“If we hope to strengthen our security and control our own foreign policy, we can offer no less of a commitment to energy independence.” – declared, then a U.S. senator and now President Barack Obama more than 10 years ago in a speech titled: "Energy Security is National Security."
If this is true for the strongest economy in the world backed by unsurpassed military might, this is doubly so for my own country – Ukraine, which has paid dearly for failed energy policies of the last 25 years.
Energy independence is within Ukraine’s reach. But we could only achieve it with enlightened policy-making, support of international community, and, most importantly, unwavering political will from all three branches of our government. We must keep the momentum, and, perhaps our immediate priority should be to leverage a ready-made mechanism known as Extractive Industries Transparency Initiative (EITI). No point in reinventing the bicycle, when we should be riding it already and taking it to a level which is for once ahead of our Western peers.
EITI sets an international standard for openness around the management of revenues from natural resources. Governments disclose how much they receive from extractive companies operating in their country and these companies disclose how much they pay. This information is published in a report that is available to the public and reconciled independently before its release. The report also contains information on the legal and regulatory structures and is often a good reference for potential investors and civil society.
The oil-rich Norway is EITI Compliant and so it Kazakhstan. Ukraine cannot afford to lag behind, and, as a member of the EITI International Board, I am working with partners from the private sector, civil society and the World Bank to advance extractives revenue transparency both globally and locally in Ukraine.
Ukraine’s EITI report discloses reliable figures about the money flowing to government from the oil and gas companies that produce in Ukraine and that transport gas to Europe. This information allows citizens to better assess how much revenues the government is receiving and hold them accountable for the use of these funds. Transparency will also reassure investors, which is crucial to boosting domestic supply and bringing reliable, affordable energy to the Ukrainian people.
Despite Ukraine’s turmoil over the past two years, the leaders of EITI in Ukraine have made impressive progress and should be commended. Initial framework legislation that mandates EITI participation for government agencies, state-owned-enterprises and companies in the oil and gas sector was passed by Parliament, signed by President Poroshenko and came into effect in July 2015. Although it only covers the oil and gas sector for now, plans are underway to extend the program to iron ore. At the same time, the Ministry of Energy developed bylaws that specify the scope of EITI reporting, which entities are required to participate, and the implications of non-participation.
Last week we submitted a new draft law which is strengthening the current arrangement and making the disclosure requirements even more strict. Like no other industry extractives are susceptible to the risk of corruption and unequal market positions. Unfortunately, because of the history of some previous ‘sweet-deals’ by some of the former Ministers and politicians of the ruling parties, now we need to do more than voluntary disclosure to attract attention and investment to this industry. With an overall goal of increasing domestic produce of the gas and other resources needed for our people and economy Ukraine is more dependent on FDIs coming to the energy sector than any other country in the region and thus we have to really project an extra-readiness to combat corruption.
In effect, EITI will not only be voluntary in Ukraine as it is in many other countries, but it will be mandatory and have implications for non-compliance. This is a clear sign to investors: Ukraine is serious about improving transparency in its extractive industries.
As we drive towards energy independence, there will be no silver bullet. Instead, just as the experience was in the U.S., we will find a compilation of solutions starting from improvements in energy efficiency and increased domestic production to stronger foreign direct investment inflows and better policies. The EITI implementation in Ukraine, supported by the World Bank, along with international donors, will be an pivotal piece in this puzzle and an important step in transforming the Ukrainian energy sector and bringing reliable, affordable energy to all citizens.