20. Much of resource revenue management hinges on the relationships between the government, national resource companies (NRCs), and international companies. These relationships must be clearly defined for all stages of resource development. Extractive industries can affect the economy or environment at any stage from exploration through to abandonment. Exploration is usually the highest-risk element of any extractive industry project, though there is a difference in this respect between mining and petroleum,22 and substantial expenditure is generally required before a discovery is confirmed. Any government policies intended to encourage investment by international companies or using NRCs at various stages of development should be clear. In the petroleum industry, particular emphasis needs to be placed on clarifying the role of the national oil companies (NOCs). These still produce much of the world’s oil and often play a strong policy role relative to the rest of government. This chapter of the Guide examines the legal framework governing these relationships, the special nature of the fiscal regime for resource companies, the broad role of NRCs, including their noncommercial activities, and the clarity of revenue sharing arrangements with lower levels of government.
120. The need for effective mechanisms to provide assurances of integrity is especially important in the case of resource revenue flows. The magnitude of these transactions and their technical complexity provide a high exposure to risks of malpractice. In developing countries, this situation is often combined with a lack of technical capacity and political failure to address risks adequately. The inherent risks107 associated with resource sectors require that governments place special emphasis on data quality, internal controls, and independent external audit. This chapter of the Guide examines some key requirements for establishing good practice in this area of the Code. The role of the EITI validation process is highlighted again in this context.