Global efforts to shed more light on the financial dealings in the extractive industry took a major step forward this month with the enactment of a new transparency law in Canada. Greater visibility into the money being paid to developing country governments can improve accountability and help better mobilize domestic resources to tackle development challenges.
The Extractive Sector Transparency Measures Act requires all publicly listed and large Canadian oil, gas and mining companies to publish detailed records of the payments they make to foreign governments. The measure is estimated to cover the nearly 2,000 natural resource companies whose businesses are registered in Canada or whose shares are listed on Toronto’s stock exchange.
ESTMA entering into force June 1 is the latest boost for extractive industry transparency campaigns which seek to hold governments and companies accountable for the vast sums of money exchanged for the rights to develop natural resources. Those revenues function as the lifeblood for the resource-rich economies of developing countries, but details are often scant about precisely how much money governments take in and how they appropriate those funds. That opacity typically breeds suspicions of wasteful spending, bribery and graft.
“Citizens around the world are demanding more transparency from their governments,” says Ian Gary of Oxfam America. “With that data, civil society is able to find out if spending is going into priority sectors and citizens can hold their governments accountable to make sure there is more development spending.”
Managing government outlays for development will come into particular focus at the upcoming U.N. Financing for Development conference next month in Ethiopia. With governments, civil society and the private sector gathering in Addis Ababa to discuss how to finance a new set of sustainable development goals, few expect the traditional model of donor agency support to continue to pay the way.
“People are looking more and more towards mobilizing domestic resources and making the most of revenues from oil and mining,” Gary notes. “It’s up to governments to use the money that they have.”
Peering behind the curtain
Canada’s global presence in extractive industries means that its transparency efforts carry significant weight. More than a dozen of the world’s largest oil companies are listed on the Toronto Stock Exchange and more than 1,000 Canadian mining companies operate in roughly 100 countries worldwide.
But until now requirements to disclose payments to foreign governments have been lax. A general description of a country’s fiscal regime has often been the only reference in financial statements.
Under ESTMA oil and mining companies must now itemize their payments to governments on a country-by-country and project-specific basis. Taxes, royalties, signing bonuses and operator fees must be broken down at the federal, provincial and municipal levels. The first glimpse of the detailed reporting likely won’t be available until mid-2016.
A global effort
Canada’s forward progress on transparency dovetails with similar efforts by regulatory bodies in other industrialized countries that are home to the world’s largest oil and mining outfits. Europe is arguably ahead of the pack, with the EU adopting in 2013 accounting and transparency standards that closely resemble Canada’s. Individual member states have until the end of the year to incorporate them into their national laws.
France and the U.K. have already crossed the line, adopting national transparency laws in 2014. This will open up the financial books of international oil companies such as Royal Dutch Shell, BP and France’s Total, whose 2015 payments to foreign governments will be reported next year.
In April Shell voluntarily disclosed that it paid $14.3 billion in corporate taxes and $3.9 billion in royalties last year to the governments of 14 countries where it operates. But transparency advocates point out that is just a fraction of the countries where Shell operates and the payments it disclosed are not broken down on a per-project basis.
Norway whose national reporting requirements have been approved, enacted and are currently being delivered, leads the way on extractive industry transparency. In contrast to Shell, state-controlled oil producer Statoil has published a full report of the payments it made to governments in all the countries where it operated last year, a list that includes Angola, Azerbaijan, Mozambique and Nigeria. The report reveals, for instance, that payments made to all government levels in Angola totaled 23.2 billion krone ($2.97 billion).
“Transparency will give people the tools they need to question their governments and the behavior of companies,” says James Royston of global watchdog Publish What You Pay. “It also allows governments to demonstrate to their communities if they have a good deal in place or encourage citizens to push their governments for a better deal.”
The EU and Norway are indeed home to more than a quarter of the world’s 100 largest publicly listed oil companies. But international attempts to create a harmonized global reporting standard will not gain serious traction without similar participation from the U.S. So far U.S. efforts to enact transparency legislation have fallen dismally short and currently remain in legislative limbo.
A U.S. transparency law for extractive companies has officially been on record since 2010 via an amendment to the Dodd-Frank financial reform act. But the Securities and Exchange Commission has dragged its feet on writing the actual rules to the law, mainly because of legal wrangling from the American Petroleum Institute. The SEC tossed out the initial regulations it wrote in 2013 after a lawsuit from the API claimed that the rules were too punitive for its member companies.
Oxfam has filed it own lawsuit against the SEC for undue delay in implementing rules. Oxfam sources say that they expect a decision “any day now” on whether a federal court will assign the SEC an expedited timeline to issue new rules. But until then, nearly three-quarters of the world’s largest oil companies, including Exxon Mobil and Chevron aren’t required to report their payments to foreign governments.
U.S. extractive companies instead pledge their support for the Extractive Industries Transparency Initiative where host country governments collaborate with private industry and civil society to disclose annual payments. But transparency purists note that EITI is still a voluntary initiative and lacks the more encompassing reach of national legislation governing the financial jurisdictions of the world’s largest oil and mining companies.
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