Deal reached on EU extractives legislation

10 April 2013

The European Union this week reached a deal to match a US law that compels oil, gas and mining companies to publish payments they make to governments and release information on how much they earn in each country. The law will be formally adopted later this year.

The EU legislation requires all companies listed on EU exchanges to report their payments by country and project. Large unlisted companies registered in the EU are also required to comply. The proposed EU law goes one step further than the US law, adding the forestry industry to the list of companies that need to be more transparent about their global operations. The threshold for the disclosure of payments related to each project is set at €100,000. Companies will need to report on taxes, royalties, signature bonuses and other payments related to the terms of their contract with the government.

Publishing what's paid and to whom

The new law – a revision of its Transparency Directive (2004/109/EC) to cover listed companies and its Accounting Directives (78/660/EEC and 83/349/EEC – follows a ruling last year by the US Securities and Exchange Commission aimed at curbing corruption by requiring oil, gas and mining companies listed on US Stock Exchanges to publish the payments that they make to governments on a country-by-country and a project-by-project basis. This means that an oil company working in Nigeria, for example, will need to disclose the royalties paid to the Nigerian government related to every project that it operates in that country.

The EU rulings and Dodd-Frank are major milestones in the long campaign for transparency in the extractive industry and set a global benchmark for corporate transparency that should be replicated in other industries.

“With this information, citizens of mineral-rich countries can ask hard questions of both companies and governments about the deals that they make,” said Jana Mittermaier, Director of the Transparency International EU Office.

“The secrecy that surrounds these deals has been fertile ground for the corruption that has too often blighted the development of natural resources. EU leaders now need to persuade their counterparts at the G8 and G20 to enact similar legislation to ensure that all citizens can benefit from these reforms and that there is a level playing field for extractive companies.”

In our Promoting Revenue Transparency: 2011 Report on Oil and Gas Companies, which rates 44 companies on their levels of transparency, companies performed poorly on country-by-country reporting. The average score for this category was a low 16 per cent, meaning companies published only limited or no data about their operations on a country-by-country basis. For the most part, if the data was published, it was aggregated for a region so there would be no way for citizens and civil society to hold their governments to account for the money received from these companies.

With oil, gas and mining companies disclosing how much they pay to governments in every country they operate in, citizens in resource-rich countries will know how much money flows into the public budget from these business operations. This simple act of public disclosure will allow citizens in some of the world’s poorest countries to hold their government officials to account and ask the right questions about the use of natural resource revenues.

The public disclosure of payments will also make companies more accountable for their contribution to the economies of the countries and communities in which they operate and where they reap large profits.

Now that the EU and US have finalised their versions of the transparency rules, Transparency International is recommending that all national governments require companies to report on a country by country basis. The G20 should endorse this legislation as the global standard so that there is a level playing field for businesses.

With this new information civil society groups, media and ordinary citizens will have a powerful new tool to hold governments to account for their use of natural resource revenues. Together with other sources of information such as published government receipts and expenditures, media reports, and asset declarations of public officials, the additional scrutiny will provide further deterrent to corruption.