Information and recommendations of the Independent Administrator

Latest Update: February 2024

Information and recommendations from the implementation of a system-based approach to payment reconciliation

The EITI Standard 2019 demands comprehensive publication of all material payment flows from the national extractive sector to government agencies. This information on payment flows must satisfy requirements in respect of reliability, understandability and public availability (cf. EITI requirements 4.1 and 4.9). In the first and second German EITI reports, the reliability of the published payment flows was, among other processes, ensured by the previous “standard procedure” of a direct reconciliation of the payment flows reported by the participating companies with the payments received by the government agencies (“payment reconciliation”). These did not produce any noteworthy differences between payments made and payments received between companies and government agencies.
In agreement with the international EITI secretariat, the 3rd German EITI report for the 2018 reporting period was the first to start with the development and implementation of an alternative quality assurance procedure for the payment flows to the government agencies reported by the extractive industry which has also been used for this 6th D-EITI report. This procedure replaces the test of details for payment flows from participating companies with a multi-stage system-based approach of obtaining information and analysing processes and controls relevant for EITI, in particular on the part of government agencies.
The aim is to put the MSGs in a position where they can provide a well-founded assessment of whether or not there are risks to indicate that payment flows to government agencies related to natural resources are not being properly processed during the respective reporting period. Regardless of the result of this risk assessment, the process used for assessing the participating companies’ reported payments will then be carried out. Where risks are identified to indicate that (payment) processes or controls relevant for EITI are not entirely correct, further investigations of the payment flows concerned will initially be carried out and, ultimately, a return to payment reconciliation will also be considered. Where, however, no corresponding risks are identified, the actual assessment of payment flows is made on the basis of plausibility assessments.
With the implementation of the system-based approach, the tasks of members of the MSG and of the Independent Administrator have changed, when compared to the previous standard procedure of payment reconciliation. The risk assessment process is based, among other things, on a comprehensive collection and evaluation of information that could be relevant for assessing whether payments from companies to public authorities are being correctly processed. This includes analysing reports from the responsible local and supra-local audits and the audit offices. The same applies to information from associations or clubs on findings that may be relevant to the risk assessment or reports in relevant media. We recommend that MSG members be more closely involved in this assessment process, in such a way that publicly available information and evidence from MSG members’ professional environments that is potentially relevant to the risk assessment is captured in the form of a “regular process” in cooperation with the EITI Secretariat. If no relevant findings are made in the reporting year, a negative report would have to be submitted to the EITI Secretariat.

Recommendations in connection with the implementation of the requirements of the EU Sustainability Reporting Directive

Furthermore, we recommend the MSG to deal with the content of the “Corporate Sustainability Reporting Directive – CSRD”(Directive (EU) 2022/2464), i.e. the directive on corporate sustainability reporting. On 22 December 2023, the Delegated Regulation (EU) 2023/2772 was published in the Official Journal of the European Union, which contains twelve standards for corporate sustainability reporting (European Sustainability Reporting Standards, ESRS). Furthermore, in February 2023, the European Financial Reporting Advisory Group (EFRAG), which is responsible for the development of reporting standards, published a working paper in preparation for a European Sustainability Reporting Standard (ESRS) on “Mining, Quarrying and Coal” . This first working paper on a sector-specific reporting standard makes explicit reference to the quality assurance mechanisms of the EITI and derives reporting obligations for companies in the extractive sector from this. Work on this sector-specific reporting standard is ongoing.

The companies that are subject to the Directive are invited to assess which disclosures are to be regarded as “relevant” in the sense of “material” for their own reporting. From the companies’ perspective, it is important to gain an appropriate overview of the aspects that the various stakeholders consider relevant in the context of sustainability reporting. As a central element of the respective EITI implementation, the MSG can be seen as an important stakeholder across all countries
Against the background of the objective pursued with EITI requirements 4.1 and 4.9 (ensuring data quality and the regularity of payment processing), ESRS G1-3 (Prevention and detection of corruption/bribery) and G 1-5 (Political influence and lobbying activities) could be considered particular relevant aspects in the context of sustainability reporting from an EITI perspective. For the further development of the pilot procedure, we recommend that the MSG address these requirements and develop a view as to whether, and if so, under what conditions, the MSG would consider sustainability reporting by companies to be material.

1 EFRAG (2023): Mining, Quarrying and Coal; URL: https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FMeeting%20Documents%2F2212281050436715%2F04-02-%20SRB%20230227%20Mining%2C%20Quarrying%20and%20Coal.pdf&AspxAutoDetectCookieSupport=1 (Accessed on 15 January 2024).

Recommendations of the IA

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Glossar

In Federal States in which legislation does not include an excavation law and the State-level Nature Conservation Law does not apply to the extraction of non-energetic, ground-based natural resources in the context of dry excavations, this type of natural resource extraction falls within the scope of the relevant state building regulations.

Legal limitations also exist: State building regulations apply to the excavation of solid rock (limestone, basalt, etc.), for example, in quarries with an area of up to 10 hectares (ha) in which no blasting is carried out. In the event that this area is exceeded, or if water bodies are formed after completion of the extraction operations, the German Federal Immission Control Act (BImSchG) and/or Water Resources Act (WHG) are applicable.
In Bavaria and North Rhine-Westphalia, the above-ground excavation of non-energetic, ground-based natural resources in the context of dry excavations is determined at state level by the existing excavation laws (AbgrG). For the excavation of solid rock (limestone, basalt, etc.) in quarries where blasting does not occur, the AbgrG applies to sites with an area of up to 10 ha. In the event that this area is exceeded, or if water bodies are formed after completion of the extraction operations, the German Federal Immission Control Act (BImSchG) and/or Water Resources Act (WHG) are applicable. In the other Federal States, this type of natural resources extraction is regulated by the respective state building regulations or by the state-level nature conservation laws.

In general, the AbgrG applies to those raw materials the excavation of which is not directly subject to mining law or the mining authorities. These raw materials include (in particular) gravel, sand, clay, loam, limestone, dolomite and other rocks, bog mud and clays. However, the jurisdiction between AbgrG and mining law can vary from case to case in the case of certain raw materials, such as quartz gravels. The requested authority must always verify its own jurisdiction in each case. The AbgrG also encompasses surface area usage and the subsequent rehabilitation of the area.
The German Federal Immission Control Act (BImSchG) is the most important and practice-relevant law in the field of environmental law. It constitutes the basis for the approval of industrial and commercial installations. In the natural resources extraction industry, quarrying companies must have approval to extract stones and earth. Every quarrying area of 10 hectares or more must undergo a full approval procedure, including public participation and UVP (environmental impact assessment). A more simplified approval procedure is used for quarrying areas of less than 10 hectares.

The sphere of responsibility for the legal immission control approval procedure is fully specified in the Immission Control Acts of the Federal States. The Federal States are tasked with the administrative enforcement of the approval procedure. Each individual state’s Environment Ministry – the highest local immission protection authority – usually bears the responsibility for this procedure. Subordinate authorities include regional councils, district authorities and lower-level administrative authorities. Administrative jurisdiction generally lies with the lower-level administrative authorities.
The GDP measures the value of goods and services produced domestically (creation of value) within a given period (quarter, year). The Federal Office of Statistics calculates the GDP as follows: production value minus intermediate consumption = the gross value added; plus taxes on products and minus subsidies = GDP
The gross value added is calculated by deducting intermediate consumption from the production values, so it only includes the value added created during the production process. The gross value added is valued at manufacturing prices, i.e. without the taxes due (product taxes), but including the product subsidies received.

During the transition from gross value added (at manufacturing prices) to GDP, the net taxes (product taxes less product subsidies) are added globally to arrive at an assessment of the GDP at market prices’. Source: Destatis
The planning approval procedure under mining law is used for the approval procedure of a general operating plan for projects which require an environmental impact assessment (§§ 52(2a), in conjunction with 57 a of the BBergG).
There are different definitions and methodological approaches at the international as well as at the national level as to what subsidies are and how they are calculated. According to the definition of the German government’s subsidy report, this report considers federal subsidies for private companies and economic sectors (ie grants as cash payments and tax breaks as special tax exemptions) which are relevant to the budget. Subsidies at the federal level can be viewed via the subsidy reports of the federal states (see Appendix 5 of the German government subsidy report).
In compliance with § 68(1), Water Resources Act (WHG), the excavation of landowners’ natural resources such as gravel, sand, marl, clay, loam, peat and stone in wet extraction operations requires a planning approval procedure. The reason for this is that groundwater is exposed in wet extraction, resulting in above-ground water. The planning approval procedure is implemented by lower-level water authorities.

The procedural steps of the planning approval procedure are governed by the general provisions of §§ 72 to 78 of the Administrative Procedures Act (VerwVfG). Within the meaning of § 68(3), nos. 1 and 2 of the WHG, the plan may only be established or approved if an impairment of the common good is not to be expected and other requirements of the WHG as well as other public-law provisions are fulfilled.