Turkmenistan and Azerbaijan are both former Soviet nations that are rich in hydrocarbons and yet they have radically different approaches towards transparency in extractive industries. In the paper Geopolitics and revenue transparency in Turkmenistan and Azerbaijan published in 2015 by Kerem Öge of the Department of Political Science at McGill University examines why Turkmenistan has refused to participate in the Extractive Industries Transparency Initiative (EITI), while Azerbaijan has embraced this initiative since 2003.
Transparency in Extractive Industries
- Transparency means making information on government revenue from the production and sale of hydrocarbons accessible to other countries and to the public. This includes contracts with international companies, resource management, and how funds are dispersed throughout the state budget as well as how they are used.
- Transparency can help undermine corruption in authoritarian countries because it forces the government to disclose where funds are going. A less transparent model of business can lead to increased corruption and authoritarianism.
- The EITI is currently the leading transparency initiative, but one in which Turkmenistan does not participate.
- EITI is a coalition of countries, companies, and civil society groups that sets a global standard of transparency in extractive industries.Participating oil, gas, and mining companies are required to publish what they pay (in taxes/fees) to the governments of their host countries, and the governments are required to publish what they receive. In this way, EITI normalizes the regular publishing of resource revenues.Local NGOs assess the financial reports that companies provide and offer comments and suggestions for improvements. Overall, the multistakeholder group, which includes designated representatives from the government, companies, and civil society groups, supervises the process in each EITI country.
- In order to become a participant, countries must be willing to comply with the rules of EITI. Compliance to the EITI involves oversight by the multi-stakeholder group, timely publication of comprehensive and detailed reports on government revenues and payments to the private sector, easy public access to published reports, a credible assurance process, and a functioning feedback mechanism, setting a transparency standard.
How Countries Approach Transparency
- A country’s geopolitical position in the world as well as its commercial relations can influence its choice regarding transparency. For example, the Turkmen elite have a low incentive to participate in international initiatives that promote transparency due to Turkmenistan’s dependency on Russian and Chinese pipelines, as well as limited foreign investment from Western countries.
- Russia and China do not approach transparency as a priority, and therefore the Turkmen government doesn’t consider it a priority as well.
- In contrast, Azerbaijan implemented revenue transparency reforms because the Azerbaijan elite felt this to be a necessary step to secure western investor confidence, due to Azerbaijan’s dependency on Western energy markets.
The Economic Climate in Turkmenistan vs Azerbaijan
- Since the fall of the Soviet Union, Turkmenistan remained heavily dependent on the Central Asia Center pipeline to Russia, and this dependence diversified to include China in 2009 with the construction of the Turkmenistan-China pipeline, amplifying Chinese influence.
- In contrast, since the collapse of the Soviet Union, Azerbaijan has been becoming more oriented towards the West. Currently, the majority of Azerbaijan’s energy exports go to European markets via the Baku–Tbilisi–Ceyhan (BTC) and Baku–Tbilisi–Erzurum (BTE) pipelines.
- In the future, due to the Turkmen government’s business-oriented approach, Turkmenistan may become susceptible to foreign influence leading to increased participation in transparency initiatives.
- However, with Turkmenistan becoming more oriented towards China, and the constant shunning of Western countries and companies, reforms appear to be unlikely in the near future.