14 December 2013, Johannesburg – A new global transparency standard for oil and mining industry revenues promises to bring transformative benefits to citizens across the world but not in Angola, if big oil in the USA gets its way.
The Cardin-Lugar provision within the US Dodd-Frank Act and the new European Union’s Accounting and Transparency Directives form the cornerstones of the new standard – and are intended to increase transparency and accountability, reduce corruption in the natural resource sector, mobilise revenues for development, alleviate poverty and create a more stable investment climate.
However, if a powerful and coordinated push by some major oil companies to exclude Angola from the US law is successful then citizens, parliamentarians, civil society groups, anti-corruption agencies, tax authorities, journalists and the government in Angola will be denied the benefits that greater transparency and accountability will bring.
So OSISA calls on Angolan civil society to advocate nationally and internationally to ensure that Angola is included in the implementing rule that the US Securities and Exchange Commission must draft – and for the rule to require full public disclosure of project-level payments and companies’ identities.
And this is why.
United States: Dodd-Frank Act – Cardin-Lugar provision
In July 2010, US President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. The ‘Cardin-Lugar’ provision of the Act obliges the US’s primary stock market authority, the Securities and Exchange Commission (SEC), to introduce a new rule requiring all oil, gas and mining companies that file annual reports to the SEC to publish details of their revenue payments to governments.
Extractive companies are required to disclose their payments in all countries they operate in (country-by-country) and for each individual resource project they invest in (project-by-project). Payments to all departments, agencies and levels of government, as well as payments to state-owned enterprises, are to be reported.
The types of payments to be disclosed are: taxes, royalties, fees, bonuses, production entitlements, dividends, payments-in-kind, and payments for infrastructure.
For example, Chevron and Total’s Angolan subsidiaries will be required to disclose the tax payments that arise from each oil block they operate in Cabinda, 10% of which are by law meant to be transferred directly to the provincial government and earmarked for public investment. However, largely due to a lack of transparency, the Cabinda government never receives the 10%. In most cases the payments are made arbitrarily, and the Cabinda government receives less than 1% of local oil revenues.
The requirement to disclose production entitlements means that companies will report the profit oil payments they make to the Angolan Government. This will provide an indication of how much profit oil companies distribute to local equity partners, whose beneficiaries may include public officials.
The disclosures would also show how much companies contribute to social projects, and also how much they pay in signature bonuses – some of which may be paid on behalf of their local partners.
In August 2012, the SEC adopted the final implementing rules (regulations) for the Cardin-Lugar law. The rules include a low payment threshold, requiring companies to report all transactions of US$100,000 or more. They allowed for no country exemptions, requiring companies to report payments in all countries they operate in, with no exceptions.
In July 2013 the American Petroleum Institute (API), an oil industry lobby group that includes Chevron, BP, Total, ExxonMobil and Cobalt, filed a legal challenge against the Cardin-Lugar provision. The API claims that Angola, China, Cameroon and Qatar have national laws that ban the disclosure of revenue payments, and that therefore these countries should be exempted from the law.
This is despite the fact that oil companies failed to provide any credible evidence to support this claim. For example, while Angolan law states that “all finance related information provided by oil companies should be confidential”, the template for Angola’s Production Sharing Agreements allows for the disclosure of financial information if it is required by any other applicable law or regulation, including foreign stock market listing requirements.
Nevertheless, the API’s lawsuit was partially successful as in July 2013, a U.S. court withdrew the SEC’s implementing rules, and ordered the SEC to review its decisions and re-issue the rules.
However, the underlying Cardin-Lugar law that requires companies to disclose payments still stands, and the court judgment does not oblige the SEC to exclude countries from the new rules. The SEC must, however, provide a fuller justification for whatever decision it makes when producing the new implementing rules.
If the API is successful in excluding Angola from the U.S. rules, companies such as Chevron, Total, ExxonMobil, Cobalt, Marathon and Vaalco will be allowed to keep their payments to the Angolan Government secret.
Furthermore, as mentioned above, even if Angola is included in the U.S. rules, the API’s push to require the data to be aggregated into compilations, and to keep the identities of the companies anonymous, threatens to make make the information useless for Angolan citizens.
European Union: Accounting and Transparency Directives
On 12th June 2013, the EU adopted a new, mandatory reporting standard for extractive companies, which was included in the revised EU Accounting and Transparency Directives.
In line with the Dodd-Frank Act’s Cardin-Lugar provision, all 28 Member States of the European Union must establish laws requiring extractive companies to disclose annually the revenue payments they make to governments for access to natural resources in every country they operate in, and for every individual project they invest in.
The EU Directives go further than the US law in certain respects, as they apply to logging companies as well as to oil, gas and mining firms, and cover privately-owned companies that are registered in the EU, even if they are not listed on a stock exchange.
The types of payment to be reported match the US law, including taxes, licence fees, production entitlements and signature bonuses. Companies are required to report all payments of €100,000 and above, including payments made by any of their subsidiaries or companies under their control if they are active in the extractive industry. Payments to all departments, agencies and levels of government, as well as payments to state-controlled enterprises, are to be reported.
The EU Directives do not allow for exemptions in any country, and individual EU countries have no leeway to alter the Directives’ requirements when they incorporate them into national law.
Therefore, regardless of the outcome of the US rulemaking process, all companies covered by the EU law that operate in Angola will be compelled to disclose their revenue payments. These include BP, Total, Eni, Tullow and Repsol.
EU Member States are required to incorporate the Directives into national law by July 2015, and the first tranche of payment data is expected to be published by companies in 2016.
Benefits of the transparency rules for communities and civil society
Project-level disclosure empowers citizens, civil society groups, parliamentarians and journalists with details of the financial contributions that the extractive industry makes, enabling them to hold governments to account for how the revenues are spent.
This includes communities that are directly affected by extraction projects, as well as citizens living in provinces that have revenue sharing arrangements with companies, such as Cabinda, Bengo and Zaire.
Benefits for the Angolan government
Payment disclosure helps to prevent oil, gas and mining revenues from being mismanaged or lost to corruption. Experience from the extractive sectors in Ghana, Nigeria, Liberia, Burkina Faso, Sierra Leone and other countries shows that greater revenue transparency leads to improvements in the revenue collection process and increased revenue inflows.
Payment disclosure also helps to improve the investment climate by sending a clear signal to global investors that the government is committed to improving transparency and preventing corruption, which in turn promotes economic and political stability and leads to an improved investment climate, as well as to a more just and sustainable social and economic development.
Enhanced transparency can also help to build trust amongst industry stakeholders, and reduce social and armed conflicts related to the exploitation of natural resources.
Benefits for extractive companies
Project-by-project reporting strengthens companies’ ‘social licence’ to operate by showing host populations the financial contribution they make to public revenues, which in turn reduces the likelihood of resentment, protest and conflict. Local unrest can severely impact the reputation and finances of extractive companies, and cause interruptions to supply.
Benefits for investors
Project-by-project reporting has received widespread and strong support from the international investment community, as it improves investors’ ability to assess risk and make decisions about the allocation of capital, as well as fostering more stable operating environments that enhance prospects for investment returns.
US and Australian investor groups that manage assets of around US$8 trillion support mandatory project-level reporting for extractive companies.
Why arguments against reform do not stand up
Angola’s Production Sharing Agreements (PSAs) permit companies to disclose financial information. Indeed Statoil, a major Norwegian oil company, has already published details of its revenue payments to the Angolan Government in its 2012 corporate social responsibility report.
Many global oil firms have also published detailed information about their revenue payments in Cameroon, whose PSAs also permit financial disclosures, despite oil companies’ claim that Cameroon bans companies from publishing payment information.
Furthermore, a ban on financial disclosure would be counter-productive for Angola, as it could deter inward investment.
As EU Member States have no leeway to alter the EU Directives when they incorporate them into national law, all companies covered by the Directives will have to disclose any payments they make in Angola. Therefore, to avoid creating an uneven playing field for companies in Angola and elsewhere, the SEC should ensure that no countries are excluded from the U.S. implementing rule.
Support for a mandatory global transparency standard has come from a broad range of stakeholders, including heads of state, business leaders and civil society:
• Kofi Annan, chair of the Africa Progress Panel, states that “the time is right to develop a global common standard for all countries”;
• Over 700 civil society organisations across more than 60 countries are members of the Publish What You Pay coalition, which campaigns for mandatory project-level reporting at the national and international levels;
• The 2013 G8 leaders’ communiqué commits G8 countries to make progress towards establishing a mandatory global reporting standard for the extractive industries;
• The chief executive of Rio Tinto, the world’s second biggest mining company, has called on governments to adopt mandatory project-level reporting; and
• The UK Prime Minister David Cameron has called for the global standard to be applied across the world “without exception.”
*ELIAS ISAAC, Open Society Initiative For Southern Africa