State-owned enterprises (SOEs) are wholly or majority government-owned companies that engage in extractive activities on behalf of the state.

In many resource-rich countries, SOEs play an important role in exploiting natural resources and managing the extractive sector. They can generate significant revenue for the state, enable a government to exercise greater control over the sector, help improve local technologies and skills or manage exposure to energy transition risks.

In 2012, the IMF reported that “some 80 percent of world petroleum reserves are controlled by state companies and 15 of the 20 largest oil companies are state-owned”. While SOEs are less dominant in the mining sector, they still play an important role in some countries.

The way that state participation and SOEs are governed has considerable implications for public finances and the economy. Although some SOEs have made significant contributions to development and revenue generation, others have struggled with poor governance and corruption. Lack of transparency about how much the state receives from the sale of its oil and gas can create a distorted picture of government revenues from the extractive sector.

Early findings from EITI reporting and Validation have shown that although financial transactions related to state-owned companies have become more transparent, there is still a demand for improvement of transparency standards around SOE governance. As SOEs have increasingly corporatised their operations, fiscal transparency has become central to their ability to raise funds, develop new partnerships and improve their accountability to their primary shareholders in government and to citizens as the ultimate beneficiaries.  

Benefits for citizens

• Transparency can reduce avenues for corruption to ensure that revenues generated by SOEs are managed in the interest of citizens.

• Transparency can shed light on public expenditures SOEs make on behalf of the state, e.g. social services, public infrastructure, fuel subsidies and national debt servicing.

• Reporting on the environmental, social and governance performance of SOEs not only helps ensure that SOEs can access capital on better terms on behalf of state shareholders, but also enables citizens to scrutinise this information.

Benefits for SOEs

• Transparency can improve access to capital.

• Transparency can promote public-private partnerships and facilitate ease of doing business.

• Reporting on revenues and quasi-fiscal expenditures can enhance SOE’s status as national champions and help build trust at home. 

• Transparency can enhance efficiency of SOEs so as to increase revenues.

Benefits for governments

• Transparency can enhance SOE efficiency so as to increase the government’s share of dividends.

• Transparency can help to clarify the rules governing the financial relationship between SOEs and the government.

• Data on SOE revenues and quasi-fiscal expenditures support decision-making in the energy transition.

While the World Bank, OECD and others have developed guidance and standards on SOE governance, the EITI Standard exclusively addresses governance considerations relevant to SOEs operating in the extractive sector.  

The 2019 EITI Standard includes requirements that relate directly to SOEs (detailed below) and monitors their adherence through Validation. In addition to these requirements, many other aspects of the EITI Standard are relevant to SOEs in the extractive sector.   

• SOEs take part in multi-stakeholder groups in their country of operation.

• Where SOEs are license holders or are responsible for establishing the licensing process and awarding and registering licenses, requirements relating the publication of information on license awards and on maintaining public registries of license holders are relevant.

• SOEs holding production contracts or entering into production contracts on behalf of the state are required to disclose these contracts in terms of the contract transparency requirements of the EITI Standard.

• Where SOEs engage in production, production data is included in transparency commitments under the EITI Standard.

• Disclosure of revenues paid or collected by SOEs in the form of taxes, royalties, non-budgetary payments and sub-national payments is required in terms of the EITI Standard. Revenues and payments made for the transportation of goods by or on behalf of SOEs is also made public in accordance with the EITI Standard.

• Publication of social and environmental payments by SOEs is required in accordance with the EITI Standard.

Where SOEs are EITI supporting companies, they also commit to the Expectations for EITI supporting companies.  

Through these disclosures, applied to over 50 countries that have committed to the EITI Standard to date, EITI reporting has greatly improved the quantity and quality of publicly available information on SOEs.

• EITI guidance: Guidance Notes on Requirement 2.6 and Requirement 6.2 provide step-by-step guidance for implementation of requirements related to SOE transparency.  

• OECD guidelines: The OECD Guidelines on Corporate Governance of State-Owned Enterprises guide countries on how to manage their responsibilities as company owners, thus helping to make SOEs more competitive, efficient and transparent.

• SOE governance toolkit: The World Bank’s “Corporate governance of state-owned enterprises” toolkit provides provides a range of frameworks, concepts, case examples, checklists and model documents to improve corporate governance of SOEs.

• NOC database: NRGI National Oil Company Database compiles information on the production, revenues and performance of 71 NOCs. 

• SOE list: The EITI International Secretariat maintains a list of SOEs that are wholly or majority government-owned and engaged in extractive and extraction related activities, which indicates where EITI Requirement 4.2 is applicable. The list is available on demand by contacting commodity-trading@eiti.org.