Opportunities for reforms at a time of transition

All eyes are on Myanmar as it enters yet another period of transition. The country has seen many reforms in the past years, one of which is the implementation of the EITI since 2014. For a country that previously offered limited civic participation, EITI’s multi stakeholder platform fast became the venue for discussing reforms in the extractive sector.

First EITI Report points to areas for improvements in the sector

A landmark EITI Report was published in January 2016 disclosing valuable information on payments made by companies and surfacing gaps in existing systems that the government should address. This report could very well be used as a diagnostic tool for government in assessing areas where governance can be improved. How the EITI in Myanmar can leverage on the recommendations from its EITI Report is a challenge that the multi-stakeholder group (MSG) and the incoming government should take on. 

Transparency in public financial systems

Myanmar’s EITI (MEITI) Report revealed the extensive use of ‘other accounts’ in Myanmar’s budget system. The report explains that “Other Accounts used are essentially accounts held by ministries and SEEs (State Economic Enterprise) in the Myanmar Economic Bank (MEB) for management of their own-source revenues. FY2012/13 data from the Budget Department show total Other Account receipts of 2.54 trillion kyat (USD 2.4 billion) which is 44% of total budgeted revenue, and expenditures of 2.26 trillion kyat, which represents 28% of total budgeted expenditure. How these accounts are managed was not disclosed to the EITI which made it impossible for the Independent Administrator preparing the report to examine rules and practices governing transfers of funds between the SOE(s) and the state, retained earnings, reinvestment and third-party financing. The report thus recommended the disclosure of more information on these “other accounts”.

Moreover, there’s the issue of tracking sources of revenues. The MEITI Report mentions that the Union Budget does not have a line item for extractive sector revenues, making it difficult to track revenue flows from the industry to the ministries and to determine its total contribution to national revenues. Based on the above finding, the report recommends improvements on the system of reporting and recording of disaggregated revenues from the extractive industry.

The report further finds that the considerable delay from the time companies pay to the time the Internal Revenue Department issues receipts leads to discrepancies between government and company figures. It thus highlights the need for timely issuance of receipts for corporate income tax payments.

The report also stresses the need to ensure reliability of financial information from the government through the disclosure of reports from the Office of the Auditor General. All of these findings are relevant to the incoming administration’s plan to create a transparent public financial management system. The above recommendations could contribute to this reform by informing policy makers on the need and the means to revise tax administration and budget processes. 

Informing public debate

The EITI process can be a catalyst for deeper discussions on contract transparency and beneficial ownership. As evidenced by the disclosures in the first report, the MEITI MSG is using the EITI as a platform for sustained dialogue to discuss openly issues  previously shrouded in secrecy. The reporting process subjects data to further scrutiny that could hopefully lead to meaningful debates.

One example is how the EITI provides the opportunity to compare government data with other sources.  For example, the sales data for gems and jade disclosed in the EITI Report (USD 1.4 billion) does not tally with other sources of data (USD 30.9 billion according to a Global Witness Report). The report recommends that data on gems and jade in future reports be not limited to sales made through the emporium but also include revenues from the government’s share of production collected by Myanmar Gem Enterprise as well as sales outside of the emporium.

Another important piece of information disclosed in the report is about the state-owned enterprises, the extent of their participation in mining, oil and gas sectors and the transfers they make to the Ministry of Finance (MOF). This information should pave the way for the MEITI MSG to stimulate debate on issues surrounding SOEs including their incentives, how they manage their revenues and whether the revenues they collect from companies can be reconciled with the transfers they make to MOF.

Although beneficial owners of all privately held companies were not yet disclosed, the information on legal ownership is a good step forward enabling mapping of the corporate structure in the county. These disclosures are accompanied by a strong recommendation to raise awareness of the importance of beneficial ownership and to develop a reporting format enabling beneficial ownership disclosure in the future.

Improving license processes and registers

The MEITI Report examines Myanmar’s cadaster system and recommends that an online register be established that will includeinformation on coordinates of concessions and transfers of mineral rights, fees paid, and cadastre maps with details of licenses. According to the report,while the mining legislation lays down the criteria for the assessment of a permit application, the tendering process is not systematically followed in practice due to lack of geologic information and the presence of conflict in most areas. This can be problematic for a country that seeks to create a favorable investment climate and has opened up its mining sector (except for precious stone mines) to full foreign ownership.  

Myanmar’s new mining law is expected to attract more foreign investors. Among the salient provisions of this law are the relaxation of taxes imposed on investors and the lifting of prohibitions on small scale and medium enterprises to enter into joint ventures with foreign firms.  The law also lays down the terms of operation of foreign mining companies. The MEITI report’s findings could input into the ongoing drafting of rules and regulations of the new mining law. The MEITI MSG can participate in and even facilitate consultations especially on issues where the report has identified gaps in the licensing system and its potential impact on foreign investments.  

Recent developments

There are considerable expectations that the new administration will bring about a clear energy policy, and more broadly, a national strategy for the exploration of natural resources. In the same vein, the merger of the Ministry of Mines with the Ministry of Forestry to create the Ministry of Natural Resources could potentially result in a less fragmented regulatory process which could work well for the extractive sector. As for EITI in Myanmar, the challenge is how to align its efforts with the priorities of the new administration and build on its progress in the current political context.

Marie Gay Alessandra Ordenes is the Regional Director for South East Asia and Asia Pacific at the EITI International Secretariat. Before joining the Secretariat she was the EITI National Coordinator of Philippines EITI.

To find out more about the EITI in Myanmar, visit the country page on eiti.org or Myanmar’s EITI website.