Mr. Ahmed Jehani, World Bank Country Manager in Azerbaijan Baku, 24 November, 2004 Hyatt Regency Hotel  Ladies and Gentlemen,  On behalf the World Bank, I congratulate the Government of Azerbaijan and the other stakeholders on reaching this milestone in implementing the Extractive Industries Transparency Initiative (EITI). A multi-stakeholder approach that includes civil society, companies and government.  Under EITI it is required that, a work plan with time line and budget to ensure sustainability, independent audit of payments and disclosure of revenues, publication of results in a publicly accessible manner, and that the approach covers all companies and government agencies, are the essential features. Azerbaijan is one of the countries that has made the most progress in implementing the EITI, and as such trailblazing in development of the best practice in this area.
Why is it vital to develop transparency in the exploitation of natural resources, specifically to pursue transparency of the revenues derived from the extractive industries?             Ladies and Gentlemen,  There is gathering evidence pointing to the adverse impact on societies dependent on incomes from extractive industries in several aspects briefly as follows:  Economic impacts: Links to exchange rate inflation, loss of competitiveness of other sectors, unemployment, inefficient government expenditure, corruption, and debt.  Governance impacts: Can weaken link between tax payers and government due to dominance of revenue flows from extractives sector; some potential for rent-seeking opportunities to be farmed out through networks of political patronage; unwillingness to let opposition parties flourish.  Security impacts: Conflicts driven by instability caused by price fluctuations, decline in government's accountability, and corruption, leading to secessionist pressures and extortion rackets.  The World Bank has stressed that transparency is vital for good governance, and Azerbaijan has set a good standard in the oil sector for example; the Oil Fund and the BTC agreements publication. We hope that EITI will also contribute to increased transparency in SOCAR, which all must agree is a priority. It is, without doubt, encouraging that SOCAR has, today, signed the Memorandum of Understanding (MOU) and therefore deserve a special mention. It is also important that this high standard of transparency is extended across the economy, to all areas and activities in particular the budgetary process.  We are all looking forward to building capacity in government and civil society to formulate and implement the work plan. Scrutinize, identify and secure commitment from stakeholders. Refine the work plan, repeat, and build sustainability. Review of payments made to the government by companies and of revenues received by government from those companies by a reputable third party (i.e. audit firm). Publish, in a readily accessible form, the payments made by the companies and the revenues received by government. Extension of all of the above to companies, including state owned enterprise. Active engagement of civil society in the design, the monitoring, and the implementation process. Commitment by all stakeholders to the work plan and timelines for implementation, the understandability, the relevance, the materiality, the reliability, and, the neutral party to bring together (and aggregate) company figures, including a complementary report with an opinion on the standards of the figures are indispensable to the success of this initiative.  Again, as we look forward to the publication of the figures for oil and gas revenues and payments under EITI. We must not lose sight of the fact that EITI is but one important step on the road to good governance. Transparency is important not just in accounting for revenues, but also in public expenditure, an area we are also working on with the Government.            Ladies and Gentlemen,
The World Bank is strongly committed to EITI, for which we have the UK to thank as the initiator. We work closely with DFID in all the countries that are implementing the Initiative. Our coordination with the IMF on EITI has also become very close.
One area where we hope to play a particular role in Azerbaijan and other countries, is in strengthening the ability of civil society to participate in EITI, through providing small grants from our Development Grant Facility. For example, WB has allocated about $500,000 per year for fiscal years 2005 and 2006, for providing small sub-grants to civil society organizations to help them participate in EITI - in all countries. In this regard, we have received a draft proposal from the Public Finance Monitoring Center in Baku . We are currently sorting out some procedural issues in implementing the grants, and hope to sign agreements and disburse within the next few weeks.
Thank you for giving me the opportunity to speak to you in this occasion.
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