The Board agreed that São Tomé and Príncipe has made meaningful progress overall in implementing the 2016 EITI Standard.

Outcome of the Validation of São Tomé and Príncipe.

Decision reference: 2017-11 / BM-36
Decision basis: 2016 EITI Standard, Requirement 8.3 EITI Validation deadlines and consequences

8 March 2017

Board decision

The Board came to the following decision regarding São Tomé and Príncipe's status:

The Board agrees that São Tomé and Príncipe has made meaningful progress overall in implementing the 2016 EITI Standard. The Board’s determination of São Tomé and Príncipe’s progress with the EITI’s requirements is outlined in the assessment card, below.

The EITI Board agreed that São Tomé and Príncipe had not made satisfactory progress on requirements 1.4, 1.5, 2.2, 2.3, 3.1, 4.6 4.9, 6.1, 7.3 and 7.4. The major areas of concern relate to MSG governance (#1.4), work plan (#1.5), license allocation (#2.2), license register (#2.3)), exploration data (#3.1), direct sub-national payments (#4.6), data quality (#4.9), mandatory social expenditures (#6.1.a), follow-up on recommendations (#7.3), outcomes and impact (#7.4).

Accordingly, the EITI Board agreed that São Tomé and Principe will need to take corrective actions outlined below. Progress with the corrective actions will be assessed in a second validation commencing on 8 March 2018. Failure to achieve meaningful progress with considerable improvements across several individual requirements in the second Validation will result in suspension in accordance with the EITI Standard. In accordance with the EITI Standard, the São Tomé and Príncipe Extractive Industries National Stakeholder Group may request an extension of this timeframe, or request that Validation commences earlier than scheduled.

The Board’s decision followed a Validation that commenced on 1 July 2016. In accordance with the 2016 EITI Standard, an initial assessment was undertaken by the International Secretariat. The findings were reviewed an Independent Validator, who submitted a Validation Report to the EITI Board. The São Tomé and Príncipe Extractive Industries National Stakeholder Group was invited to comment on the findings throughout the process. The national secretariat’s comments on the report were taken into consideration. The final decision was taken by the EITI Board.

Corrective actions and strategic recommendations

The EITI Board agreed the following corrective actions to be undertaken by São Tomé and Príncipe. Progress in addressing these corrective actions will be assessed in a second Validation commencing on 8 March 2018:

In accordance with Requirement 1.4.a, the government should ensure that all constituencies are adequately represented in the MSG. Requirement 1.4.b.i further requires that members of the MSG have the capacity to carry out their duties. MSG members should ensure that they are able to perform their duties in accordance with their own Terms of Reference. In accordance with Requirement 1.4b.vi, the MSG should agree and publish its procedures for nominating and changing representatives. This should include ensuring that there is a process for changing group members that respects the principles set out in Requirement 1.4.a.
In accordance with Requirement 1.5, the MSG is required to maintain a current work plan, fully costed and aligned with the reporting and Validation deadlines established by the EITI Board. The work plan must set implementation objectives that are linked to the EITI principles and reflect national priorities for the extractive industries (Requirement 1.5a) and assess and outline plans to address any potential capacity constraints in government agencies, companies and civil society that may be an obstacle to effective EITI implementation (Requirement 1.5.c.i). It should also address the scope of EITI Reporting, including plans for addressing technical aspects of reporting such as comprehensiveness and data reliability (1.5.c.ii). It is also required that the work plan identify and outline plans to address any potential legal or regulatory obstacles to EITI implementation, including any plans to incorporate the EITI Requirements within national legislation or regulation. (Requirement 1.5.c.iii). Lastly, it should outline the MSG’s plans for implementing the recommendations from Validation and EITI Reporting (Requirement 1.5.c.iv).
In accordance with Requirement 2.2, São Tomé and Príncipe is required to disclose the (i) the technical and financial criteria used in awarding licenses, (ii) information about the recipient(s) of the license that has been transferred or awarded, including consortium members where applicable, and (iii) any non-trivial deviations from the applicable legal and regulatory framework governing license transfers and awards related to the award or transfer of licenses pertaining to the companies covered in the EITI Report during the accounting period covered by the EITI Report.
In accordance with Requirement 2.3.b, São Tomé and Príncipe is required to maintain a publically available register or cadastre system(s) with the following timely and comprehensive information regarding each of the licenses pertaining to companies covered in the EITI Report: (i) license holder(s), (ii) where collated, coordinates of the license area, (ii) date of application, date of award and duration of the license, (iv) in the case of production licenses, the commodity being produced. Any significant legal or practical barriers preventing such comprehensive disclosure should be documented and explained in the EITI Report, including an account of government plans for seeking to overcome such barriers and the anticipated timescale for achieving them.
In accordance with Requirement 3.1, the EITI Report must provide an overview of the extractive industries, including any significant exploration activities.
In accordance with Requirement 4.6, the MSG should establish whether direct payments, within the scope of the agreed benefit streams, from companies to subnational government entities are material. Where material, the MSG is required to ensure that company payments to subnational government entities and the receipt of these payments are disclosed and reconciled in the EITI Report.
In accordance with Requirement 4.9.a, the EITI requires an assessment of whether the payments and revenues are subject to credible, independent audit, applying international auditing standards. The MSG should comply with the following:
1. Payments and revenues should be reconciled by a credible, independent administrator, applying international auditing standards, and with publication of the administrator’s opinion regarding the reconciliation including discrepancies, should any be identified (#4.9b)
2. The reconciliation of company payments and government revenues must be undertaken by an Independent Administrator applying international professional standards (#4.9.b.i)
In accordance with Requirement 6.1.a, São Tomé and Príncipe must disclose and, where possible, reconcile social expenditures. Where such benefits are provided in-kind, it is required that São Tomé and Príncipe disclose the nature and the deemed value of the in kind transaction. Where the beneficiary of the mandated social expenditure is a third party, i.e. not a government agency, it is required that the name and function of the beneficiary be disclosed. Where reconciliation is not feasible, the MSG should provide unilateral company and/or government disclosures of these transactions.
In accordance with Requirement 7.3, the MSG is required to take steps to act upon lessons learnt; to identify, investigate and address the causes of any discrepancies; and to consider the recommendations resulting from EITI reporting.
In accordance with Requirement 7.4, the annual activity reports (APR) should be made publically available, and include an overview of their responses to and progress made in addressing the recommendations from reconciliation and Validation in accordance with Requirement 7.3.i. Where the government or MSG has decided not to implement a recommendation, it is required that the MSG documents the rationale in the annual progress report. The APR should also include an assessment of progress with achieving the objectives set out in its work plan, including the impact and outcomes of the stated objectives (Requirement 7.4.a.iv).

The MSG is encouraged to consider the other recommendations in the Validator’s Report and the International Secretariat’s initial assessment, and to document the MSG’s responses to these recommendations in the next annual progress report.

Background

São Tomé and Príncipe (STP) became an EITI candidate in 2008, with the broad objectives of enabling transparency in the oil sector and creating a friendly business environment. The São Tomé and Príncipe Extractive Industries National Stakeholder Group was formed to serve as the multi-stakeholder group (MSG). STP was delisted in 2010 after its request for voluntary suspension was rejected by the EITI Board due to the lack of reporting on activities in the JDA. The country’s candidacy was reinstated upon its re-application in 2012, after which it produced in 2014 its first EITI Report covering 2003–2013, followed in 2015 by its most recent report covering 2014. The EITI Board also approved in 2015 STP’s adapted implementation request—applicable to STP’s 2015 and 2016 EITI Reports—to address reporting challenges with respect to the Joint Development Zone (JDZ) managed with Nigeria.

The Validation process commenced on 1 July 2016. In accordance with the Validation procedures, an initial assessment was prepared by the International Secretariat. The MSG were invited to comment. Comments were received from the MSG. The assessment was then reviewed by the Independent Validator, who prepared the Validation Report. The MSG were invited to comment on the Report. No comments were received to the Validation Report.

The Validation Committee reviewed the case on 15 February 2017. Based on the findings above, the Validation Committee agreed to recommend the assessment card and corrective actions outlined below. As per Requirement 8.3.c. this includes a requirement that the MSG agrees and discloses a time-bound action plans for addressing weaknesses in data reliability within 3 months.

The Committee also agreed to recommend an overall assessment of “meaningful progress” in implementing the 2016 EITI Standard. Requirement 8.3. of the EITI Standard states that:

a(ii). Overall assessments. Pursuant to the Validation Process, the EITI Board will make an assessment of overall compliance with all requirements in the EITI Standard.

…

c(iv). Meaningful progress. The country will be considered an EITI candidate and requested to undertake corrective actions until the second Validation.

The Validation Committee agreed to recommend a period of 12 months to undertake the corrective actions. This recommendation takes into account that the extractive sector is small, and seeks to align the Validation deadline with the deadline for the next (2015) EITI Report.

Assessment of EITI requirements

Not met
Partly met
Mostly met
Fully met
Exceeded

Scorecard by requirement View more	Assessment View more
Overall Progress
MSG oversight
1.1Government engagement
The government is fully, actively and effectively engaged in the design, implementation, monitoring and evaluation of the EITI process. Government representatives are taking part in outreach and efforts to promote public debate. While there has been continued and consistent support expressed by the government, challenges remain with respect to obtaining data on the Joint Development Zone with Nigeria from the Joint Development Authorities.
1.2Company engagement
Companies with presence in the country are actively and effectively engaged in the EITI process. There has been a positive step to expand company representation on the multi-stakeholder group (MSG), but there are also limitations in engaging any companies within the Joint Development Zone. Companies can also be more proactive particularly in outreach and information dissemination for their constituency and with other stakeholder groups.
1.3Civil society engagement
The active involvement of some civil society organisations in São Tomé and Princípe EITI demonstrates that civil society are fully, actively and effectively engaged in the design, implementation, monitoring and evaluation of the EITI process. There is however a continuing need for greater capacity and knowledge regarding the oil sector and transparency, as well as financial resources to support their operations.
1.4MSG governance
The multi-stakeholder group (MSG) meets regularly and has adequate representation of each of the stakeholder groups, although there is a need for stronger industry representation. The consistency of MSG meetings has recently improved, although these were sporadically held prior to 2015. Minutes of certain critical MSG discussions have not been captured and at times neither MSG discussions nor resulting decisions are properly documented. A review of the Terms of Reference has commenced and as part of this process the multi-stakeholder group is reconsidering the number of participants from each constituency, the requirement that MSG members liaise with their constituencies and any capacity constraints MSG members face in fulfilling their responsibilities.
1.5Work plan
The 2016 work plan objectives reflect national priorities for the sector as well as findings and recommendations from EITI reporting. It was however not made publicly available in a timely manner. While there has been a documented effort to make clearer links between the work plan objectives and the government’s priorities for the extractive sector, the links between these objectives and the planned activities could be made stronger. The work plan might benefit from broader consultations with stakeholders.
Licenses and contracts
2.2License allocations
For the 2014 EITI Report, there is adequate coverage of the award of licenses in the Exclusive Economic Zone. There was no reporting from companies in the Joint Development Zone. While there do not appear to have been any licenses awarded in the Joint Development Zone in 2014, there is a lack of information related to licences awarded in the zone for the period 2003-2013 report. These issues are highlighted in the 2014 EITI Report recommendations. The 2014 EITI Report does not indicate any deviations from the legal and regulatory framework in the allocation or transfer of licenses, and the procedure for transferring licenses is not described.
2.3License register
The 2014 EITI Report includes details on the licenses held in the Exclusive Economic Zone including date of award, duration of license and license size/area. Date of application is not included. There is limited public information available on the licenses within the Joint Development Zone and is not fully disclosed in the EITI Reports in accordance with EITI Requirement 2.3.
2.4Policy on contract disclosure
The 2014 EITI Report describes the government’s policy on contract disclosure, actual practice and how the public can access petroleum contracts at the Records and Public Information Office. The report also documents the policy and practice for disclosure of the Joint Development Zone contracts and recommends that the policy should be followed.
2.1Legal framework
The 2014 EITI Report contains an overview of the legal framework and fiscal regime governing the extractive sector.
2.5Beneficial ownership	Not assessed
The multi-stakeholder group has initiated discussions related to disclosure of beneficial owners of companies operating in both the J Joint Development Zone and the Exclusive Economic Zone, and is considering to request beneficial ownership information in forthcoming EITI Reports. Disclosure of beneficial ownership is also an objective in the 2016 work plan.
2.6State participation
The 2014 EITI Report describes the participation of the government in production sharing agreements in the Exclusive Economic Zone and details this block-by block. The report explains that holdings are monitored by the National Petroleum Agency and sets out the terms of state participation. Until production, the company covers all costs. Accordingly, to date, state participation has not led to any revenues or costs.
Monitoring production
3.1Exploration data
The 2014 EITI Report provides a detailed overview of the extractive industries and activities in the Exclusive Economic Zone including exploration. An overview of the Joint Development Zone is also included, but information on exploration activities is lacking in the 2014 EITI Report and for prior years.
3.2Production data	Not applicable
There is no production in the Exclusive Economic Zone and the Joint Development Zone. The requirement on production data is therefore not applicable to São Tomé and Princípe.
3.3Export data	Not applicable
There being no production, there are no exports from the Exclusive Economic Zone or the Joint Development Zone. The requirement on export data is therefore not applicable to São Tomé and Princípe.
Revenue collection
4.3Barter agreements	Not applicable
There is no evidence suggesting that infrastructure provisions and barter arrangements exist. The requirement on infrastructure provisions and barter arrangements is therefore not applicable to São Tomé and Princípe.
4.6Direct subnational payments
There are no provisions on direct subnational payments and no indication that extractive companies make payments to sub-national levels of government. The requirement on subnational direct payments is therefore not applicable to São Tomé and Principe.
4.7Disaggregation
The 2014 EITI Report presents revenue data by individual company and revenue stream, and revenue is also presented by individual government entity.
4.9Data quality
The EITI Report appears to be of high quality, but closer adherence to the EITI’s Requirements is needed. The report does not include a clear indication of whether all companies and government entities within the agreed scope of the EITI reporting process provided the requested information. There is no discussion of any gaps or weaknesses in reporting to the Independent Administrator, including naming any entities that failed to comply with the agreed procedures.
4.1Comprehensiveness
The multi-stakeholder group has agreed a clear definition of materiality and materiality thresholds for company and government reporting, and the rationale is documented. Revenue flows are mapped out and all payments by companies (and receipts by government) from the Exclusive Economic Zone are included in the report and there were no financial flows from the Joint Development Zone in 2014.
4.2In-kind revenues	Not applicable
There is no production and thus no in-kind revenue collected by the government. The requirement on in-kind revenues is therefore not applicable to São Tomé and Princípe.
4.4Transportation revenues	Not applicable
There is no indication that revenues from the transportation of commodities would constitute one of the largest revenue streams. The requirement on transportation revenue is not applicable to São Tomé and Princípe.
4.5SOE transactions	Not applicable
There is no extractive sector state-owned enterprise in São Tomé and Princípe. The requirement on transactions between state-owned enterprises and government is therefore not applicable.
4.8Data timeliness
The 2014 EITI Report was published in October 2015, less than one year after the end of the financial year.
Revenue allocation
5.1Distribution of revenues
The 2014 EITI Report discloses how revenues are allocated and describes fees that are not recorded in the budget.
5.2Subnational transfers	Not applicable
Sub-national transfers are disclosed in the 2014 EITI Report. The legal provision related to subnational transfers of oil revenues is referenced, and the revenue sharing formula explained. There is no explanation for how the revenues are shared among the municipalities. Discrepancies between calculated and actual transfers are disclosed. Subnational transfers since the establishment of the Exclusive Economic Zone are reported by year, as absolute figures, share of the state budget and share of oil revenues.
5.3Revenue management and expenditures	Not assessed
The report describes all income to the National Oil Account from the Joint Development Authority and companies in the Exclusive Economic Zone and transfers to the treasury since 2005, and reconciles the transfers from the Central Bank (National Oil Account) to the treasury for 2003-14. The report also documents whether transfers were in line with the law. The report also includes the annual budgets of the Joint Development Authority for 2003-2014, and the contributions to the budget made by companies and governments.
Socio-economic contribution
6.1Mandatory social expenditures
Contracts for research and exploration in the Exclusive Economic Zone include provisions for mandatory social contributions, mostly in-kind as direct project contributions or training scholarships. A description of the management of social payments, overview of cash flows and the agencies involved is provided. Mandatory payments are disclosed, with nature and value disclosed for in-kind payments. Payments for training to the National Petroleum Agency and the government are disclosed, but there is little information on how parts of these are spent. This is highlighted as a gap and recommendations are provided.
6.2Quasi-fiscal expenditures	Not applicable
There is no extractive sector state-owned enterprise in São Tomé and Princípe. The requirement on quasi-fiscal expenditures by state-owned enterprises is therefore not applicable.
6.3Economic contribution
The 2014 EITI Report includes, in absolute and relative terms, the contribution of the extractive industries to government revenue, exports and employment. GDP and other general information on the economy are presented in the report, but the contribution of the oil sector is not mentioned. With no production this is likely to be negligible.
Outcomes and impact
7.2Data accessibility	Not assessed
EITI data is accessible, machine-readable and actively disseminated, both in print and summarised formats. There is no reference to national revenue classification systems or international standards in the EITI Reports.
7.4Outcomes and impact of implementation
The MSG has approved an Annual Progress Report for 2015 which meets the requirements with regards to content. This was however not made publicly available in a timely manner. The Annual Progress Report requires broader consultative efforts and should demonstrate stakeholder consensus, and can be used more effectively to assess outcomes and impacts of EITI implementation.
7.1Public debate
The MSG has sought to ensure the EITI Reports are comprehensible, written in a clear style and actively promoted. The reports include information of national relevance that goes beyond the EITI Requirements and provides facts for public debate on the management of oil revenue, social projects and the management of the Joint Development Zone. Media references to the findings of the EITI Reports have been relatively few but have clearly resulted from outreach activities by São Tomé and Princípe EITI.
7.3Follow up on recommendations
Recommendations of EITI Reports are to some extent followed up on and addressed by the multi-stakeholder group, by for instance including specific objectives related to these in the work plan. A more concerted effort is however need to document and follow up recommendations from the EITI reporting process.