The Board agreed that Albania has made meaningful progress in implementing the 2016 EITI Standard.

Outcome of the Validation of Albania.

Decision reference: 2018-11 / BM-39
Decision basis: 2016 EITI Standard, Requirement 8.3 EITI Validation deadlines and consequences

13 February 2018

Board decision

The Board came to the following decision regarding Albania's status:

Following the conclusion of Albania’s Validation, the EITI Board decides that Albania has made meaningful progress overall in implementing the EITI Standard.

The Board congratulates the Government of Albania and Multi-Stakeholder Group (MSG) on the progress made in improving transparency and accountability in the extractive industries by using the process to address local concerns, both through active dissemination and outreach efforts and by expanding the scope of EITI reporting to the hydro-power sector. The Board encourages the government to continue the recent discussions on transparency in off-budget revenues and subnational transfers, and to improve the disclosures of transactions related to state-owned enterprises in order to address existing transparency gaps.

Eight years of the EITI implementation has led to tangible impacts through government reforms and host communities’ greater awareness of their rights. For instance, EITI reporting of delayed subnational mining revenue transfers led to legal reform and gradual clearing of arrears in transfers to local governments. The Board encourages the government and the MSG to further entrench an enabling legal environment for EITI implementation by enacting the draft Law on Transparency in the Extractive Industries, aligned with the EU Transparency Directive, and moving towards mainstreamed transparency in government and company systems.

The Board recognises Albania’s efforts to go beyond the requirements of the EITI Standard regarding expanding its scope to hydropower. The Board also takes note of the government’s efforts to increase beneficial ownership transparency by including mandatory beneficial ownership reporting for all oil, gas and mining companies in the draft Law on Transparency in the Extractive Industries. The Board encourages the government to establish a transparency and accountability framework for the Trans-Adriatic Pipeline (TAP) project.

The Board has determined that Albania will have 12 months, i.e. until 13 February 2019 before a second Validation to carry out corrective actions regarding the requirements relating to civil society governance (1.3), MSG governance (1.4), license allocations (2.2), license register (2.3), policy on contract transparency (2.4), state-participation (2.6), direct subnational payments (4.6), data quality (4.9), distribution of revenues (5.1), social expenditures (6.1), SOE quasi-fiscal expenditures (6.2) and follow up on recommendations (7.3), with social expenditures and SOE quasi-fiscal expenditures being the main areas of concern. The Board highlighted the need for the CSO constituency to be more fully, actively and effectively engaged in the EITI process. The corrective actions agreed by the Board include a requirement to develop and disclose an action plan for addressing the deficiencies in civil society company engagement documented in the initial assessment and the Validation Report within three months of the Board’s decision. 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, Albania’s MSG 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 2017. In accordance with the 2016 EITI Standard, an initial assessment was undertaken by the International Secretariat. The findings were reviewed by an Independent Validator, who submitted a draft Validation report to the MSG for comment. The MSG’s comments on the report were taken into consideration by the independent Validator in finalising the Validation report and the independent Validator responded to the MSG’s comments. 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 Albania. Progress in addressing these corrective actions will be assessed in a second Validation commencing on 13 February 2019:

In accordance with requirement 1.3.a, the civil society constituency should demonstrate that they are fully, actively and effectively engaged in the EITI process. Specifically, civil society should ensure that they are able to fully contribute and provide input to the EITI process and that they have adequate capacity to participate in the EITI. In accordance with requirement 8.3.c.i, the civil society constituency should develop and disclose an action plan for addressing the deficiencies in civil society engagement documented in the initial assessment and the Validation Report within three months of the Board’s decision, i.e. by 13 May 2018. The constituency may wish to undertake an independent review of civil society engagement in the EITI in Albania, broadening the engagement with CSOs with potential interests in EITI implementation. Undertaking a capacity needs assessment and formulating actions to address civil society capacity constraints are crucial, not least to unlock funding from development partners and other relevant parties.
In accordance with requirement 1.4.a.ii, the MSG should ensure that its procedures for nominating and changing multi-stakeholder group representatives are public and confirm the right of each stakeholder group to appoint its own representatives. To strengthen implementation, the government is encouraged to ensure that relevant state entities, such as the national oil company Albpetrol, given gaps in reporting on state participation (see Requirement 2.6), are represented on the MSG and that their level of seniority is commensurate with the need for the MSG to take informed decisions and follow up on agreed actions. In accordance with requirement 1.4.b.ii and 1.4.b.iii, the MSG should undertake effective outreach activities with civil society groups and companies, including through communication such as media, website and letters, informing stakeholders of the government’s commitment to implement the EITI, and the central role of companies and civil society. Members of the MSG should liaise with their constituency groups. In accordance with requirement 1.4.b.vi, the MSG should ensure an inclusive decision-making process throughout implementation, particularly as concerns industry and civil society. It is also recommended that the MSG reviews evaluation procedures for its members that all constituencies would agree to follow.
In accordance with requirement 2.2.a, the MSG should ensure annual disclosure of which mining, oil and gas licenses were awarded and transferred in the year(s) under review, highlighting the technical and financial requirements and any non-trivial deviations from the applicable legal and regulatory framework governing license awards and transfers.
In accordance with requirement 2.3.b, Albania should ensure that dates of application, award and expiry, commodity(ies) covered and coordinates for all oil, gas and mining licenses held by material companies are publicly available. The government is encouraged to make this information available for licenses held by all companies, regardless of their materiality.
In accordance with requirement 2.4.b, Albania is required to document in future EITI Reports the government’s policy on disclosure of contracts and licenses that govern the exploration and exploitation of oil, gas and minerals. This should include relevant legal provisions, any reforms that are planned or underway as well as an overview of contracts already published.
In accordance with requirement 2.6.a, the MSG should provide an explanation of the prevailing rules and practices related to SOEs’ retained earnings, reinvestment and third-party funding. The government should also ensure annual disclosure of any changes in government ownership in SOEs or their subsidiaries, and provide a comprehensive account of any loans or loan guarantees extended by the state or SOEs to mining, oil, and gas companies in line with requirement 2.6.b.
To strengthen implementation, the MSG is strongly encouraged to ensure that future EITI Reports include Albpetrol’s dividends to government in the scope of reconciliation, in line with requirement 4.5.
In accordance with requirement 4.6, the MSG should undertake appropriate scoping of direct subnational payments by extractive companies to LGUs, establishing a comprehensive basis for the MSG’s materiality discussions regarding direct payments to LGUs. The MSG may wish to consider a sampling approach, which would allow these payments to be investigated without creating an unreasonable reporting burden.
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. In accordance with requirement 4.9.b.iii and the standard Terms of Reference for the Independent Administrator agreed by the EITI Board, the MSG and Independent Administrator should:

Examine the audit and assurance procedures in companies and government entities participating in the EITI reporting process, and based on this examination, agree what information participating companies and government entities are required to provide to the Independent Administrator in order to assure the credibility of the data in accordance with Requirement 4.9. The Independent Administrator should exercise judgement and apply appropriate international professional standards in developing a procedure that provide a sufficient basis for a comprehensive and reliable EITI Report. The Independent Administrator should employ his/her professional judgement to determine the extent to which reliance can be placed on the existing controls and audit frameworks of the companies and governments. The Independent Administrator’s inception report should document the options considered and the rationale for the assurances to be provided.
Ensure that the Independent Administrator provides an assessment of comprehensiveness and reliability of the (financial) data presented, including an informative summary of the work performed by the Independent Administrator and the limitations of the assessment provided.
Ensure that the Independent Administrator provides an assessment of whether all companies and government entities within the agreed scope of the EITI reporting process provided the requested information. Any gaps or weaknesses in reporting to the Independent Administrator must be disclosed in the EITI Report, including naming any entities that failed to comply with the agreed procedures, and an assessment of whether this is likely to have had material impact on the comprehensiveness and reliability of the report.

In accordance with requirement 5.1.a, the MSG should ensure that the allocation of extractives revenues not recorded in the national budget are explained, with links provided to relevant financial reports as applicable. The MSG may wish to explore the extent to which it could use extractives-specific GFS classifications from its EITI summary data tables as a means of disaggregating the extractives components of common taxes in existing MoF systems.
In accordance with requirement 6.1.a, the MSG should agree a clear distinction between mandatory and voluntary social expenditures prior to data collection and ensure that material mandatory social expenditures are comprehensively disclosed in future EITI Reports. Where beneficiaries of mandatory social expenditures are a third party, i.e. not a government agency, the MSG should ensure that the name and function of the beneficiary be disclosed. The MSG may wish to consider the extent to which disclosure of actual mining, oil and gas contracts (or review of key terms) would be necessary to provide a comprehensive assessment of the existence of mandatory social expenditures. The MSG may also wish to consider the feasibility of reconciling mandatory social expenditures.
In accordance with requirement 6.2, the MSG should consider the existence and materiality of any quasi-fiscal expenditures undertaken by extractive SOEs and their subsidiaries, ensuring that all material quasi-fiscal expenditures are disclosed in future EITI Reports.
In accordance with requirement 7.3, the MSG should 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. The MSG, in consultation with government stakeholders in particular, may wish to consider institutionalising its mechanisms for following up on recommendations from EITI Reports and Validation as a means of ensuring stricter attention to implementation.

The government and the MSG are 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

The Government of Albania committed to implement the EITI on 27 December 2008 by enacting Order Nr.156 on establishing an Inter-Institutional Working Group. Albania was accepted as an EITI candidate on May 2009 at the EITI Board’s meeting in Washington DC. A permanent MSG was appointed on 21 July 2011 following Prime-Ministerial Decree Nr.71.

The Validation process commenced on 1 July 2017. In accordance with the Validation procedures, an initial assessment was prepared by the International Secretariat. The Independent Validator reviewed the findings and wrote a draft Validation report. Comments were received from the MSG. The Independent Validator reviewed the comments and responded to the MSG, before finalising the Validation report.

The Validation Committee reviewed the case on 4 December 2017. Based on the findings above, the Validation Committee agreed to recommend the assessment card and corrective actions outlined below.

The Validation Committee agreed to recommend a period of 12 months to undertake the corrective actions. This recommendation takes into account that the challenges identified are relatively significant and seeks to align the Validation deadline with the timetable for Albania’s 2017 and 2018 EITI Reports.

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 committed to the EITI. A senior individual has been appointed to lead on the implementation of the EITI and relevant government officials are represented on the MSG.
1.2Company engagement
Oil, gas and mining companies are actively and effectively engaged in the EITI process, both as providers of information and in the design, implementation, monitoring and evaluation of the EITI process. Hydro-power companies participate on a voluntary basis.
1.3Civil society engagement
There is an enabling environment for civil society participation in Albania. Civil society is involved in implementation. However, capacity constraints are affecting their ability to be fully and effectively engaged in the design, implementation, monitoring and evaluation of the EITI process.
1.4MSG governance
The MSG has been formed and includes self-appointed representatives from each stakeholder group with no suggestion of interference or coercion. The MSG meets frequently and attendance and record keeping appears adequate. While capacity is strong among government and companies, there is limited evidence that civil society MSG members have sufficient capacity to carry out their duties.
1.5Work plan
The 2016 AlbEITI work plan is in line with provisions of Requirement 1.5. It has clear objectives linked to national priorities for the extractive sector, as well as more detailed actions and timelines. The execution of the current work plan appears to be on track.
Licenses and contracts
2.2License allocations
While the 2015 EITI Report provides a list of mining licenses awarded in 2015, and implies that no new oil and gas license was awarded in 2015, it only describes the statutory license allocation process, including the technical and financial criteria, but not any deviation in practice. There is evidence of one oil and gas license allocation in July 2015. The process for transferring licenses is described for the oil and gas sector, but not for mining, and the report does not clearly state whether any mining, oil and gas licenses were transferred in the year under review. Given the fact that the mining licenses were awarded through bidding, the list of unsuccessful bidders and actual bid criteria for each round should have been disclosed.
2.3License register
The 2015 EITI Report provides a link to the public mining, oil and gas license register, although there are gaps in the public provision of dates of application and coordinates for some mining, oil and gas licenses.
2.4Policy on contract disclosure
The 2015 EITI Report clarifies the government’s policy on contract disclosure in the oil and gas sector, but not in mining. The report does not comment on actual contract disclosure practice despite key stakeholders being aware of several contracts being available in the public domain.
2.1Legal framework
The 2015 EITI Report includes an overview of relevant laws, government entities, fiscal terms in the mining, oil and gas sector, the degree of fiscal devolution and brief commentary on current reforms.
2.5Beneficial ownership	Not assessed
The 2015 EITI Report does not clarify the government’s policy on beneficial ownership disclosure in extractives companies but the names of legal owners of all material companies are publicly available on the National Registration Centre website.
2.6State participation
The 2015 EITI Report does not provide a comprehensive list of companies operating in the mining, oil and gas sectors in which the government holds equity, although it does provide reference to the rules (but not practices) related to the financial relations between SOEs and the government, albeit only concerning retained earnings and reinvestment, not third-party funding. The existence of loans or loans guarantees from the state or any SOE to companies operating in the mining, oil and gas sectors is unclear in the 2015 EITI Report, although there is extensive information on state loans and guarantees to hydro-power companies.
Monitoring production
3.1Exploration data
The 2015 EITI Report provides an overview of the mining, oil and gas sectors, including significant exploration activities. In the International Secretariat’s view, Albania has made efforts to go beyond the requirement by including extensive information on the hydro-electricity sector.
3.2Production data
The 2015 EITI Report provides the production volumes and values of all major minerals produced including oil, chromium, ferrochrome, copper, iron-nickel & nickel-silica, and limestone, although an aggregate production value is only provided for chromium and ferrochrome. While the use of export prices to calculate production values is a concern, given the government’s lack of reporting of domestic prices (in contrast to previous years), it is notable that the MSG has made efforts to provide an estimate of production values in the 2015 EITI Report. While the lack of information on natural gas production is also a concern, it appears that total natural gas production in Albania is negligible and not sold.
3.3Export data
The 2015 EITI Report provides export values for crude oil, but not specific oil export volumes, and the value of the main three mineral exports, but not volumes and values of all exported minerals.
Revenue collection
4.3Barter agreements	Not applicable
The International Secretariat’s initial assessment is that this requirement is not applicable to Albania in the year under review (2015). However, the 2015 EITI Report’s lack of comment on the MSG’s consideration of Requirement 4.3 is a concern.
4.6Direct subnational payments
It is possible that further work on this issue would demonstrate that this requirement is not applicable in Albania, as it seems likely that subnational payments to LGUs are not material. However, the MSG clearly agreed to include subnational payments to LGUs within the scope of the reporting process, noting the significance of these payments to local communities. In the absence of comprehensive government data, the approach adopted based on selecting LGUs for reconciliation based on company data appears reasonable. However, there appear to be significant gaps in the reporting from companies and in the participation of LGUs.
4.7Disaggregation
The 2015 EITI Report presents reconciled information disaggregated by company, revenue stream and government entity.
4.9Data quality
The MSG appears to have approved the selection of the IA for the 2015 EITI Report, including a ToRs consistent with the Board-approved template, as well as the reporting templates. While the IA appears to have reviewed material entities’ statutory audit procedures prior to agreeing quality assurance procedures for ensuring the reliability of reconciled data in the 2015 EITI Report, there is no evidence that the IA reviewed reporting entities’ actual audit practices. It is unclear why the industry MSG members approved quality assurance procedures that no company followed in practice. The 2015 EITI Report does not assess the materiality of payments from entities that did not comply with the agreed quality assurance procedures. The lack of any assurance from the IA on the comprehensiveness and reliability of reconciled data is a concern and represents a deviation from the IA’s ToRs for the 2015 EITI Report. The IA has prepared summary tables of data in the Albania’s EITI Reports.
4.1Comprehensiveness
The 2015 EITI Report includes the MSG’s definition of the materiality thresholds for payments and companies to be included in reconciliation based on production volumes, including a justification for why the thresholds were set in this way and at this level. However, the setting of a qualitative rather than quantitative threshold for selecting material revenue streams (as a share of government revenues for instance) is a concern. The companies that did not report are named and the value of their payments to government is provided relative to government-reported revenues. The share of non-reporting companies appears to be insignificant. The 2015 EITI Report does not explicitly state whether all material government entities reported all revenues, although stakeholder consultations confirmed that all national government entities had fully reported and that omissions from local governments were not considered material. While the commentary from the IA on the comprehensiveness of the EITI Report is limited to a statement on the lack of assurances, it is possible to calculate the materiality of omissions.
4.2In-kind revenues
The 2015 EITI Report reconciles crude oil volumes collected under PSAs, discloses crude oil volumes sold and the value of proceeds from crude oil sales, disaggregated by buyer. The report provides volumes collected, volumes sold and sales proceeds for both the share of oil production under PSAs as well as Albpetrol’s equity oil, albeit without disaggregation between the two. While there is a case for considering that Albania has gone beyond the minimum requirement by disclosing information on the sales of Albpetrol’s equity oil, the International Secretariat’s initial assessment is that Albania has made satisfactory progress in meeting this requirement given the lack of disaggregation between the state’s in-kind revenues and Albpetrol’s equity oil.
4.4Transportation revenues	Not applicable
The International Secretariat’s initial assessment is that this requirement is not applicable to Albania in the year under review (2015). The 2015 EITI Report describes infrastructural arrangements for the transportation of crude oil, but not of natural gas or minerals. However, the International Secretariat understands that the government and SOEs do not receive any revenues from the transportation of minerals, crude oil or natural gas.
4.5SOE transactions
While the 2015 EITI Report includes a reconciliation of oil and gas company payments to extractives SOEs (Albpetrol) and of some of Albpetrol’s payments to government, it only provides Albpetrol’s unilateral disclosure of its dividends to government, which are not reconciled with MEDTTE receipts. While Albpetrol’s dividends to MEDTTE are material, they account for only 0.39% of government revenues from the mining, oil and gas sectors. However, the International Secretariat understands that MEDTTE’s receipt of Albpetrol dividends are disclosed in the annual budget execution report, given that MEDTTE’s revenues are recorded in the national budget (see Requirement 5.1). In addition, the fact that Albpetrol’s annual financial statements are audited (see Requirement 4.9) provides a high degree of quality assurance for Albpetrol’s unilateral disclosure of its dividends to government.
4.8Data timeliness
All of Albania’s EITI Reports under the EITI Standard have been published within two years of the close of the fiscal year(s) under review. However, the fact that the time stamp on the 2015 EITI Report is marked as two months prior to the actual publication of the report, and the fact that a significantly revised version of the 2015 EITI Report was published without MSG approval (or knowledge) is a concern. This is further detailed in the assessment of MSG oversight above (see Requirement 1.4).
Revenue allocation
5.1Distribution of revenues
While the 2015 EITI Report highlights extractives revenues collected by AKBN and Albpetrol as being off-budget (i.e. not recorded in the national budget), it only provides an explanation of the allocation of funds collected by Albpetrol, not AKBN. While the report does not refer to national or international revenue classification systems, the International Secretariat understands that national revenue classification systems are based on GFS-2001 classifications.
5.2Subnational transfers
The 2015 EITI Report describes statutory subnational transfers of royalties, provides the general formula, budgeted and actual transfers for 2015 in aggregate terms, albeit reported on an accrual rather than cash basis. However, the report does not provide the specific formula for calculating subnational transfers to individual LGUs, nor the level of budgeted and executed subnational transfers disaggregated by LGU, even if it highlights discrepancies between budgeted amounts and actual transfers. While AlbEITI published executed 2015 subnational transfers disaggregated by LGU on a cash-accounting basis after the start of Validation, the level of budgeted 2015 subnational transfers disaggregated by LGU is not publicly available.
5.3Revenue management and expenditures	Not assessed
It is encouraging that the MSG has made some attempt to including information on the auditing process in the 2015 EITI Report, although the International Secretariat’s view is that AlbEITI has made only modest efforts to include additional information on the budget-making process.
Socio-economic contribution
6.1Mandatory social expenditures
The MSG does not seem to have assessed whether mandatory social expenditures exist under contractual terms ahead of data collection and there is widespread confusion over whether any such mandatory social expenditures exist. The 2015 EITI Report provides unilateral reporting of social expenditures by one oil and gas company (although this may have been erroneously included), but does not clarify whether these were mandatory and does not include the IA’s concerns over the comprehensiveness of reporting of mandatory social expenditures in the 2015 EITI Report. The MSG appears to have made no attempt to distinguish between mandatory and voluntary social expenditures, cash and in-kind expenditures nor to clarify the identity of any non-government recipient of mandatory social expenditures.
6.2Quasi-fiscal expenditures
There is no evidence that the MSG has ever considered the issue of quasi-fiscal expenditures in relation to Albpetrol or any other extractives SOE.
6.3Economic contribution
While the 2015 EITI Report provides, in absolute and relative terms, estimates of the extractive industries’ contribution government revenues, exports, employment and the location of major activities, it only provides the mining, oil and gas sector’s contribution to GDP in relative, not absolute, terms. However, it is possible to access the value of GDP in 2015 in both current and constant prices through the INSTAT website, which allows readers to calculate the contribution of extractive industries to GDP in absolute terms.
Outcomes and impact
7.2Data accessibility	Not assessed
Requirement 6.2 encourages the MSGs to make EITI reports accessible to public in open data formats. The MSG agreed on the Open Data Policy and included more accessible data as one of the objectives of the EITI work plan. Such efforts are encouraged but not required and should not be considered in assessing compliance with the EITI Standard.
7.4Outcomes and impact of implementation
The MSG has produced an account of activities undertaken in 2016 through their Annual Progress Report. The APR notes the strengths and weaknesses of the EITI process in Albania. Despite the lack of impact assessment in the APR, there is evidence of MSG efforts to assess impact through other means, such as opinion polls.
7.1Public debate
The EITI Reports are published on a regular and timely basis in hard copies and online. The AlbEITI Secretariat has been the key driver of communications and outreach, at times sacrificing multi-stakeholder engagement, and widely disseminated and promoted EITI Reports in the regions and online through videos, news items and surveys. There is some evidence of use of EITI data from some stakeholders including government, journalists and to a lesser extent civil society. The MSG has agreed a policy on access, release and reuse of EITI data that is aligned with the broader government agenda.
7.3Follow up on recommendations
There is limited evidence the MSG has taken serious actions to act upon lessons learnt, to identify, investigate and address the causes of discrepancies and to consider the recommendations for improvements from the IA for the EITI Reports. The MSG meetings minutes do not show that there were discussions on the recommendations and lessons learnt from the publication of the EITI Reports. The IA provided the same recommendations for the last two EITI Reports and little action was taken to address them. To some extent, a limited assessment of MSG’s views on recommendations was provided in the 2016 Annual Progress Report. The AlbEITI developed a work plan to follow up on recommendation from the 2015 EITI Report.