“What’s in It for Us?” An action-research case study of Nigeria’s extractive industries

AN ACTION-RESEARCH CASE STUDY OF NIGERIA’S EXTRACTIVE INDUSTRIES
Nigeria’s 65 years of oil and gas production have made it Africa’s largest producer. With almost 40 billion barrels of proven oil reserves, its economy is heavily dependent on hydrocarbon exports. Operating extractive companies including subsidiaries of Chevron, CNOOC (China), Eni, Equinor, ExxonMobil, Royal Dutch Shell Plc and Total SA have paid billions of dollars towards development in the Niger Delta. But the money brings few if any benefits for impoverished communities living in this highly polluted region.

What’s in It for Us?” An action-research case study of Nigeria’s extractive industries uses companies’ payments-to-governments reporting and Extractive Industries Transparency Initiative (EITI) data as a starting point to investigate Nigeria’s oil, gas and mining sector.

Based on joint work by Policy Alert and PWYP UK, the report documents public consultations with affected communities, social media communications and dialogue, and policy interventions. It incorporates research by Stakeholder Democracy Network into oil companies’ environmental performance in the Niger Delta.

The study links close to Policy Alert’s #WetinWeGain campaign. We highlight key findings and recommendations for the Nigerian and other governments, extractive companies, civil society, host communities, and international financial and multilateral institutions and donors.  As Nigeria and hydrocarbon operators increasingly face risks from climate-induced stranded assets as the world transitions to low-carbon energy, sector-wide transparency is as important as ever.

Download the executive summary here.

Download the full report here.

Read the press release.

 

PWYP UK welcomes fifth UK EITI report, but has the UK fiscal regime been too generous to industry?

In December 2019, the United Kingdom’s Extractive Industries Transparency Initiative (EITI) Multi-Stakeholder Group (MSG) oversaw publication of the UK’s Kingdom’s fifth EITI report, covering calendar year 2018.

Former Prime Minister Theresa May had written in 2018 in her foreword to the UK Government’s A Green Future: Our 25 Year Plan to Improve the Environment (pages 4-5): “Our natural environment is our most precious inheritance … We hold our natural environment in trust for the next generation. By implementing the measures in this ambitious plan, ours can become the first generation to leave that environment in a better state than we found it and pass on to the next generation a natural environment protected and enhanced for the future.”  The 25 Year Plan has the clear goal of leaving the environment for future generations in a better condition than today.

Is the country obtaining true and lasting value from extraction both for present and for future generations?

When it comes to a country’s inherited non-renewable natural wealth, such as the UK’s North Sea oil and gas, the EITI is potentially an important tool to enable citizens to judge whether future generations will inherit as much value as their predecessors. For example, where such non-renewable natural resources are being exploited, is the country obtaining true and lasting value from extraction both for present generations and for future generations who will not have the same resources available to exploit?

Comprehensive review

The new UK EITI Reconciliation and State of Industry Report provides a thorough and detailed overview of the country’s oil, gas, mining and quarrying sectors in 2018 and maintains the UK MSG’s track record of publishing a high-quality EITI report in good time following the end of the reported year. Publish What You Pay UK, which works with others in civil society as part of the UK EITI Civil Society Network (CSN), is pleased to see another comprehensive and well-executed UK EITI report. As a member of the CSN we have contributed actively to the UK MSG’s work – despite the CSN withdrawing temporarily from the process in 2017-18 due to a dispute about civil society representation – since the UK first began to implement the EITI in 2013.

The UK report on 2018 provides narrative chapters (here, here and here) describing the state of the UK extractive industries, and numerous online data tables in open and machine-readable format that enable users to interrogate and repurpose the data. PWYP UK previously used online UK EITI data for 2016 to produce in 2018 the first known systematic comparative study of a country’s EITI payment and revenue data with corresponding payments-to-governments data disclosed under the European Union and UK extractives transparency laws.

Intrisic and instrumental importance

For those working to address the extractive industries’ “resource curse”, PWYP UK believes the UK EITI has both intrinsic and instrumental importance. Its intrinsic importance is potentially to help ensure that citizens and society gain fairly from the exploitation of the UK’s non-renewable natural resources and that adequate provision is made for future generations who will not have such resources to exploit. Instrumentally, the UK EITI enables civil society to show support for the UK Government’s role as a leading champion of the EITI as a global initiative, and of transparency and accountability in the extractive industries more broadly. Civil society participation in the UK EITI MSG has helped secure valuable transparency and accessibility gains on project-level reporting, beneficial ownership disclosure and open data.

However, UK implementation of the EITI since 2013 may have come rather late to secure intergenerational equity in relation to UK North Sea oil and gas, whose exploitation began long ago in the 1960s (gas) and 1970s (oil). And questions were noted in the recent validation of the UK as making meaningful”  (rather than fully “satisfactory”) progress under the EITI’s rules that indicate why the EITI International Board does not yet consider the UK totally compliant with all the initiative’s requirements (although the compliance gaps are generally minor and straightforward to address).

One of the weaker areas highlighted by the UK’s validation process was licence and contract transparency. The UK was among the first countries to systematically publish petroleum exploration and production licences on the Oil and Gas Authority website. But, according to Rob Pitman, who leads the Natural Resource Governance Institutes work on contract transparency: “The UK system is difficult to use for anyone without a strong technical background. As norms evolve and as more and more governments publish contracts (the latest count is 44), the UK will need to do more to keep track with good practices in this area. Recent strengthening of the EITI Standard in 2019 means that the UK will be required to publish all oil, gas and mining contracts and licences that are granted, entered into or amended after 1 January 2021. Meeting this requirement will entail publishing mining contracts and licences issued by government departments, the Crown Estate and Crown Estate Scotland for the first time.”

Public debate

The UK’s validation also highlighted a lack of public debate about the UK extractive sector following publication of the previous year’s EITI report. On the one hand, it is positive that UK citizens can almost certainly rest assured that there is no corruption in the relatively well-governed domestic oil, gas and mining/quarrying industries, in contrast to widespread civil society concerns about such sectors in many countries overseas. However, there are issues that arguably should be brought more to public attention via the UK EITI.

One is the climate crisis and the widely understood need for a low-carbon transition that addresses the rights of citizens of resource-rich countries in the global South and of working people in the global North whose livelihoods currently depend on oil and gas production and consumption (see the TUC on a just transition). If, as the science strongly indicates, humanity must drastically reduce its carbon budget, international fairness implies that extraction rights should be allocated more to the global South than to major historic Northern carbon emitters such as the UK. For the first time, the UK EITI report on 2018 acknowledges this issue, if briefly, by referring to decarbonisation in the narrative chapter on Upstream oil and gas in the UK.

In addition, with North Sea oil and gas production well past its peak, wider public discussion may be overdue about whether UK citizens and future generations have received a fair deal from 40-plus years’ exploitation of our country’s non-renewable resources, for example in comparison with Norway. The UK North Sea sector’s fiscal regime appears to some commentators to have been too generous to industry. If true, this would mean that as a country we have received less than fair value for our mineral wealth – a loss to both present and future generations. The adequacy or not of current provision for the large future costs of decommissioning also surely merits more debate.

To assist such points being brought more to public attention, there could be an annual debate in Parliament about the content and implications of each successive UK EITI report following publication.

A further point of note in this year’s UK EITI report is the statement that in November 2019 the UK Government “announced a moratorium on fracking [of shale gas] with immediate effect” and “will no longer be supporting further hydraulic fracturing activities in England” unless “compelling new evidence” about the risk of earthquakes linked to fracking operations “comes to light”.

The UK is due to undergo a second EITI validation in late 2020. In the meantime, the next UK EITI report, on 2019, will be required to meet the more demanding 2019 EITI Standard.

UK financial regulator confirms oil, gas and mining companies must name government entities receiving their payments

In 2016 UK-incorporated and London Stock Exchange (LSE)-traded oil, gas and mining companies began to publicly disclose their payments to governments annually under the European Union Accounting and Transparency Directives and UK national law. The regulations require companies to file reports that are disaggregated and granular, providing data both on each country where the company operates and on each individual project giving rise to payments. UK-incorporated companies report via the UK registrar Companies House extractives service and LSE companies via the designated National Storage Mechanism (NSM) of the UK Financial Conduct Authority (FCA), the UK financial regulator. Roughly 90 UK-reporting companies are now entering their fourth annual round of public payments to governments disclosures.

The UK and all other EU countries, Canada and Norway have all implemented laws requiring extractive companies to report their payments to governments. This has been a major breakthrough in the fight against corruption and fiscal mismanagement in the world’s oil, gas and mining industries. But some companies reporting in the UK have omitted important elements. In 2018 PWYP UK complained to the UK authorities regarding 20 or so companies that had failed to identify projects in their disclosures or failed to name each individual government entity they had paid. PWYP UK also notified officials about companies that failed to report to the NSM in the required XML (open and machine-readable data) format as well as in “human-readable” PDF or HTML, or that were at least two months overdue with their reports.

The UK government and its G7 partners recognised in their 2013 Open Data Charter that publication of extractives data in open and machine-readable formats is important to help “increase awareness about how countries’ natural resources are used [and] how extractives revenues are spent”. Unlike the NSM, the Companies House extractives service only accepts payment reports in XML, so the issue of companies not using the required format does not arise there.

NRGI and PWYP UK have also engaged with a number of reporting companies individually, pointing out that UK and EU law requires both the naming of individual projects giving rise to payments and the identification of each government entity that receives a payment.

The FCA takes action

Earlier this year, the FCA took action. The February 2019 Primary Market Bulletin, which the FCA publishes to inform LSE-traded companies of important regulatory issues, clarified that oil, gas and mining companies reporting payments to governments must under Chapter 10 of the Accounting Directive identify each separate government entity receiving payments: “[A] government is defined as ‘any national, regional or local authority of a Member State or of a third country. It includes a department, agency or undertaking controlled by that authority’,” the FCA stated. “Some issuers … have only provided the payments made by country[,] which is not detailed enough to comply with … the Accounting Directive. The policy intention is that stakeholders should be able to assess to which precise government entity a payment has been made”.

As we have consistently argued, it is not enough for companies to provide only the recipient country’s name or only generic indications of government level such as “national”, “regional/local” or “municipal”. The EU Directives and UK regulations require companies to report the amounts paid to “each government”, including to state-owned enterprises. The rationale for this is clear: If citizens of producing countries are to hold their governments to account effectively, they need – and have a right – to know which specific government body receives payments, rather than having to guess or to seek the information elsewhere.

“If citizens of producing countries are to hold their governments to account effectively, they need – and have a right – to know which specific government body receives payments, rather than having to guess or to seek the information elsewhere.”

Consistency in transparency

Ensuring that companies identify each recipient government entity is fully consistent with the Extractive Industries Transparency Initiative (EITI) 2016 Standard, which requires that payment data “is presented by individual company, government entity and revenue stream”, as well as “at project level” (requirement 4.7). Similarly under equivalent Canadian legislation, the Extractive Sector Transparency Measures Act (ESTMA), “Payments must always be reported for a single Payee and not grouped together at the level of government. For example, each payment to a municipal government Payee must be reported separately in the ESTMA report from payments to other municipal government Payees” (Canadian government guidance).

PWYP, NRGI and our civil society allies are increasingly using extractive payments data to raise public awareness and improve public oversight of the sector – for example, here and here.  It is therefore important for companies to fully recognise that disaggregating and naming each recipient government entity, including state-owned enterprises, is the reporting requirement under both mandatory disclosure laws and the EITI Standard. This will help provide citizens with the information they need to hold their governments to account.

We have highlighted this point in our written submissions to the European Commission “fitness check” on company reporting, which includes in its scope chapter 10 of the EU Accounting Directive. And we have alerted individual extractive companies and the two leading industry bodies, the International Association of Oil & Gas Producers (IOGP) and the International Council on Mining and Metals (ICMM), to the UK FCA’s recent ruling.

Open/machine-readable and human-readable data

The FCA also reminded LSE-traded extractive companies of their obligation to report their payments to governments via the official online NSM platform and to do so in both open/machine-readable XML format and in “human readable” PDF or HTML. We will continue to engage with companies and the FCA where these requirements are not met. And once again we have emphasised the need for open data reporting for extractive payment disclosures – and for a central EU-wide online data repository – in our engagement with the EC’s “fitness check”.

We encourage civil society colleagues and other accountability actors to access the wealth of mandatory reporting data available via NRGI’s platform www.resourceprojects.org, as well as via Canada’s ESTMA index page and the UK’s Companies House and NSM platforms (see also PWYP UK’s short user’s guide here). Highly recommended too is Global Witness’s handbook on using and analysing extractive companies’ revenue disclosures, Finding the Missing Millions.

The more that civil society and other oversight actors use data to hold governments and extractive companies to account, the more effective we can be in tackling the resource curse.

New PWYP UK study explores UK EITI and mandatory payments data variances

Publish What You Pay UK has published Comparing UK EITI and Mandatory Payments to Governments Data for 2016, an assessment of payments to the United Kingdom government made in 2016 as reported by oil, gas and mining companies operating in the UK. PWYP UK’s 12-page report compares data released via the UK Extractive Industries Transparency Initiative (EITI) with payments disclosed under UK and other European Union member state regulations implementing the EU Accounting and Transparency Directives’ country-by-country reporting requirements for extractive companies.

PWYP UK undertook the study to understand better how the EITI and mandatory reporting complement each other in practice – the two regimes are intended to be, and in many key ways are, complementary – as well as to explore a sample of extractives data in greater depth and to contribute to discussions about “mainstreaming” or “systematic disclosure” in the EITI.

This data assessment investigates the degree of consistency between extractives companies’ total disclosed payments to UK government entities in 2016 as reported under the two transparency regimes, and the extent of and reasons for major variances. Outside of Norway, which has begun to practise “systematic disclosure”, this UK-focused study may be the first of its kind at country level.

Initial findings and dialogue with companies

Of 58 extractive companies reporting via the UK EITI on 2016 – the most recent year for which data was available in September 2018 – 29 had also published a corresponding mandatory payments report. Data published by 16 of these 29 companies showed variances of less than 10% between the two sets of total reported payments to UK government entities. The remaining 13 companies’ data displayed statistically more significant variances, ranging from just under 12% of the company’s total reported UK EITI payments to more than 9,000%, and in money terms from £0.36 million to more than £40 million.

PWYP UK Graph 1
PWYP UK Graph 2

After eliminating obvious potential reasons for the variances as far as possible, PWYP UK contacted the 13 companies concerned, in several cases via the industry body Oil & Gas UK, to request clarification. Most companies were willing to provide enough information to fully explain differences between the two data sets.

Reasons for the data variances and conclusions

Dialogue with companies was needed to understand the variances completely. Explanations received show that differences of scope between the two transparency regimes determining how some main payment types were reported are significant, although the specifics vary. Companies have confirmed that the main factor is the inclusion or exclusion of subcategories of payments and of interest and negative payments (refunds), especially relating to taxes. In some cases, inclusion of subsidiary companies in UK EITI reporting that were not included, or that disclosed separately or for less than 12 months, in mandatory reporting is also a factor, as are differences in reporting period and – most easily resolved – in currency exchange rates applied.

The extent to which similar issues arise in other countries that implement the EITI, and where operating companies also report payments under mandatory disclosure rules – either in the UK, other EU member states, Canada or Norway – remains to be seen. Lessons from Norway’s experience with systematic disclosure will be useful.

Both the EITI and mandatory payments to governments reporting provide hard-won mechanisms to deter corruption and mismanagement, and opportunities for citizens of resource-rich countries and other oversight actors to hold governments and companies to account for their stewardship of the planet’s non-renewable natural resources and of the resulting financial flows. Civil society organisations, parliamentarians, journalists, investors and companies themselves can reap important public benefits from the two extractive industry transparency regimes. Comparing EITI vs mandatory reports is only one of numerous approaches to using extractives data that civil society is currently exploring as part of its work to bridge the gap between extractive industry transparency and full accountability.

Download PWYP UK’s assessment report, Comparing UK EITI and Mandatory Payments to Governments Data for 2016, here.

Accessing and using UK-based extractive company reports on payments to governments data

PWYP UK’s short practical multi-lingual guide to accessing 130 UK-based extractive companies’ payments to governments reports is available now in English, French and Spanish.

This blog and the linked resources were updated in August 2020.

More than 130 oil, gas and mining companies incorporated in the United Kingdom or listed on the London Stock Exchange (LSE) have published annual reports on payments to governments under UK law. At least 128 extractive companies have reported in other European Union countries, 850 in Canada and 10 in Norway. Equivalent reporting legislation awaits implementation in the United States. Similar laws have been drafted and proposed in Switzerland, Ukraine and Australia. The UK government has concluded a positive initial review of its payments to governments regulations.

Publish What You Pay has campaigned for years for laws requiring extractive companies to disclose their payments to governments worldwide, country by country and project by project, every year, as a complement to the EITI. Now that we have a growing body of public mandatory payment data, it would be good to increase our use of the data.

New two-page guide from PWYP UK

To help PWYP coalitions, member organisations and others in civil society access and use the 130-plus UK-based extractive companies’ payments to governments reports, PWYP UK has produced a short practical multi-lingual guide to accessing these reports. The two-page guide is available in English, French and Spanish, with links to UK-incorporated company reports here and UK-listed (London Stock Exchange) company reports here.

The guide shows how to access data on payments made to governments in 2015, 2016 and 2017 all over the world. Companies that have published their payments this way include Aggregate Industries/LafargeHolcim, Anglo American, Antofagasta, BHP Billiton, BP, China Petroleum & Chemical (Sinopec), Gazprom, Glencore, Lonmin, Lukoil, Premier Oil, Randgold, Rio Tinto, Rosneft, Royal Dutch Shell, Seplat, Soco, South32, Total, Tullow and Vedanta.

As well as explaining how to access reports via the two official UK web portals, the guide also briefly explains NRGI’s www.resourceprojects.org portal. This provides access to mandatory payment data published across the EU (including in the UK) and in Canada and Norway.

Why should civil society access the reports and use the data?

Payments to governments reporting helps deter and prevent corruption and fiscal mismanagement. Companies that are required to publish their payments are less likely to enter into corrupt or questionable deals with governments. Governments are less likely to mismanage the revenues knowing that the money received is publicly reported.

Civil society can achieve more by understanding and publicising the payments made and reported by companies in particular countries and for specific projects. Knowledge empowers. If we detect surprising or questionable payments, we can call for the government and company involved to explain. We can use the data to help citizens and local communities judge if individual oil, gas or mining projects are good value and to demand accountability for how each government spends the money. This includes judging whether a project’s public revenues and how they are spent compensate fairly for negative social and environmental impacts at national or subnational level.

Fiscal transparency is also potentially a step towards greater transparency and accountability for extractive industry impacts on livelihoods, human rights and the environment. If we can also achieve full beneficial ownership disclosure and contract transparency (better still, open contracting) – as well as disclosure of payments to governments for the first sale oil, gas and minerals (commodity trading) – we will be well on the way to opening up the extractive sector.

The UK government, the European Commission and others have asked civil society for evidence that payments to governments reports really do help improve extractive industry governance and ultimately citizens’ lives. The more we can make this happen and demonstrate it is happening, the more secure will be the political achievement of opening up extractive company payments and government revenues to public scrutiny.

Data-based advocacy partnerships

Building on its 2016 Data Extractors project, PWYP UK is working with several PWYP member organisations around the world to analyse payments and conduct data-based advocacy focused on UK-based extractive companies’ transparency reports. To discuss possible collaboration, please contact [email protected] in English, French or Spanish.

Transparency champions and PWYP call on UK to maintain oil and mining disclosure momentum

Leading advocates of country-by-country payments to governments reporting by oil, gas and mining companies have joined Publish What You Pay (PWYP) UK in calling on the United Kingdom government to continue to lead the global push for greater transparency in the extractive industries as part of the fight against corruption and for citizen empowerment in resource-rich countries.

Open Society Foundations founder George Soros, US Senator Benjamin Cardin, former Vice-President of the European Parliament’s Economic & Monetary Affairs Committee Arlene McCarthy OBE, the Columbia Center on Sustainable Investment, UK MPs Caroline Flint (Labour) and Liberal Democrat Deputy Leader Jo Swinson, oil company Kosmos and PWYP UK have all made written submissions this month to the UK government.

Greg Clark MP, Secretary of State at the UK Department for Business, Energy and Industrial Strategy (BEIS), is undertaking a review of the UK’s Reports on Payments to Governments Regulations, under which UK-registered and London Stock Exchange-traded extractive and forestry companies are required to report their payments to governments at project level for all countries where they operate. The review of the 2014 regulations is a statutory requirement. Mr Clark is due to report to Parliament on the conclusion of his review early in 2018.

PWYP UK’s 46-page submission to the review emphasises the value of mandatory payment reporting in deterring corruption and fiscal mismanagement, preventing conflict, enhancing public understanding and citizen empowerment, and delivering business benefits for companies and investors. The submission includes 28 brief case studies highlighting civil society’s use of companies’ payment disclosures to promote accountability across the sector.

“In times of political uncertainty it is critical that the UK upholds its leading role in the fight against corruption and that progress towards a more open and accountable global extractives sector remains on course. Oil, gas and mining are notoriously corruption prone.”

Miles Litvinoff, PWYP UK Coordinator, commented: “In times of political uncertainty it is critical that the UK upholds its leading role in the fight against corruption and that progress towards a more open and accountable global extractives sector remains on course. Oil, gas and mining are notoriously corruption prone.”

While commending the UK for its leadership on this issue, including for ensuring that companies’ disclosures are available to stakeholders in an open data format, PWYP UK has also identified areas where incomplete and inconsistent company reporting is occurring, and makes recommendations to the government to address weaknesses in the regulations and their implementation.

Among other improvements, PWYP UK is calling for more clarity on requirements for project-level disaggregation, joint venture and payment-in-kind reporting; for full identification of recipient government entities; for disclosure of payments to governments for the sale of oil, gas and minerals; and for better accessibility of reports and clearer information for companies on how to report.

“PWYP UK hopes that the government will take note of our recommendations to make the regulations more fit for purpose,” said Litvinoff.

In her letter to the Secretary of State, Arlene McCarthy, who led negotiations on chapter 10 of the European Union Accounting Directive – on which the UK regulations are based – for the European Parliament, urges the UK government to “build on the gains made thus far – not only in the UK and the EU but also in Norway, Canada and the United States” and to continue “momentum for a greater degree of accountability in this historically opaque sector, where so much potential public benefit has in the past been squandered”.

The UK regulations are part of a global standard of mandatory extractive sector transparency currently implemented in all 28 European Union member states, plus Canada and Norway, which complements the more voluntaristic (for governments) Extractive Industries Transparency Initiative. The original mandatory disclosure law, Section 1504 of the 2010 US Dodd-Frank Act, is yet to be implemented. Campaigns are under way in Australia, South Africa, Switzerland, Ukraine and other countries for similar extractive sector reporting laws.

Jo Swinson MP was Minister for Employment Relations and Consumer Affairs and oversaw the UK regulations’ coming into force in 2014. Her letter says: “It was crucial at the time for the United Kingdom to deliver on its commitment … to advance global standards of transparency in the extractive sector”, and notes that “the comprehensive payment reports now being published by UK-regulated oil, gas and mining companies” are delivering “substantial public benefit”.

Payment reports are delivering “substantial public benefit” – Jo Swinson MP

Caroline Flint MP reminds the Secretary of State that “Oil, gas and minerals are finite resources that provide many developing countries with a relatively brief opportunity to mobilise domestic revenues on behalf of their populations, which will be necessary to meet the Sustainable Development Goals.”

The submission by the Columbia Center on Sustainable Investment (CCSI), part of the Columbia University Law School, underscores investors’ need for “the global standard for payment transparency” that the UK regulations sustain. CCSI outlines “seven areas in which public payment data such as required by the UK Regulations may add material insight to investment analyses and improve investment environments”.

According to US-based oil and gas exploration and production company Kosmos Energy, which listed on the London Stock Exchange in 2017: “We believe resource revenues are more likely to be managed in the best interests of a country if payments and receipts are made transparently, and if accountability measures are in place for the use of these revenues.”

Extractive companies’ reports on payments to governments under the UK regulations are available online at https://extractives.companieshouse.gov.uk (UK-incorporated companies) and http://www.morningstar.co.uk/uk/NSM (London Stock Exchange main-market-traded companies). PWYP member organisation the Natural Resource Governance Institute has compiled much of the data from the UK and other jurisdictions in a central and searchable location at http://resourceprojects.org/.

As well as accepting written submissions to the review, the UK government contracted PwC, one of the big four accountancy firms, to conduct stakeholder interviews with companies, investors, government officials and civil society. Members of the PWYP global coalition from sub-Saharan Africa, mainland Europe, North America and the UK took part in 10 interviews.

PWYP UK looks forward to seeing Secretary of State Greg Clark’s report to Parliament on his conclusions in early 2018.

Civil Society Organisations withdraw from UK EITI

Undue interference by UK Government officials in the civil society nomination process jeopardises genuine multi-stakeholder dialogue in long standing transparency initiative.

Several years of positive progress by a UK Government anti-corruption initiative, the UK Extractive Industries Transparency Initiative (EITI), are at risk due to a recent imposition by UK Government officials which undermines the initiative’s multi-stakeholder nature.

The decision by UK Government officials this week to give one organisation, Extractive Industries Civil Society (EICS), authority over certain civil society nominations to the UK EITI’s multi-stakeholder group has pushed ten full member organisations of the UK EITI Civil Society Network and more than twenty individual associate members, including academics, to withdraw from the UK EITI process. Among the organisations withdrawing are Global Witness , Natural Resource Governance Institute, Transparency International UK , and Publish What You Pay UK .

Miles Litvinoff, Coordinator of Publish What You Pay UK, said:

“Government officials’ decision to overlook the strong concerns expressed by the Civil Society Network is deeply worrying and goes against the democratic principles fundamental to the EITI and to the UK as a country.”

Joseph Kraus, Director, Transparency & Accountability (interim) at the ONE Campaign and a member of Publish What You Pay UK’s Steering Group, said:

“Should the UK Government persist with this decision, it will set the UK EITI process on an uncertain path. The UK will face difficulties in passing EITI Validation, a quality assurance mechanism that assesses countries’ compliance with the requirements of the EITI Standard, which the UK is due to undergo in 2018.”

The Civil Society Network (CSN) facilitates mainstream civil society engagement in the UK EITI and has released a statement which can be read here.

Contact: Miles Litvinoff, Publish What You Pay UK Coordinator, [email protected], +44 7984 720103.

Note to editors

  • The Extractive Industries Transparency Initiative (EITI) is an international standard for openness around the management of revenues from natural resources. It is designed to improve accountability and public trust for the revenues paid and received for a country’s oil, gas and mineral resources.
  • In 2003, the UK Government helped break new ground by launching the EITI which has since been paving the way for better governance in the oil, gas and mining industries worldwide.
  • The EITI makes relevant information available to citizens, in particular about the revenues generated by their country’s mineral wealth, to enable them to hold their government to account.
  • In over a decade, USD 2.3 trillion in revenues from the exploitation of natural resources have been disclosed and are open to public scrutiny thanks to EITI reporting in over 50 member countries. This includes the UK which joined the initiative as an implementing country in 2014 and released two EITI reports for the fiscal years 2014 and 2015.
  • The EITI established an unprecedented governance approach in the sector whereby three constituencies – government, companies and civil society – have equal weight in making decisions about how the country’s mineral wealth is managed.
  • To ensure the dialogue between the three constituencies is meaningful, the EITI Standard prohibits any form of interference in constituency processes, including the nomination process of representatives.
  • The UK EITI Civil Society Network (CSN) facilitates broad and mainstream civil society engagement in the UK EITI and is made up of 10 full member organisations and 20-plus individual associate members, including academics whose work relates to the extractive industries. CSN members Transparency International and Global Witness were instrumental in the establishment of the EITI internationally in 2003.
  • Civil Society Network withdraws from UK Extractive Industries Transparency Initiative (EITI)

    The UK EITI Civil Society Network (CSN) regretfully announces its withdrawal from engagement with the UK EITI.

    The Extractive Industries Transparency Initiative (EITI) is an international standard for openness around the management of revenues from natural resources. It is designed to improve accountability and public trust for the revenues paid and received for a country’s oil, gas and mineral resources.

    We oppose the decision by senior UK Government officials on 26 September 2017 to give one organisation, Extractive Industries Civil Society (EICS), authority over certain civil society nominations to the UK EITI Multi-Stakeholder Group (MSG). This decision contravenes sections 1.3 and 1.4 of the EITI Standard and is a breach of civil society’s right to determine its own representatives independently.

    The CSN, which represents broad and mainstream civil society engagement with the UK EITI, a number of whose member organisations were instrumental in the establishment of the EITI internationally in 2003, has an agreed and published process for filling civil society MSG places, which was adopted by consensus.

    In July 2017 we wrote to Margot James MP, Parliamentary Under Secretary of State for Small Business, Consumers and Corporate Responsibility, who is the UK’s EITI Champion, expressing our concern at one organisation’s control of half of the civil society MSG seats and calling for a democratic, fair and transparent process for civil society selection.

    In a further effort to find a solution in September 2017, and following consultation with government officials at the Department for Business, Energy and Industrial Strategy, the CSN agreed to amend its Membership Principles to make reference to diversity and local UK communities affected by the extractive industries. The CSN also invited EICS to apply to join the CSN, which it refused to do. We have always sought in good faith to find a solution to the challenges faced on the issue of civil society representation.

    The decision to give special status to one civil society organisation over its peers goes against the EITI’s founding principles. We withdraw from the process with immediate effect.

    Full member organisations of the CSN:

    The network also has more than 20 individual associate members, mostly affiliated to non-governmental organisations or academic institutions.

    Time for London’s Alternative Investment Market to embrace extractives transparency

    The London Stock Exchange’s (LSE) Alternative Investment Market (AIM) was launched in 1995 for smaller and growing international companies looking to raise capital for expansion. AIM describes itself as “the most successful growth market in the world”. The UK government has sung its praises. Lesser known than the LSE’s Main Market where larger, more established international companies’ securities are traded, AIM has over the years helped more than 3,700 companies raise more than £100 billion.

    Approximately 200 oil, gas and mining companies trade on AIM. Although generally smaller than LSE Main Market companies, AIM companies have grown over the years. AIM extractive companies’ combined market capitalisation runs into the billions of pounds, which can make them significant actors relative to the size of host country economies where many citizens are still desperately poor. They operate in 40 developing and transition countries, including 22 lower- and lower-middle-income countries as defined by the World Bank, and in all the BRICS.

    Fraud and corruption

    The LSE recently asked for views on proposed changes to the AIM rules, including rules of corporate governance. Investigations by Global Witness, Rights and Accountability in Development (RAID) and others have revealed significant cases of fraud, corruption and other abuses involving AIM extractive companies. The risks involved are acknowledged by the UK government: “The absence of good governance and the lack of transparency around [payments to governments] reduce the positive impact that extractive industries can have on economic development … [and] negatively impacts on, and increases the risk for, … companies and investors active in the extractives sector through civil unrest and poor business environment.”

    Publish What You Pay UK responded to the recent LSE consultation by proposing that all LSE AIM-traded oil, gas and mining companies be required to annually report their payments to governments following the same rules that apply to the 90-plus LSE Main Market-traded and large private UK-registered extractive companies now disclosing their payments each year under UK law. AIM extractive company reporting should meet the same requirements. The UK regulations’ £86,000 disclosure threshold, applied per single payment or series of related payments, will prevent AIM extractive companies from being unreasonably burdened by having to report inconsequential payments.

    Benefits of transparency

    Benefits would be considerable. First, there would be consistency in addressing investor and reputational risk. The LSE already requires extractive companies to disclose payments to governments of more than £10,000 on applying for admission to AIM, as well as to annually report estimated reserves and resources. Regular payment reporting by AIM extractive companies will help citizens hold their governments to account for revenues received, better inform investors and improve the UK’s, the LSE’s and AIM’s reputation for corporate governance.

    The LSE’s discussion paper recognises AIM investors’ need to fully understand the businesses in which they invest and the associated risks. Payment to government disclosure helps investors make informed decisions and promotes confidence in the market. This is why large numbers of European and North American institutional investors and fund managers support both the EITI and mandatory public country-by-country project-level reporting.

    AIM needs to maintain appropriate levels of corporate governance as its traded companies grow in size and as expectations regarding corporate accountability rightly become more demanding. With a current average market capitalisation of approximately £50 million, AIM oil, gas and mining companies are far from small in the eyes of ordinary people, and not all AIM companies will plan to graduate to trading on the Main Market. These factors make it inappropriate to apply fewer transparency requirements to AIM extractive companies than to their Main Market counterparts.

    Public country-by-country project-level reporting is increasingly accepted as the industry norm. As Tom Butler, chief executive of the International Council on Mining and Metals (ICMM), said in early 2017: “[T]he global trend is in the [pro-transparency] direction. The train has left the station. It is driven by investors and other stakeholders and the desire of the industry to maintain its social license to operate. One way to maintain that is for everyone to see that the taxes and other payments the mining industry makes are applied sensibly to the development of the country.”

    No UK institution should be encouraging a race to the bottom in terms of corporate transparency standards.

    It is high time, then, for the LSE to extend annual payment disclosure beyond Main Market-traded extractive companies to AIM-traded ones. In the UK government’s words: “Shareholders, investors, employees, competitors, civil society groups, the media and other external stakeholders view companies’ disclosure of payments … as an example of principled leadership. … Regular … [r]eports on payments and revenues can improve the creditworthiness of both companies and countries.”

    Read PWYP UK’s submission to the AIM Rules Review 2017.

    This blog was written by Miles Litvinoff, Coordinator of PWYP UK.

    Raising Global Standards of Transparency in the Extractives Sector

    A guest blog by Eleni Chatzivgeri, Lynsie Chew, Louise Crawford, Martyn Gordon and Jim Haslam.

    The new mandatory rules for large and publicly listed extractive companies according to the EU Accounting Directive (transposed as UK SI 3209) represent a significant step forward in terms of mandatory transparency reporting for the extractives sector.

    Our report into the early application of these new rules explores the effectiveness of the rules in the current global context drawing on data taken from the first round of reporting in the UK, for periods beginning on or after 1 January 2015.

    In conducting our research we reviewed a sample of reports filed under the new rules to assess both compliance with the regulations and the usefulness of the information published. Our research also entailed a detailed review of the legislation as well as a number of interviews with a wide range of stakeholders.
    Our findings in terms of compliance with the rules were encouraging, with the majority of companies in our sample complying with the requirements of the rules and several going over and above the letter of the law to provide additional useful information.

    We found that mandatory reports for UK registered companies were generally easy to access from the Companies House Extractives website. And companies registered in the UK provided their reports in XML format, which made the output data on spreadsheets easy to analyse, although a preparer we interviewed did comment that the process of uploading this data in the format required by Companies House was difficult and required specialist IT input.

    Analysis was more difficult for publicly listed companies required to comply but who were registered outwith the UK, as these reports tended to be in PDF and were not centrally deposited with Companies House but rather made available on individual company websites. Similarly where companies produced supplementary documents further explaining their contributions these were not made available along with the mandatory report deposited with Companies House but were rather made available on companies’ own websites.

    In order to make the reports more accessible to civil society, a central depository would be extremely useful, this could be on Companies House or elsewhere but should include mandatory and voluntary filings from UK registered companies as well as filings from overseas companies publicly listed on the UK’s London Stock Exchange).

    Our report makes several recommendations for improvements in the legislation. The addition of an audit requirement, at least limited assurance, and/or a requirement to reconcile the information provided to annual accounts would be progress, as we feel the reliability of the information would be improved by being audited or assured, and a reconciliation would better enable users to contextualise the payments within the broader company performance. To this end some companies provide reconciliations or further explanations of how key figures are calculated or how provisions have been interpreted. This additional disclosure was very valuable in allowing the data to be used to properly assess the economic contributions made by companies.

    The rules could benefit from clarification in several key areas; namely the definition of when projects can be reported on an aggregate basis and when companies should report payments made under joint venture arrangements. The legislation, as it is currently drafted, potentially engenders several different interpretations in these areas in practice, which could result in a lack of consistency or potentially allow for manipulation of the rules, resulting in payments going unreported. Operationally we also feel that there is a lack of clarity surrounding who is responsible for administering these rules and ensuring compliance, as there currently appears to be no institutional mechanism by which non-compliance is identified and remedied (so that one would need to fall back on a cumbersome inefficient process of appeal to the Registrar and the Secretary of State).

    Considering these rules in the wider context we also feel it is important to highlight that these mandatory requirements have been implemented in addition to the Extractive Industries Transparency Initiative (EITI). And for large companies will soon be joined by mandatory transfer pricing documentation requirements implemented under the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Sharing (BEPS) Action 13.

    While all of these initiatives are positive, we would urge policy makers and civil society to take a wider view to ensure no duplication of effort and output as this is beneficial to both preparers and users. Despite these concerns raised, this commitment to transparency on a mandatory basis is an important step and one which should be embraced by civil society and companies committed to ethical, transparent business practices.

    To those in the Publish What You Pay movement and activists pursuing greater transparency in the extractives sector, we urge you to access these freely available reports, to use the information in your advocacy and to feed back where the legislation could be improved. We already note here that there has been significant usage by NGOs of the first reports.

    For companies preparing these reports, we encourage you to go above the minimum requirements of the rules and to explain the data supplied to allow for greater understanding of your contributions.

    To the UK government, we would encourage you to clarify the mechanism for reporting non-compliance and to review your systems to ensure that they are streamlined to allow companies to comply with these important requirements without undue bureaucracy.

    This law was a great improvement in relation to transparency and subsequently holding governments to account. It is a very positive statutory provision. Refinement in the way of clarification and improvement can be a further step forward.

    Download the full report here.
    Raising Global Standards of Transparency in the Extractives Sector

    A note on the authors of this guest blog

    Eleni Chatzivgeri, Lynsie Chew, Louise Crawford, Martyn Gordon and Jim Haslam are UK accounting academics whose research interests include the interface of accounting and wider regulatory forces and issues in enhancing accounting’s social relevance. Eleni is based at the University of Westminster and Lynsie at University College London. Louise and Martyn are based at Robert Gordon University and Jim Haslam is at the University of Sheffield. Jim and Louise are leading the project as academics with long experience in the issues of concern, including having authored a number of papers in this area.