Extractive Industries Transparency Initiative (EITI) Validation of Solomon Islands Report on initial data collection and stakeholder consultation by the EITI International Secretariat 29 October 2016 1 2 Validation of Solomon Islands: Report on initial data collection and stakeholder consultation Abbreviations CBSI Central Bank of Solomon Islands DSE Development Services Exchange GCIL Gold Ridge Community Investment Limited GRML Gold Ridge Mine Limited IRD Internal Revenue Department MMERE Ministry of Mines, Energy and Rural Electrification MoFT Ministry of Finance and Treasury MoU Memorandum of Understanding MSG Multi-stakeholder group OAG Office of the Auditor General OPMC Office of the Prime Minister and Cabinet SIEINSG Solomon Islands Extractive Industries National Stakeholder Group SIEITI Solomon Islands Extractive Industries Transparency Initiative SIG Solomon Islands Government SMM Sumitomo Metals Mining TOR Terms of Reference VBMS Vois Blong Mere Solomon 3 Validation of Solomon Islands: Report on initial data collection and stakeholder consultation Contents Abbreviations ...................................................................................................................................................2 Contents...........................................................................................................................................................3 Executive Summary ..........................................................................................................................................4 Introduction ...................................................................................................................................................87 Part I – MSG Oversight ............................................................................................................................... 1413 Part II – EITI Disclosures.............................................................................................................................. 3433 Part III – Outcomes and Impact .................................................................................................................. 7170 Annexes...................................................................................................................................................... 8381 List of stakeholders consulted .................................................................................................................... 8482 List of MSG members and contact details...................................................................................................8583 List of reference documents....................................................................................................................... 8684 4 Validation of Solomon Islands: Report on initial data collection and stakeholder consultation Executive Summary The Solomon Islands Government announced its commitment to implement the EITI in July 2011. On 16 August 2011, during the first mining forum held in Solomon Islands, the then Minister for Finance and Treasury , the Honourable Gordon Darcy Lilo, formally issued a public statement of the government’s intention to implement EITI. A multi-stakeholder group, the Solomon Islands Extractive Industries National Stakeholder Group (SIEINSG) was formed in January 2012, and the country was accepted as an EITI Candidate in July 2012. Since then, the Solomon Islands has produced three EITI reports, but has not previously undergone Validation. In November 2015, Solomon Islands undertook a pilot Validation of compliance against the EITI Standard. On 1 June 2016, the EITI Board agreed that the Validation of the Solomon Islands should commence on 1 July 2016, with the International Secretariat carrying out initial data collection and stakeholder consultation. This report presents the International Secretariat’s findings and initial assessment. The International Secretariat has applied the standard terms of reference for data gathering and stakeholder consultations. While the assessment has not yet been reviewed by the MSG or been quality assured, the Secretariat’s preliminary assessment is that requirements 1.1, 1.2, 1.3, 1.4, 1.5, 2.1, 2.2, 2.3, 2.4, 3.2, 3.3, 3.8, 4.1, 4.6, 4.7, 4.9, 5.2, 6.3, 7.3 and 7.4 are unmet. The major areas of concern relate to stakeholder engagement, MSG governance and work-planning; EITI reporting, in particular comprehensiveness and reliability as well as information on licensing, subnational payments and social expenditures; and outcomes and impact. Recommendations for improving implementation are suggested in the assessment tables for each requirement. Overall conclusions Implementation in the Solomon Islands got off to a slow start. Due to lack of funding and personnel devoted to work on the EITI, it was only in early 2014 that implementation really begun. Since then there have been more or less consistent efforts by a couple of key people within SIEITI to drive implementation forward, although there was a slowdown in activity at the end of 2014 as key staff in the newly established national secretariat left the office, and again in the first half of 2016 as funding dried up. The national elections in 2014 led to a government reshuffle, affecting SIEITI membership as well as high level political support. The slow start combined with these other factors has meant that SIEITI has rushed to try to complete the requirements of the EITI within a very short timeframe. While this has led to several outputs, including three EITI reports, there has been limited time to focus on the quality of implementation and ensure that stakeholders have acquired the necessary capacity to deal with EITI issues. The Solomon Islands Extractive Industry National Stakeholder Group (SIEINSG) is a fairly new MSG group, with only three years of “operational experience”. Although it does not yet seem to fully drive all aspects of implementation, the SIEINSG appears to have become more structured in recent times and is slowly gaining an understating of its role and mandate. SIEINSG members have been extensively involved in the administrative aspects of implementation such as staffing and budgeting. However, technical and substantive input has not been strong which raises questions about the capacity of SIEINSG members to effectively oversee the more technical aspects of EITI implementation such as EITI reporting and ensuring that the EITI is linked to other priorities for the extractive sector. While these capacity constraints seem to apply to all SIEINSG members, it is particularly critical for civil society to be able to play its role in holding government and industry to account. A small but efficient national secretariat ensures that despite these capacity issues, implementation is more or less kept on track. However, the strong political backing from the initial implementation phase seems to have faded given a shift in government and other competing 5 Validation of Solomon Islands: Report on initial data collection and stakeholder consultation priorities. This combined with inconsistent industry engagement means that although the SIEINSG is working, it is currently a rather fragile body that does not seem to carry much weight in terms of ability to influence extractive sector management and there are still a number of legal and other barriers that appear to be preventing it from effectively carrying out its work. With a small mining sector, EITI reporting in the Solomon Islands should have been relatively straight- forward. Although the number of active companies is small and mainly covers exploration activity, it has nevertheless proven difficult to obtain a full overview of which companies are operating where and the payments that these companies make. This seems partially due to challenges with capacity and record keeping in some government agencies, but it is also clear that some agencies and companies have not been willing to provide the requested data. There were allegations that due to the reluctance of some agencies to provide data, facilitation payments had to be resorted to in order to obtain the necessary information-inviting officers for lunch. Senior government officials have not intervened to address these bottlenecks. Some of the information, for example on licensing has not been forthcoming due to confidentiality issues. In addition, some gaps are probably also due to a lack of awareness of the disclosures that the EITI Standard requires. This is reflected in the quality of the 2014 EITI Report which, although being candid about local challenges, is of lower quality than previous reports. These challenges have prevented the Solomon Islands from producing an EITI Report that fully complies with the EITI requirements, and further work is needed to ensure that barriers to disclosure are addressed. Despite these shortcomings, the EITI reports still provide useful overview and assessment of the sector, highlighting some issues in the management of the mining sector that could be improved. This includes deficiencies in the legal and regulatory framework and licensing procedures, the ability to monitor and control production and exports, erratic revenue transfers to landowners, and procedural issues related to agreements between landowners and companies. SIEITI’s dissemination efforts to date been primarily been on creating awareness about the EITI process and gathering stakeholder views rather than acting on these findings to strengthen governance of the