The European Union dealt a major blow yesterday to the oil industry’s push for secrecy by agreeing transparency legislation. It marks a critical step to counter corruption in the global oil, gas and mining sectors.
Representatives from the European Parliament and European Council agreed to include strong rules governing the disclosure of payments by extractive industry companies to resource-rich countries.
The rules will be incorporated in the EU’s Accounting and Transparency Directives, which are expected to be approved in June. The rules will require European public and private companies to publish what they pay to governments around the world for natural resources, country-by-country and project-by-project.
“This is a breakthrough decision ending secrecy in the oil, gas and mining industry,” said Darek Urbaniak, extractive industries campaigner at Friends of the Earth Europe. “We applaud the EU for choosing transparency and the rule of law over corruption and secrecy. People from numerous developing countries especially in sub-Saharan Africa will now be able to see how much money their governments receive from the extractive industries for their natural resources and to monitor how this money is used.”
Despite intense pressure from the oil industry, European decision makers decided on strong reporting standards that will not allow for exemptions and require reporting of all payments over €100,000.
What has been agreed?
- The new transparency requirements will cover companies active in the extractive or logging industries to publish an annual report outlining the payments made to governments
- Companies will have to report payments at both country-level and project-level.
- Project level reporting requires companies active in the extractive and logging industries to publish the payments they make to governments for each lease or licence that they obtain to access resources. This creates a link between a project, for example a mine or an oil field, and the payment.
- All levels of government are defined within the rules, so payments to federal, national, regional and local governments would have to be reported.’
- The types of payments that will have to be reported include: production entitlements; certain taxes; royalties; dividends; bonuses; fees – including licence fees, rental fees and entry fees; and payments for infrastructure improvements.
- All payments – whether a payment or series of related payments – above 100 000 EUR will have to be disclosed. There is an anti-evasion clause to ensure companies cannot artificially split or aggregate payments to avoid disclosure.
- The rules include a review clause which is activated after three years, and calls on the European Commission to explore the possibility of broadening the scope of these rules to additional sectors, as well as the possibility of requiring the disclosure of additional information.
- The review clause also calls for the European Commission to consider proposing legislation that would require all EU listed companies to carry out due diligence when sourcing minerals to ensure responsible supply chain managements.
Why is this new law so important?
Many African and developing countries are rich in natural resources, such as oil, gas, iron and other scarce mining products required for modern technologies. Access to these resources is considered important for the EU and European companies, as it is outlined in the EU’s Global Europe Strategy. Exploitation of these resources should ideally provide developing countries with financial incomes and know-how, needed to develop their economies and societies. Extraction and export of these products should result in job creation and increased living standards, thus contributing to a reduction of poverty in developing countries. Furthermore, by investing earnings from the EI in other sectors of the economy these countries should be able to stimulate other development opportunities. Assessment of the EIs impacts on these countries in the last several decades, however, shows that resource extraction has contributed very little to achieving the Millennium Development Goals.
In 2008, exports of oil, gas and minerals from Africa were worth roughly 9 times the value of international aid to the continent (393 billion USD vs 44 billion USD), yet many of these countries remain trapped in poverty. Developing countries around the world are being robbed of the chance to earn vital revenue from oil, gas and other mining resources.
According to the latest December 2008 statistical update of UNDPs ‘Human Development Indices’, a majority of countries that heavily depend on EI are at the very bottom of the Index: 150 – Cameroon, 152- Tanzania, 154- Nigeria, 176- Liberia (out of 179 countries evaluated). Furthermore, they continue to score badly on the ‘Human Poverty Index’ as well: Cameroon – 144, Nigeria – 158, Tanzania -159
What happens next?
The deal reached will now go back to the European Parliament’s Legal Affairs Commitment and then the full plenary for final approval by MEPs.