CSR News - September 2012

Two-thirds of the world’s poorest live in countries with substantial natural resource wealth. The majority of the bottom billion live in countries rich in oil, gas and mining. Approximately $2 billion of petroleum are traded daily worldwide. In 2011, oil production reached more than 83 million barrels per day, representing 15 percent of the global commodity trade [1]. This gap results in part from a lack of transparency surrounding the deals made between companies and governments. Historically, this secrecy has enabled large-scale corruption, allowed companies to operate without proper public oversight and kept citizens and investors in the dark on the true value and risks of resource development. Therefore, legislative initiatives leading to greater transparency in the payments are particularly important.


SEC issues Dodd-Frank rules


Two years after the U.S. Congress passed the Dodd-Frank Act, the Securities and Exchange Commission (SEC) of the American government has at last issued the rules detailing how that law will be implemented.

Section 1504 of Dodd-Frank requires U.S.-listed companies engaged in the commercial development of oil, gas and minerals to publish a detailed account of what they pay the U.S. and foreign governments on a country-by-country and project-by-project basis.

The SEC rejected the idea advanced by companies that multiple activities within an individual country could be collectively considered to be a single “project” and the suggestion made by some companies that only “material” projects should trigger a reporting requirement.


In issuing final rules, the SEC determined companies must report “any payment (whether a single payment or a series of related payments) that equals or exceeds $100,000”. Section 1504 and the final rules implemented by the SEC require companies to report payments made to the U.S. federal government and all foreign governments, including subnational governments such as governments “of a state, province, county, district, municipality or territory under a foreign national government.”

According to the SEC over 1,100 companies will be covered by the information disclosure requirements under Section 1504, including a majority of the most profitable international oil companies (e.g. Chevron, Exxon, BP, Shell and Total), the largest global mining companies (Rio Tinto, Vale and BHP Billiton) and certain state-owned entities (Petrobras, Sinopec and Petrochina).


The SEC rejected industry calls for some secretive countries, like Angola, to be exempted from the reporting requirement rules. Final rules for Section 1504 do not offer exemptions of any kind. The first full-year company reports under Section 1504 are anticipated in 2015.


European Parliament committee approves disclosure


The legal committee of the European Parliament approved measures similar to Dodd-Frank 1504 earlier this month. The committee approved a package of proposals imposing on large companies extracting oil, gas and minerals and loggers of primary forests a new obligation to provide full details on their payments to national governments on a country-by-country and project-by-project basis. The Parliament's proposal exceeds by far what the Council of the EU is willing to support. The Council embraced the industry's proposal to ask only for government-by-government reporting. This would require the companies only to report what they pay to national and local governments, but they would not have to disclose their payments for single projects. In particular, the German and the British government supported the industry's proposal.


The availability of country-level and government-level payment data is a step forward for transparency, but the story these data can tell is still rather limited. Not only are oil, gas and mining activities highly site-specific, but the legal and fiscal terms of extraction, risks and anticipated returns, and entitlements delivered directly to affected governments and/or communities often vary greatly between different projects in the same country.


Project-level information, therefore, helps governments fully track company compliance and assists citizens monitor development activities that impact their lives and livelihoods. Communities, in particular, that are involved in projects need access to project-specific information to assess whether they are receiving their fair share, to ensure funds are managed responsibly and to build the trust essential for reducing conflict and instability in resource-rich areas.

According to the EU decision-making structure, the Council and the Parliament have now to agree on the same legislative text.


Thomas Lazzeri

[1] http://www.revenuewatch.org/news/qa-company-disclosures-under-dodd-frank-section-1504

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