong. Sustainable development strategies and policies that are developed for the implementation of these strategies, require fast and pragmatic decisions to face global challenges.

The information in the mining sector before 1990 was nominal information that was collected by each mining enterprise, and was credible and processed by professionals. The technical analysis was realistic, but the conclusions or recommendations that were done on these analyses for decision-making or policy development were largely based on party politics and most of the times were debatable. As such, this information was not transparent for the public, since there was no public debate allowed in this regime. This fact precluded the opportunity to identify the optimal path, and the professionals were not involved in policy making but simply in the rigorous implementation. This inefficient system caused incalculable damage in the domestic economy.

For the mining sector, discussion between stakeholder groups started and became institutionalized through the Extractive Industries Transparency Initiative (EITI). Under this process, the discussion of the legislative package of the sector, mining strategy, promotion strategy and other important documents were approved during the period 2009-2011 for the implementation of the reforms of the mining sector of Albania.

However, despite this progress, more efforts are still needed to achieve an effective debate between groups of interests, the State, companies and civil society. These stakeholders officially now jointly run this process based on the new EITI standards. The creation of this opportunity led to discussions on new development models of the Albanian mining sector. Information presented in the annual reports is today available to the public by ALBEITI, the Albanian Secretariat of EITI. This is a significant incentive for an improved governance of the sector. Despite these improvements, the standards required by EITI regarding the declaration of terms and ownership of rights granted to the exploitation of raw materials in the extractive industries have shown that in many cases, especially in countries with weak institutions and poor governance, terms may be too favorable to the mining companies.

Because the profitability of a mining project varies over time and the projections of these terms in the contracts provisions do not clearly address these cases nor the ability of the State to intervene, there were several cases of unfair distribution of profits between the State and companies operating in the extractive industries. Companies took advantage of fluctuations in revenue to reduce their payments to the State.

The transfer of the ownership of rights granted to exploit natural resources is defined in the specific legislation of the sector, but it is often merged with the legislation of the trading activity and needs to be clarified to avoid gaps or overlapping in laws. Because this ownership is passed to the companies (sometimes offshore), that rarely meet the criteria of refraining from developing the activity in the extractive industry by corruptive actions, it is argued that citizens should have the right to know the terms, conditions and ownership of these contracts. Moreover, actions taken by extractives industries should be transparent to the public. This would ensure that elements of confidentiality and competitiveness aren’t violated and that they can be part of the discussion on the development model of the extractive industries sector. In this way, interest groups and public will have the opportunity to comment and propose ideas about the directions this sector should be heading to.

The transparency in the framework’s initiative of the mining sector through the disclosing of tax payments, contracts and companies ownership is an essential element. It reflects the economic importance of the industrial extractive sector, the visibility of the contribution it gives to the creation of added value to the economy and the effect on the economic well-being of citizens. Including more elements of evaluation in the reporting every year through the EITI procedure is giving the opportunity to involve more experts, the civil society and interest groups to express ideas for the development of the extractive industry.

This industry is acting in a global market; the assistance that EITI is giving has increased the global interest in transparency in natural resources and the related financial sector for many reasons, as well as opportunities to:

  • design and implement development models that will enable civil society and companies to face the challenges of the global mining industry;
  • contribute to the reduction of market governance risks in countries with underdeveloped democracies, mitigating or eliminating conflicts between manufacturing and processing countries and drafting agreements on mutual benefit for both parties;
  • promote at the same time a dialogue between producers and beneficiaries of mining products;
  • ensure good governance in natural resources management.

EITI, by providing transparency and information, ensures that the data is understood and debated appropriately, leading to the improvement of the ability to monitor contractual obligations, more reliable forecast of future companies income, and better assessments in the environmental and social implications for affected communities. When there are justified concerns that sensitive commercial data is contained in a contract and that contract transparency potentially damages commercial competition, the problem can be solved by editing or partial publication to avoid compromising confidentiality, competitiveness or profitability of an extractive industry activity. However, transparency is beneficial to both, public and companies, as it informs the public about financial contributions of companies toward the State and communities, the level of damage they cause to the environment ; the idea being that the process should give more leverage for communities to evaluate companies.

This new debate increased the public’s demand for more transparency on declared profits or incentives that companies benefit from in granted rights for the exploitation of raw materials. This indeed needs more transparency, it is a problem that has often become part of the debate even within the EITI Secretariat regarding the confidential elements of contracts or permits connected with commercial confidentiality and competitiveness.

Sustainable development model for the mining sector in Albania

In theory, transparency should help design a winning sustainable development model that will help businesses by creating well-paid jobs across the country. It is based on the idea that a new approach is needed on how government and business can work together in partnership to address problems, in a fair and predictable business environment, given the revenues but also the impacts the mining industry can generate.

The core principle of sustainable development is to improve human well-being and to sustain those improvements over time. Sustainable development includes economic prosperity, environmental health, and social equity for the present generation and equal opportunities for future generations. The sustainable development in Albanian mining policy is addressed in legislation, policies, programs and action plans balanced on three pillars: investment development; rational use of natural resources, which must remain friendly to the environment; certification of community. The development model for the mining sector needs to create an appropriate business climate for attracting domestic and foreign investment, through law enforcement and institutional strengthening. Mining companies must achieve the transparency goal, but a strict and clear legal framework definitely helps.

Conversely, the government shall improve the business climate, by realizing indicative planning as a basis of sustainability, with a view to increasing the share of the extractive industries in GDP and making this industry an engine of economic development for Albania. The government also needs to invest in professional and technical training, and to improve infrastructure.

As it is in the sector’s own interest, this development model shall gear the sector towards:

  • promoting prospecting-exploration activity in new standards;
  • promotion and support of processing activities up to final products with higher value in the country and increased employment;
  • rational and safe exploitation of mineral resources while respecting the environment;
  • encouragement and support of businesses that develop new technologies, automation, optimization of mining and treatment processes with minimal impact on the environment;
  • mining planning with new territorial planning concepts, comparative activities, effectiveness and productivity;
  • promoting the participation of new experts in the sector and the qualification and re-qualification of existing ones;
  • increasing the transparency of the sector in all aspects of its activity, such as generated revenues and their distributions, the mineral rights granted, the conditions of the mining permits and their ownership, etc.

What effectiveness of this initiative can be assessed? Today, as an effect of improving transparency in the sector, companies increasingly agree to disclose their contracts and to provide a dialogue space where citizens; companies and governmental institutions can share experiences and lessons learned. By helping these actors share potential concerns and benefits, discuss possible approaches or ways of sustainable development, these company initiatives could help restore trust from the public. True, in some cases, there are difficult debates, but these are better than deadlocks where distrust potentially leads to disagreement and violence due to a lack of transparency.

The model has to include strategies and policies that can make mining companies able to face these global challenges. The Albanian mining policy needs to take into consideration global trends in the sector, but also, the European Union’s policies and strategies as well as the mining policies in other Balkan countries. The economic importance of extractive industries requires a new approach in policies to balance mining activities with environmental and social issues.

Conclusion

For the sake of the sustainable development of the mining industry, the development model that the EITI initiative promotes should be articulated along these objectives:

  • Develop a dynamic growth and sustainable development of the mining sector based on short, mid and long term environment-friendly objectives, certified by the local community for a maximum profit for Albanian citizens;
  • Guarantee an efficient and professional mining structure, good governance and professional mining institutions;
  • Be prepared for the transformation and restructuring of the industry;
  • Promote the need for transparency towards the public on decision-making;
  • Coordinate and cooperate with the Mining Programs of the country;
  • Encourage investment in high technology, and in the local transformation of minerals for higher added value;
  • Assert that the State is the inalienable owner of mineral resources;
  • Fight poverty especially in rural areas, and increase employment;
  • Improve the financial balance of the country through the development of exports;
  • Increase revenues of the local communities through royalties and other investments;
  • Fight corruption

Footnotes

[1] EITI is a formal institution based in Norway that aims to set a global standard for the good governance of oil, gas and mineral resources. It is a multi-stakeholder coalition of governments, companies, investors, civil society groups, and partner organisations that wish to develop quality standards for the mining industry.

References

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