For years, human rights activists have warned of the “resource curse,” the prospect that resource-rich, but still-economically-developing countries could find themselves exploited by oil, gas, and mining companies that come knocking on their door for extractive rights.
It isn’t just the companies that are the problem. Plenty of corrupt politicians around the world have been more than happy to sell out their countrymen for personal gain under the guise of permits, taxes, and facilitation payments.
The tide, however, may be turning, albeit slowly.
A new survey by Oxfam, a confederation of 20 charitable organizations focused on the fight against global poverty, says that companies in the oil, gas, and mining sectors are increasingly adopting full contract disclosure policies. It urges, however, that more companies should adopt similar policies, and proactively disclose contracts on their Websites.
“Corporate support for disclosing oil and mining deals is improving but more work is needed to turn words into reality,” the Contract Disclosure Survey reads. “In most countries, subsoil oil, gas, and mining resources are the property of citizens and are managed on their behalf by governments. Oil, gas, and mining projects—and the contracts that govern them—can outlast most governments. Without transparency of these contracts, citizens and oversight institutions cannot guarantee the delivery of the economic benefits or risk mitigation promised in these deals.”
Oil, gas, and mineral rents totaled $1.7 trillion in 2015—more than the total GDP of the world’s poorest countries. “These deals can influence a country’s development trajectory for generations,” says Isabel Munilla, author and Policy Lead for Extractive Industries Transparency at Oxfam America. “However only a small number of people know about the terms of these projects.”
“In closed-door negotiations, multibillion-dollar oil, gas, and mineral deals spanning decades are made between company heads and select government officials,” she adds. “Secrecy around these huge deals creates fertile ground for corruption, putting local communities at risk and undermining democracy. Contract disclosure is a well-established strategy to address these risks but the extractives industry is still lagging behind the global norms.”
During the past 10 years, the International Monetary Fund, the World Bank’s International Finance Corporation, the European Bank for Reconstruction and Development and the Extractive Industries Transparency Initiative have all endorsed the need to disclose oil, gas and mining contracts, Munilla explains. Civil society groups, including Oxfam and Publish What You Pay, a global coalition with more than 700 members, now include contract disclosure as part of their advocacy strategies.
“[They] are leading the call for more transparency of oil and mining deals to stop the secrecy that creates serious risks for governments and communities,” she says. “Our report shows there is a growing business case for transparency as well, to counter the public misconceptions and suspicions that can lead to protest and conflict and costly delays for company operations.”
Nearly half of the 40 companies assessed in the Oxfam report support contract disclosure in some form. This includes some of the largest companies in the world, including oil giants like Total, BP, Shell, Statoil, and Brazilian state-owned Petrobras as well as mining giants BHP Billiton, Rio Tinto, Newmont, Freeport McMoran, Barrick, and Vale.
Most companies that say they support contract disclosure, however, do not have a concrete public policy that governs their actions. Only five companies have public policies available on their Websites including Kosmos, Tullow, Total, Rio Tinto and PanAust. Kosmos and Tullow led the pack by including supportive contract disclosure policies alongside contracts disclosed on their Websites.
More than half of the companies assessed by Oxfam’s survey are silent or have no supportive language on the issue, even though the clear majority publicly support the EITI, the global standard for oil, gas and mining transparency which endorses contract disclosure.
Oxfam is calling on all oil, gas and mining companies to adopt full contract disclosure policies and proactively disclose contracts on their Websites.
“These deals can influence a country’s development trajectory for generations. However, only a small number of people know about the terms of these projects.”
Isabel Munilla, author and Policy Lead, Extractive Industries Transparency, Oxfam America
As the push for extractive contract transparency gains momentum globally, it does so without much leadership from the United States.
The Dodd-Frank Act included a mandate for the Securities and Exchange Commission to require public oil, gas, and mining companies to disclose, for public review, data on what they paid foreign and domestic governments for specific projects.
In February 2017, however, the House and Senate both voted to repeal the regulation. The effort, endorsed by President Trump utilized the Congressional Review Act. It allows legislators, with a majority vote, to repeal agency rules that were finalized in the last 60 legislative days. The extractive payments rules, re-issued by the SEC after a legal challenge, fell within that time frame.
Critics of the rule claim it forced publicly traded American energy companies to disclose proprietary information, giving their foreign competitors access to valuable data, while costing nearly $600 million each year in industry compliance costs.
Sen. Elizabeth Warren (D-Mass.) unsuccessfully struck back against critics of the rule arguing that the disclosures were not materially relevant to most investors. “Some investors may want to stay away from companies that could face expensive lawsuits for violating the Foreign Corrupt Practices Act or other anti-corruption laws,” she said. “Other investors may just prefer not to invest in companies that could be helping prop up a corrupt foreign government or indirectly financing terrorism.”
Recently, EITI was thrust into the controversy.
The United States had announced its intention to join the initiative, which sets global standard for the good governance of oil, gas, and mineral resources. In November 2017, however, under the direction of President Trump, the United States withdrew its membership, while still trying to claim that it remains a strong supporter of good governance and the principles of transparency represented by the global initiative.
Moving forward, the Oxfam study offers a variety of suggestions for improving disclosures.
All oil, gas, and mining companies should adopt full contract disclosure policies, and proactively disclose contracts on their Websites, it says. It is also “a high priority for corporate EITI board members and supporting companies to actively support contract disclosure and make their positions clear and public.”
“Senior corporate leaders, especially legal counsels, should learn about the normative progress on contract disclosure, investigate the potential for contract disclosure to help manage and mitigate operational risks, and integrate such policies and practice into normal operating procedures,” the report adds
Governments should require companies to make clear their positions on contract disclosure and ensure that contracts proactively include provisions that allow disclosure to the public, Oxfam says.
Charles Wanghu, a Kenya-based advocate who was among the guests on a press panel last month to discuss the survey, stressed the importance of corporate policies as an adjunct to contract disclosures.
Lance Crist, global head of natural resources for the International Finance corporation, part of the world Bank group, echoed that sentiment.
“For us, transparency is not an end, but a means toward achieving good governance, he said. “Good governance is a means to hopefully achieve better development outcomes.”
Crist sees transparency as having plenty of “sticks” to go with its “carrots.”
“It can be risk mitigation, and a deterrent to corruption,” he said, adding that a well-crafted contract can make sure the governments, stakeholders, and companies all have reasonable expectations as to the good and bad of a project.
Rio Tinto Group is a multinational company and one of the world’s largest metals and mining corporations. It is also a company that frequently garners praise as a trailblazer in extractive contract transparency.
Nevertheless, Judy Brown, chief advisor and corporate relations, the Americas, urges companies to engage in transparency efforts with their eyes wide open.
“Contract disclosure and transparency has not always been beneficial for us as I thought they would,” she says.
Among the challenges is ensuring that proper expectations for a project are set. Brown explained that contracts do not just need to be transparent, they need to be very clear in what they do, or do not, promise for stakeholders and the governments they deal with. Economically emerging countries may amass debt to partner with a project that has the potential to produce upwards of 30 percent of their nation’s Gross Domestic Product. The problem, despite their urgency to pay off that debt and signal success to the public, is that it can take up to 10 years for a mine to become operational and 20 years or more to become profitable.
“There needs to be a better assessment of what makes a good contract versus what makes a bad contract, rather than just a focus on disclosure,” Brown said.
“There needs to be a balance between what the community’s role is, what the government’s role is, and what the company’s role is,” she added. “Our role is to make massive investments and get a very long return on investment. That’s what our shareholders expect. Governments have a shorter time period and a very different constituency they are operating with. There needs to be a balance between contract disclosure that recognizes the needs of stakeholders, because everybody is looking for something different.”