Contract and license allocations

The MSG is advised to first gain a common understanding of the scope of the requirement and the main transparency and governance challenges encountered in the national context.

In accordance with Requirement 2.2.a, information related to any license awards or transfers taking place during the period covered by the EITI reporting cycle should be disclosed. The requirement relates to all contract and license awards and transfers taking place in the accounting period, including for companies whose payments fall below the agreed materiality threshold. This covers all types of licenses, including exploration rights.

Keeping in mind that the answers might vary from one sector to another, the MSG may wish to consider the following questions and identify relevant sources of information:

• What are the definitions of “award” and “transfers” of licenses in the national context? For example, MSGs might consider that a change in beneficial ownership of a license holder represents a license transfer, even if the legal holder of the license remains the same; or MSGs might wish to disclose any changes in the identity of minority consortium members.    
• Which laws and regulations specify the procedures for license applications and the process by which licenses are issued, approved and transferred? How have they been developed and agreed?
• Which institution(s) has authority to grant oil, gas and mineral licenses? Are there several allocation systems, e.g. systems at national, regional and local levels? If so, is there a clear delineation of responsibilities between authorities? Where responsibilities are not clearly defined, and how are disputes typically resolved?
• What licensing processes and methods does the government follow, e.g. bidding rounds, auctions, direct negotiations or awards on a first come, first served basis? Are there timeframes assigned to each method and its steps, including related to decision-making?
• Can different methods for awarding contracts or licenses, e.g. competitive bidding or direct negotiation, be selected by authorities awarding them? What rules determine which procedure should be used?
• What documentation should applicants provide to be eligible for the license application process?
• On what criteria are decisions to award, transfer, renew or suspend licenses based? Are these clearly established? If they differ, how are the criteria publicly announced? This may include technical and financial qualifications needed to hold an oil, gas or mineral right, legal criteria, integrity criteria (such as beneficial ownership and politically-exposed persons disclosure), criteria for health, safety and environment, work programs etc.
• How are applicants informed of the evolution of the process, including whether their application was successful?
• Do the licensing procedures ensure follow-on title, i.e. are exploration rights automatically converted to or followed by development rights in the event of a discovery?
• Are there reforms planned or underway for the current licensing system?
• Have stakeholders expressed or identified concerns or challenges related to the licensing process, including any corruption risks? How can the MSG take these into account when defining objectives related to licensing disclosures?

In addition to publicly disclosed information and feedback from stakeholders or the constituencies represented on the MSG, sources of information may include:

• Corruption risk assessments undertaken by the government, civil society or partners;
• Compliance audits by the supreme audit institutions;
• Media coverage of particular licensing processes or awards that have raised concerns; and
• Tools developed to help stakeholders identify vulnerabilities in the licensing process, such as Transparency International’s Mining Awards Corruption Risk Assessment (MACRA) tool. Step 2 of the MACRA tool provides guidance on mapping the process and practice of awarding mining licenses. The tool can also be adapted to assess the licensing process governing other sectors, like oil and gas. Other useful tools include NRGI’s Corruption Diagnostic tool, based around a structured questionnaire that helps MSGs identify and prioritise corruption risks.

Mapping the processes and practices of licenses awards

Information should ideally be made publicly available by the relevant government agencies through their own systems. Consistent with good practice and systematic disclosure under the EITI, countries should record details of any awards made in a publicly available license register (see Requirement 2.3 of the EITI Standard).

Based on a review of information already being disclosed and information gaps identified, the MSG should collect additional data directly from the relevant government agencies and disclose this information on their websites or in EITI Reports.

In line with the requirement, the following information should be publicly accessible:

• A description of the process for awarding or transferring contracts and licenses. Where this information is publicly available, it is sufficient to include a link or reference to where this information can be accessed. In some cases, mining or oil and gas legislation and regulations may be the main source of information on the licensing process, while in other cases further description and details on the process may be provided by the relevant government authority to guide license applicants or ensure that stakeholders are aware of the applicable procedures.
  
  The OECD highlights cases where vague language in the choice of the process for the allocation of extraction extractives rights presents a potential corruption risk. For instance, the relevant legislation may establish that licenses can be awarded either through a bidding process or through direct negotiation, but may fail to provide criteria for selecting the process. In cases where the government can select different methods for awarding a contract or license, the description of the process for awarding or transferring a license should include an explanation of the rules that determine which procedure should be used and why a particular procedure was selected.
• Details about the technical and financial criteria used for awarding or transferring the license(s). Where this information is publicly available such as in the applicable regulation, it is sufficient to include a link or reference to where this information can be accessed. Where technical and/or financial criteria are not used to evaluate a license application, this should be explicitly stated. MSGs should clarify whether the technical and financial criteria used to allocate licenses are the same as those used for license transfers, as these may differ depending on the relevant legislation. This might also differ depending on the type of license awarded or transferred.
  
  It is important to note that criteria for awarding and transferring rights are not the same as the criteria needed to accept applications. For example, paying application fees or completing an environmental impact assessment are required for a company to be eligible for acquiring rights, but these are not part of the criteria that determine whether or not rights are awarded. In contrast, a company might be required to document its financial situation by submitting audited financial statements or its technical capacity by submitting proof of similar projects before being awarded rights.
  
  In another example, if rights are awarded on a first come, first served basis, one clear criteria is that the company’s application was the first one submitted for a particular area. For first come, first served awards, the remaining question becomes whether there are any minimum criteria that a company would need to satisfy, e.g. minimum of experience in other extractive activities or a minimum debt to equity ratio to finance the activities. If the award/transfer process is not on a first come, first served basis, the criteria would specify how the country chooses between different companies that might apply for the same license or contract.
  
  A review of 100 corruption cases by the Natural Resource Governance Institute (NRGI) found that 54 cases included unqualified companies competing for or being awarded licenses or contracts. The review highlights the importance of establishing clear criteria related to licensing processes.
• Information about the allocated and transferred licenses, including recipients. The MSG could for example include a link to a publicly accessible register or cadastre system that contains this information. Where such registers/cadastres do not contain the necessary information, MSGs should ensure that the information is made publicly accessible, for example via the website of the relevant ministry or through EITI reporting. As per Requirement 2.3 on license registers, information about the recipient(s) should include at least:
  • The license holder(s), including consortia members where applicable, and details on their legal and beneficial owners;
  • The coordinates of the license area;
  • The duration of the license (date of application, date of award and duration of the license); and
  • In the case of production licenses, the type of commodity being produced.
    
    MSGs might wish to ensure that information required under Requirement 2.5 on beneficial ownership is linked to the above, i.e. that beneficial ownership information of corporate entities that apply for or hold a participating interest in an exploration or production license or contract is publicly available.
    
    Details on licenses transferred in a given period are typically not available from a public license register, and may need to be disclosed separately if the existing systems do not allow for access to this information. For example, the United Kingdom’s license register provides information about the license ownership history.
• A list of applicants and criteria for bidding processes, if applicable. MSGs should, in accordance with Requirement 2.2.b), investigate whether any licenses have been awarded through a bidding process during the accounting period covered by the EITI reporting cycle. Where such bidding processes have taken place, the EITI reporting cycle should include or provide a link to the list of applicants, and details about the bid criteria.

Depending on opportunities and demand identified by stakeholders, the MSG is also encouraged to include a description of procedures and grounds for renewing a contract or license and for suspending or revoking a contract or license (Requirement 2.2.d). Ensuring transparent decision making in the process of renewing or revoking licenses or contracts is important to limit corruption risks and hold the government accountable for license management.

Any significant legal or practical barriers preventing comprehensive disclosure of the required information for all license awards and transfers that have taken place during the period covered by EITI reporting should be documented and explained by the MSG. The MSG should also document government plans for seeking to overcome barriers and the timeline for achieving them (Requirement 2.2.a). Any follow-up actions to be taken by the MSG should be integrated into their annual EITI work plan.

Where feasible, MSGs are encouraged to disclose similar information for any licenses held by companies covered in a given EITI reporting cycle, but awarded prior to the accounting period covered by the report (Requirement 2.2.b).

For further guidance, NRGI and Open Contracting Partnership’s publication Open Contracting for Oil, Gas and Mineral Rights: Shining a Light on Good Practice describes examples of best practice in presenting information on license awards and management processes. It includes a list of basic information to provide, regardless of the method mandated by regulation.

The EITI Standard requires disclosures related to any non-trivial deviations from the applicable legal and regulatory framework governing license transfers and awards (Requirement 2.2.a.iv). This might include cases where the license(s) were awarded using a different licensing practice than the one commonly followed, or where there are deviations from standard criteria or contract terms.

This provision provides an opportunity for the government to explain and justify any deviations, and allows the public to identify and assess any discrepancies between the licensing policy and practice. It provides an opportunity for MSGs to detect any corruption red flags for further investigation, as well as identify any gaps in implementation that need to be addressed to help prevent corruption. The MSG could build on the findingsHideFor further guidance, see: NRGI (2021), How Can Anticorruption Actors Use EITI Disclosures?; Transparency International (2020), Using the EITI Standard to Combat Corruption: Lessons from Transparency International’s Mining Research in Five Countries. to develop recommendations to address any potential gaps or weaknesses identified (see Step 4).

The MSG should clearly document any substantive deviations as well as its approach. It could consider the following methods to identify deviations from the regulatory framework:

• Adopting a risk-based approach, which can include discussing suitable practices for the assessment, identifying relevant information to gather to investigate risks, documenting key risk factors that may result in material deviations, agreeing on the level of assurance based on the identified risks and selecting a sample for analysis (see case study from Mongolia below). This could include reviewing the license award process step-by-step to assess the level of transparency and accountability.
   
• Requesting and analysing evidence from relevant government agencies and companies, e.g. requesting a written confirmation from or visiting the ministry overseeing the industry or the authority allocating licenses to confirm whether any non-trivial deviations have occurred during the reporting period; requesting companies to report concerns related to deviations. The analysis could focus on specific cases, where the MSG conducts spot checks on the documentation provided by license applicants and assesses whether there were any deviations in practice from the criteria required for approving an application (see case study from Liberia below). 
   
• Considering opportunities for supreme audit institutions  and other oversight institutions to examine the processes and practices, e.g. through a compliance audit. In some countries, Supreme audit institutions may be well placed to undertake such audits, and can use findings from EITI reporting and Validation in their risk assessments (see case study from Zambia below). The MSG might also wish to provide training to enhance other actors’ capacity to undertake similar work, for example to civil society organisations.

The MSG might wish to adopt the same methodology for assessing deviations in practice in the process for renewing, suspending or revoking licenses. Ensuring that deviations in the conditions under which licenses can be renewed may be particularly important for the mining sector, where companies are sometimes awarded licenses on a non-competitive, first come, first served basis without necessarily having the technical and financial capacity required to develop a project.

The MSG might wish to identify transparency gaps by assessing the availability, quality, reliability and timeliness of licensing information and ease of access to this information, and formulating recommendations for relevant government agencies to address these gaps and strengthen systematic disclosures. Where government agencies provide systematically disclosed data, EITI reporting can focus on highlighting discrepancies between the regulatory framework and practice in licensing procedures, or in supporting other agencies, such as SAIs, inspectorates and anticorruption agencies, in their efforts to ensure that license allocations are performed in accordance with the legal framework. For example, Colombia’s Ministry of Mines website provides access to the full license application dossier, allowing for independent assessment of non-trivial deviations.

In moving towards systematic disclosures, the MSG could also consider whether the information should be disclosed in an open data format to facilitate access and analysis by civil society, industry and investors. The Open Contracting Partnership’s (OCP) Open Contracting Data Standard (OCDS) provides guidance on how improve contracting transparency by systematically disclosing information on the process for awarding contracts or licenses. Its approach entails disclosing data for each step of the contracting process and publishing summary records for the overall contracting process.

The OCDS provides a framework for categorising information about license and contract awards or transfers, enabling cross-referencing between data points, databases or countries. Through the OCDS, each license or contract can be described in separate data files. The technical and financial criteria for awarding a license or contract are described under OCDS’ category of “awardCriteraDetails” and can incorporate different criteria types, their weighting, etc. Progress in a given licensing process can also be disclosed using the OCDS.

Based on the national objectives agreed by the MSG in their work plan and consultations with stakeholders, the MSG could further analyse disclosures related to license allocations. Where the MSG agrees that findings should be addressed to improve natural resource governance, recommendations can be developed to help strengthen the licensing process.

The MSG may wish to include commentary on the efficiency and effectiveness of the licensing systems. This can include information on:

• The duration of the whole licensing process – from application to award/transfer – including deviations from the deadlines set in the legal framework or guidelines;
• The percentage of rejected license applications during the year covered by the EITI reporting cycle;
• The percentage of empty tenders or annulled auctions during the year covered by the EITI reporting cycle;
• The percentage of occupied land/blocks as a percentage of the total land/blocs open for extractive industry activity;
• The percentage of disputes regarding applications or tender bid procedures during the year covered by the EITI reporting cycle and how these were resolved;
• Changes in ownership of license holders during the accounting year covered in EITI reporting,
• Due diligence conducted by regulators in awarding licenses, for example whether government agencies conduct checks on the beneficial ownership information of applicants and identify politically-exposed persons; and
• Any disputes between community representatives and/or land owners and license holders and how they were potentially resolved.

The MSG might also consider whether there are vulnerabilities in the license allocation process that can contribute to mismanagement in the allocation of licenses. Based on Transparency International’s Mining Awards Corruption Risk Assessment (MACRA) tool, vulnerabilities could include:

• Development of new mining laws and policies without public scrutiny
• Limited or no due diligence on companies’ financial and technical claims
• No system for declaring and managing conflicts of interest
• Potential for access to confidential information
• Limited or no verification of information about the environmental and social impacts of the proposed mining project
• Lack of oversight or prior approval of transfers of licenses or controlling interests in license holders without prior approval of the regulator
• Information withheld from companies or communities by the authorities
• Lack of openness or scrutiny over licensing decisions (whether by the public, managers or parliament)
• Lack of transparency over what decisions are made and why
• Lack of meaningful consultation with women and men from mining-affected communities

The MSG might also wish to document whether any governance challenges identified through EITI reporting have led to significant changes in the licensing process. For example, the 2019 Validation of the Kyrgyz Republic showed that the State Committee for Industry, Energy and Subsoil Use (SCIESU) started awarding licenses on a first come, first serve basis in 2018 after corruption risks related to the practice of direct negotiations were uncovered, and later documented through EITI reporting.