WBG OIL GAS AND MINING POLICY AND OPERATIONS UNIT (COCPO) BULGARIA: PILOT EITI PROCESS FOR GAS SECTOR AND TRANSIT REVENUES

Transcription

1 WBG OIL GAS AND MINING POLICY AND OPERATIONS UNIT (COCPO) BULGARIA: PILOT EITI PROCESS FOR GAS SECTOR AND TRANSIT REVENUES DRAFT CONCEPT NOTE (ncludng possble elements of a EITI reportng template for gas sector and transt revenues) I. Purpose of ths Draft Concept Note EITI, as a global standard for transparency of payments by companes and revenues receved by governments s currently desgned to cover ol, gas and mnng upstream actvtes only,.e. and exploraton/development and producton. Bulgara, as part of ts overall polcy reforms agenda for the gas sector and as part of the naton s broader framework for transparency and ant-corrupton, s consderng to adopt and mplement a program of EITI for ol and gas transt and related revenues, and seek valdaton as an EITI-complant country from the Internatonal EITI Board Globally, snce transt (and transport or other downstream actvtes) are not currently part of EITI polces and standards, the Bulgara EITI could be mplemented as a plot actvty but otherwse n lne wth EITI Crtera and Prncples as outlned n ths draft Concept Note. The Note presents an overvew of an approach to mplement the plot EITI n Bulgara n a way that enables Bulgara to become an offcal EITI canddate and mplement a plot EITI process and become valdated as an EITI-complant country. The purpose of ths draft Concept Note s as an ade for Bulgara (BEH and relevant agences) to talor an approach to EITI specfc to Bulgara s needs and sector crcumstances - and to: buld a common understandng and poltcal commtment wthn Government of Bulgara and among ndustry and cvl socety stakeholders on the approach to be taken to mplement a plot EITI process; and Share wth and obtan formal nputs from the Internatonal EITI Secretarat Oslo for the proposed approach, gven Bulgara EITI would nclude transt revenues (the frst country to do so) and to ensure conformty wth EITI Crtera and Prncples n Bulgara s specfc sector crcumstances. II. Summary Background to Bulgara Gas Sector Structure and Transt Flows Bulgara s substantally energy mport-dependent, and also a transt hub. Energy forms a sgnfcant part of Bulgara s trade. Supples from Russa (Gazprom) consttute the prmary supply source and there are presently no alternatve supples because Bulgara s connected only through ts man gas transt and mport routes va Ukrane (a source of past nterruptons). Alternatve routes (Nabuco lne, Southern Stream, etc.) well as LNG mports (from Greece or Turkey) are beng explored. COCPO Draft (for BEH - Oct 2009) 1

2 Bulgaran Energy Holdng EAD (BEH), a wholly-state owned company, s at the apex of the energy sector actvtes n Bulgara wth Bulgargaz EAD and Bulgartransgaz EAD beng the operatng key companes n the gas sector, wth operatonal autonomy n ths holdng structure. Bulgargaz EAD s the man natural gas mporter and suppler n Bulgara, wth approxmately 3.7 bllon cubc meters (bcm) suppled to varous publc supplers and end-users (2007 data). Of ths, 92% s mported from Russa wth the remander from domestc producton; hence mport prces play a key n domestc gas prces. The storage and natonal ppelne nfrastructure reled on by Bulgargaz n ths domestc gas actvty s contracted from Bulgartransgaz EAD, as noted below. Bulgartransgaz EAD owns and operates the Bulgaran gas transmsson network for gas dstrbuton companes n Bulgara and for transt gas, and related underground gas storage, pursuant to EU requrements and Bulgaran law. The company s mandate ncludes natural gas market balancng and transmsson system engneerng and mantenance. Transt gas through Bulgara goes to Turkey, Greece and Macedona ( approx bcm data). III. EITI n the nsttutonal context of energy sector reform n Bulgara The new admnstraton n Bulgara has strongly artculated an agenda of transparency and good governance for the energy sector n general, and for gas dstrbuton and transt revenues n partcular. Ths agenda has been framed n the broader context ssues of a natonal strategy for energy, dversfcaton of energy source and supply for energy securty, gas sector polcy reform and gas nfrastructure ssues, as well overall context of accountablty and ant-corrupton goals n Bulgara. Regonally, gas sector and transt ssues reman senstve. Ths fact and that EITI program around gas transt revenues would be a frst - means ensurng a carefully-managed EITI process whch focuses on transparency and consensus, and avodng any percepton of poltczaton or unrealstc goals. In partcular, consensus around the EITI reportng template and modaltes for and scope/depth of EITI wll be mportant. COCPO Draft (for BEH - Oct 2009) 2

3 IV. Potental benefts of a plot EITI for gas sector and transt revenues At the global level, EITI s a now well-establshed mechansm for enhancng transparency and accountablty by puttng nformaton on revenues and payments nto the publc doman. It s helpng to mprove rsk perceptons and thus nvestments n many countres, ultmately for resources to be wellmanaged and revenues used to beneft the people. The EITI standard has tangbly helped EITI countres to sgnal ther commtment to the market and ther ctzen about transparency and reform, and to good governance and ant-corrupton efforts. Wth Bulgara beng a key actor n the energy transt corrdor n the sub-regon and gas transt beng a key source of ncome for Bulgaran gas sector, for Bulgara EITI offers a way to both launch a pathbreakng transparency process (frst of ts knd) talored to Bulgara s crcumstances. As a partcpatve process ncludng cvl socety engagement, EITI can help n overall trust- buldng. EITI can be seen as a step towards broader reforms desgned to gas sector remans well-managed, nsttutonally protected from corrupton and opacty, wth ultmate benefts of EITI as a sold platform for broader reforms n governance n Bulgara, helpng buld a good nvestment clmate for energy, and thus energy securty. V. Key mplementaton ssues for a plot EITI process for Bulgara Meetng EITI Crtera and Prncples but n a talored way for transt revenues The current EITI standards and Crtera/Prncples may not fully apply to the current structure Bulgara s ol and gas sector, snce (Bulgara s not a major energy producer. For ths reason EITI would need to be talored, whle also ensurng all other aspects of EITI Crtera are followed. Buldng on exstng BEH audted fnancal statements and gas sector dsclosures: As an llustraton, one opton for the scope of a plot EITI n Bulgara could be to cover the followng areas n the EITI Reports: Revenues and payments: audted revenues earned by Bulgargaz from domestc gas sector supply (optonally, broken down by major customer group); audted payments made by Bulgargaz to the sole suppler, Gazprom, for gas mports for the domestc gas market; audted payments by Bulgargaz (or domestc producton accrued) for the domestc gas market - n ths case, matched and reconcled as part of EITI process; audted external gas transt fees revenues earned by Bulgartransgaz (optonally broken down by payer, though currently all transt fees are pad by the sole transt gas suppler); corporate taxes, lcense fees and all other gas-related payments and dvdends - pad to Government by BEH group and any non-beh companes also n ths case matched and reconcled as part of EITI process; and Optonally, major nter-company transactons wthn the BEH group, coverng both gas operatons and fnancal transactons (lke management fees and nter-company dvdends). COCPO Draft (for BEH - Oct 2009) 3

4 Gas volumes: Reconclaton of gas mport (and domestc producton); domestc use; transmsson wastage and addton to / wthdrawal from gas storage amounts. Reconclaton of gas transt flows to external destnatons (currently Turkey, Greece and Macedona) and changes n related gas storage amounts, f any. Other potental dsclosures: Beyond ths, at the outset or over tme, Bulgara could consder an expanded scope of EITI reportng for contractual topcs beyond gas revenues and transt ssues, such as dsclosures on cost and tarff structure for gas mports, domestc-use and transt gas; treatment of gas storage costs and operatng costs and/or of captal and ppelne mantenance costs (f pad by enttes outsde of BEH, f any); specfcs of longterm buyer or transt contracts or transt treaty detals (or ther key terms); and electrcty exports f sgnfcant to understandng the overall gas sector. The goals of a hgh standard of EITI would be acheve a degree of transparency where all companes dsclose what each s payng to whom whether n cash or n knd, and for revenues recpents, who s recevng what payments and whether ths s on a arms-length bass. Further, as applcable, ths data could be matched to natonal budget numbers for assurance on completeness. Ths standard could requre dsclosure of the key contractual relatons between key actors n the gas mport, sales and transt operatons. Buy-n from other Government agences Although all gas transt transactons, and ther accountng and reportng, are centralzed wthn BEH and MOEE, EITI wll need to obtan ther cooperaton and support of other Government agences nvolved (for example, Mnstry of Fnance for corporate taxes pad). Actve cvl socety (and ol ndustry) partcpaton EITI s a partcpatve process, comprsng government, companes and cvl socety, the latter beng an ntegral part of the mult-stakeholder body whch s created n each country to manage EITI process. Bulgara wll need to do the same to nclude both Government and gas ndustry representatves but also approprate members of cvl socety and other organzed groups, chosen as transparently as openly as possble. VI. Step-by-step outlne of a plot EITI approach for Bulgara Step 1: Sgn-up - achevng EITI canddate status (work plan and possble launch event) When the poltcal commtment to EITI s made, ths wll need a publc announcement of Bulgara s adopton of EITI prncples for transt revenues (ncludng commtment to work wth all stakeholders n the process). If possble the appontment of the EITI Coordnator should also be announced. The (remanng) step to fulfll all the sgn-up steps n the EITI process s to complete a draft costed work COCPO Draft (for BEH - Oct 2009) 4

5 plan for Bulgara plot EITI and to get stakeholder nput nto that work plan n order to apply for canddate status from the Internatonal EITI Board. The proposed approach to the EITI plot; the EITI work plan and the modaltes (and membershp) of the mult-stakeholder body whch wll manage EITI n Bulgara s best debated and endorsed wth wde stakeholder nputs at some knd of publc launch event. Ths event can publcze and debate the draft work plan; obtan nputs from stakeholders ncludng on the draft membershp and terms of reference (Charter) of the mult-stakeholder body. Step 2a: Preparaton (n parallel) - establsh EITI Secretarat and needed admnstratve decrees In parallel, BEH/Mnstry wll need to establsh a small team (EITI Secretarat) to execute the natonal EITI work plan and ensure that EITI s mplemented, under the oversght of the Bulgara mult-stakeholder body. Also durng ths stage, all the needed decrees (and laws f needed) to formalze the EITI process and gve authorty to the EITI Secretarat wll be needed. Ths step wll also ensure that there s no contradcton between plot EITI proposals and Work Plan and applcable laws and contractual oblgatons (e.g. on release and dsclosure of gas transt revenue and flow nformaton) Step 2b: Preparaton formalzng Bulgara mult-stakeholder body Once Bulgara acheves EITI canddate status, among the frst tasks s to fully establsh (membershp, terms of reference and authorty) the Bulgara mult-stakeholder body ncludng government, cvl socety and companes. It wll be mportant to ensure broad and representatve partcpaton from companes and cvl socety (such as NGOs, ant-corrupton agency members, professonal bodes, academc bodes etc.). Among the frst steps ths Bulgara mult-stakeholder body wll need to do take (helped by Bulgara EITI Secretarat) wll be to () fnalze the EITI Work Plan and () fnalze the scope and depth of the proposed EITI Report for gas/transt revenues, and the perod to be covered and () select the reconclaton/audt frm to prepare the EITI Report. See below. Step 2c: Preparaton Settng scope of Bulgara EITI Report for Gas/Transt Revenues In settng the scope of the EITI Report and n selectng the reconclaton/audt frm, the matrx further below summarzes the consderatons. As noted, beyond the ntal scope of EITI agreed by Bulgara, there s the opton to consder a yet more comprehensve scope of EITI for the energy sector as whole. Step 3: Fnalzng and publshng EITI Report The reconclaton/audt work for EITI wll result n an EITI Report, algned to EITI Crtera (as extended to transt revenues by ths plot), per the scope of EITI agreed as above. Step 4: Communcatng the EITI Report and ts fndngs wdely to the publc Ths wll nvolve an extensve effort to publcze EITI Reports and fndngs to all parts of the country, usng webstes as well as meda. COCPO Draft (for BEH - Oct 2009) 5

6 Matrx comparng EITI Crtera to current Gas Sector fnancal dsclosures: EITI Crtera #1 - Regular publcaton of payments by companes and revenue by government to a wde audence Extent met by exstng Bulgara publcaton of gas sector data Comprehensve audted fnancal statements (done under nternatonal audted standards by KPMG and/or TP Howarth) of BEH as a consoldated entty and of Bulgargaz and Bulgartransgaz are publcly avalable on the respectve webstes and are referenced by varous economc journals n Bulgara and outsde The audted fnancal statements, produced on the IFRS bass, provde detaled fnancal nformaton (ncome statements, balance sheets and cash flows statements as well as supplementary nformaton, e.g. on related party transactons ) Addtonal nformaton on the web stes contans nformaton on volume e.g. of transt flows Next Steps - to prepare for and seek EITI canddacy - Government to take lead on four sgn up steps: ) Publc announcement ) Commt to work wth CSOs and all companes / NOCs ) Appont EITI champon v) Do EITI work plan (#6 below) - One approach to EITI could be to nclude () gas transt revenues (wth specfc payer detals) and related taxes etc. and ()sales and mports for domestc use gas (volume and value) and () reconclaton of gas volumes - Beyond that potentally, the EITI could also cover other dsclosures and reconclaton of gas sector proceeds to the natonal budget etc. for a more comprehensve EITI coverage. #2. Payments and revenues be subject to credble audts As noted, BEH audted data s audted to nternatonal audt standards. - EITI wll buld on exstng audted nformaton n BEH/companes and n Govt. Informaton on audt status government data (e.g. taxes pad) not obtaned n ths exercse - If none, other ways to be found to acheve audt assurance of government EITI data #3 - Payments and revenues reconcled by an ndependent Admnstrator N/A After canddacy, scope of EITI to be agreed and TORs prepared for vendor bd for reconclaton/audt frm #4 Include all companes n EITI ncludng NOCs N/A As #1 above BEH and smaller companes to take part n EITI #5 Cvl Socety s actvely engaged N/A CSO partcpaton to be publcly accepted and ncluded as part of Bulgara EITI mult-stakeholder body (wth companes) #6 - A costed EITI work plan and tmetable to be done wth publc/ stakeholder nputs and publczed N/A Costed Bulgara EITI Work Plan to be devsed as part of EITI canddacy process (EITI sgn-up step #4) COCPO Draft (for BEH - Oct 2009) 6

7 Step 5. Launchng valdaton process to attan EITI-complant status The EITI process s completed only when a country undergoes an external valdaton of the process for the Bulgara plot EITI, whch f successfully completed, would result n Bulgara beng declared as EITIcomplant by the Internatonal EITI Board. V. Tmetable and mplementaton costs There s currently a 2-year tme lmt to accomplsh valdaton after becomng a canddate country. Experence shows that for Bulgara, ths could mean settng up and plot EITI process and ssung the frst EITI Report by end-2010, and undertakng valdaton by md The ndcatve mplementaton costs are shown below (as an llustraton only): Secretarat staff and Facltes - BEH / Mnstry of Economy, Energy 0.5 and Toursm Consultants, techncal expertse, events Tranng and engagement wth CSOs Bulgara EITI Secretarat / mult-stakeholder body events Reconcle and ssue EITI Report (n 2010) Communcaton and outreach of EITI Reports Valdaton (n 2011) TOTAL (US$ mllon equvalent, for two years) EITI mplementaton n many countres s supported by World Bank (n terms of advsory work) and by varous blateral development partners (n terms of transtonal fundng support). Although Bulgara wll need to commt the staff and fnancal resources needed to mplement EITI and undergo valdaton, development partner resources may be avalable to Bulgara. Annex: Sample format of EITI reportng templates ncludng for gas transt revenues Anwar B. Ravat C:\Users\wb76093\Documents\ABR Data\EITI\EITI Countres\Bulgara Hydrocarbon Transt EITI Concept Note ver 1.doc 9/27/ :17:00 AM COCPO Draft (for BEH - Oct 2009) 7

8 Annex Sample format of EITI reportng template ncludng for gas transt revenue (Bulgara sample/ ndcatve reportng template as modfed for gas transt revenues - orgnal extracted from EITI Source Book 2005 Annex pages see webste: A Input template for Host Government Reportng Entty (To be completed by Mnstry of Economy and Energy or Mnstry of Fnance as applcable for Bulgara, based as far as possble on fnancal data audted by the State Audtor-General or smlar State body) Host Country reportng on: Reportng Perod: Scope 1 Beneft Streams Lne ref Gudelnes secton 6 ref Volume Value 1 1a) Beneft Stream from Internatonal Companes only Host Government Producton Enttlement from Internatonal Companes ) Producton Stream - n knd ) Producton Stream - n cash 2 2a) Beneft Stream from Natonal State-Owned Companes Host Government Producton Enttlement from Natonal State-Owned Company ) Producton Stream - n knd ) Producton Stream - n cash 3 Beneft Streams from Internatonal and Natonal State-Owned Company 3a) Proft taxes 3b) Royaltes v - n cash - n knd 3c) Dvdends v 3d) Sgnng bonuses and producton bonuses v 3e) Lcense fees, rental fee, entry fees and other consderatons for lcenses/concessons v COCPO Draft (for BEH - Oct 2009)

9 3f) Other payments to Host Governments, specfed as: v Scope 2 Beneft Streams Lne ref Volume Value 4 Scope 2 Beneft Streams (voluntary dsclosure): Government Agency sgn off We acknowledge our responsblty for the far presentaton of the Reportng Template n accordance wth the Reportng Gudelnes, wth the excepton of: ; ; ;. (Also to add confrmaton / sgn-off f needed by State Audtor or equvalent attestng to the fact that the reported data s n lne wth audted fnancal statements or extracted from audted fnancal records of Govt.) COCPO Draft (for BEH - Oct 2009)

10 B. Input template for Company Reportng Enttes (Ol & Gas) To be completed by BEH Group or other gas sector operators/companes as applcable to Bulgara based on respectve audted fnancal statements and records) Name of Company: Host Country reportng on: Reportng Perod: Scope 1 Beneft Streams Lne ref Gudelnes secton 6 ref Volume Value 1 1a) Beneft Stream to be reported by Internatonal Companes only Host Government Producton Enttlement to Host Government ) Producton Stream - n knd ) Producton Stream - n cash 1b) Host Government Producton Enttlement to Natonal State-Owned Company ) Producton Stream - n knd ) Producton Stream - n cash 2 2a) Beneft Stream to be reported by Natonal State-Owned Companes only ) Natonal State-Owned Companes equty share of Host Government producton enttlement - n knd ) Natonal State-Owned Companes equty share of Host Government producton enttlement - n cash 2b) Producton receved by Natonal State-Owned Company ) Producton Stream - n knd COCPO Draft (for BEH - Oct 2009)

11 Scope 1 Beneft Streams (contnued) Lne Ref 2c) Natonal State-Owned Company producton enttlement ) Producton enttlement - n knd ) Producton enttlements - n cash Gudelnes secton 6 ref Volumes Values 2d) Producton enttlement receved on behalf of the host Government ) Producton stream - n knd ) Producton enttlement receved on behalf of the Host Government - n cash 3 Payments to Host Government/Natonal State-Owned Company 3a) Proft taxes 3b) Royaltes v - n cash - n knd 3c) Dvdends v 3d) Sgnng bonuses and producton bonuses v 3e) 3f) Lcense fees, rental fee, entry fees and other consderatons for lcenses/concessons Other payments to Host Governments (specfed as: v v Scope 2 Beneft Streams Lne ref Volume Value 4 Scope 2 Beneft Streams (voluntary dsclosure e.g. socal payments): COCPO Draft (for BEH - Oct 2009) v

12 Scope 3 Gas Transt Beneft Streams Lne ref Volume Value 5 Scope 3 Gas Transt / Transfer Beneft Streams: Transt tarffs and all related fees (transt gas) Pad by: show the name of payer Gas transfer (use of network wthn B Bulgara) Pad by: show the name of payer Scope 4 Domestc Gas Imports and Sales Lne ref Volume Value 6 Scope 4 Domestc Gas Operatons Total Gas Sales wthn Bulgara Optonal - Pad by: show the name of major gas users / buyers Total Gas Imports for sales wthn Bulgara Optonal - Pad to: show the names of major supplers Change n Gas Storaged (movements n /out of stored gas for use wthn Bulgara) Company Management sgn off: We acknowledge [or On behalf of the Board of Drectors (or smlar body) we acknowledge] our responsblty for the far presentaton of the Reportng Template n accordance wth the Reportng Gudelnes, wth the excepton of: ; ; ; (Also to add confrmaton / sgn-off by the Company s audtors attestng to the fact that the reported data s n lne wth audted fnancal statements or extracted from company s audted fnancal records) COCPO Draft (for BEH - Oct 2009) v