Memorandum submitted by the "Publish
What You Pay" coalition
1. Publish What You Pay (PWYP) campaigns
for transparency over the payment, receipt and management of revenues
from oil, gas and mining industries. PWYP is supported in the
UK by CAFOD, Care International UK, Global Witness, Save the Children
UK and Transparency International UK and around the world by 300
non-governmental organisations from over 50 countries. The coalition
calls for oil, gas and mining companies to be required to disclose
payments (taxes, fees, royalties etc) made to governments for
the extraction of natural resources for every country of operation,
and for governments to "publish what you earn". Revenue
transparency is essential to curb corruption, to enhance accountability
of extractive companies, and to improve governance so that natural
resources serve as a blessing rather than a curse for the millions
of citizens in resource-dependent developing countries around
the world living in poverty.
2. Some of the largest private sector companies
in the UK and around the world are from the extractive industries.
Extractive companies generate substantial amounts of revenue for
shareholders (indeed Shell has just announced the largest annual
profit for a UK-listed company, £13.12 billion in 2005) and
for the countries in which they operate through their investments.
Investment in the natural resource industries of Africa is increasing
drastically—hundreds of billions of pounds in revenues will
flow into poor African countries coffers by the end of decade.
The Overseas Development Institute has calculated that due to
high global oil prices, the yearly surpluses of around $35 billion
received by the eight largest producer countries in Africa will
significantly dwarf the total amount of aid promised by G8 governments
to the whole of the continent in the coming years. Transparent
and accountable management of this income is vital to ensure good
development outcomes. Thus, because of the significant impact
of natural resources on international development and the tremendous
potential to use oil revenues to alleviate the crushing poverty
in developing countries, this is why it is important to consider
the private sector's role in improving transparency and the international
processes set up to address the issue.
3. The Extractive Industries Transparency
Initiative (EITI) was launched by Prime Minister Tony Blair in
response to PWYP's demands. EITI is an international multi-stakeholder
process that has brought together stakeholders from the private
sector, governments from the North and the South, civil society,
international financial institutions and investors to develop
a framework for the publication of payments and revenues from
oil, gas and mining sectors. EITI's aims are similar to PWYP's:
to increase accountability in developing countries dependent on
natural resource revenues where lack of transparency is associated
with higher levels of conflict, corruption and poverty. The Department
for International Development (DFID) has convened the EITI process
since its inception and now jointly hosts the international EITI
secretariat with the World Bank.
4. DFID has shown great leadership in convening
the EITI process thus far. The commitment of Secretary of State
Hilary Benn, Minister Gareth Thomas and the EITI staff in DFID
has been highly commendable in laying the foundations of EITI
and in supporting implementing countries. DFID has hosted several
successful international EITI conferences, contributed to the
EITI Trust Fund to provide financial and technical assistance
to participating countries, and raised EITI's profile on an international
level to bring on board more countries and companies. DFID now
considers up to 20 countries to be committed to implementing EITI's
reporting guidelines.
5. However, when DFID was first assigned
EITI following Blair's announcement, it took quite a significant
amount of time to get up and running fully and lacked sufficient
resources and staff. As a result, EITI got off to a very sluggish
start and thus several prominent stakeholders remained unconvinced
of its effectiveness. However, due to demands from stakeholders
and the growing interest expressed by host-governments of natural
resource-rich countries, the EITI team was boosted in numbers
and granted additional financial resources to effectively play
the Secretariat function. The lesson to be learned from this is
that it is critical for the Government to invest early in such
multi-stakeholder initiatives with sufficient financial and human
resources.
6. Many would already consider the EITI
a success. However, implementation remains limited to a small
number of countries and it is likely that progress will continue
to be slow in others (eg despite being one of the first EITI "pilots"
in 2003, Ghana has yet to report on its mining revenues). Key
oil-producing regions (North Africa, Middle East, Latin America)
are underrepresented. EITI effectiveness in the long-term is by
no means guaranteed by relying on a voluntary approach at an international
level.
7. The standard of implementation is also
an issue of great concern. In many countries, governments and
companies propose aggregating payments and revenue data, thereby
undermining accountability of each operating company in that country.
Civil society can also be very weak in developing countries, with
little capacity to be able to serve fully in a watchdog role.
In some cases, civil society has no political space in which to
engage openly in such processes. Given that civil society consultation
is one of the EITI's six criteria, until all participating host
governments open up a clear line of dialogue with local—and
independent—civil society bodies and capacities are reinforced,
implementation will not be comprehensive.
8. The UK's—and therefore DFID's—involvement
in EITI is not forever: DFID plans withdraw from playing the secretariat
function in the near future. Discussions are underway among members
of the EITI's International Advisory Group regarding its future
governance and institutional arrangements. It has been proposed
that the secretariat be absorbed into an existing international
organisation or passed onto another EITI participating country
(possibly on a rotating basis). The role of the UK Government
in promoting transparency does not end there. How will the UK
ensure transparency reforms continue with EITI outside its bounds?
9. Support for EITI should be supplemented
by additional actions by the UK Government to safeguard transparency
reforms in the longer-term. PWYP calls on the UK Parliament to
take firm action beyond EITI by making transparency mandatory
of companies and incorporating reporting requirements into the
policies of all financial, lending and export credit agencies
that provide assistance to extractive companies or resource-dependent
countries. Mandatory mechanisms are complementary to EITI and
the only comprehensive way to integrate revenue transparency into
international norms and standards.
10. Extractive sector companies are dominant
on the London Stock Exchange and on other financial markets in
the EU. In 2004, the EU adopted the "Transparency Obligations
Directive" to harmonise EU member states' reporting requirements
for listed companies. It included a provision stipulating that
EU member states should encourage disclosure of extractive company
payments to governments. The deadline for implementation by member
states is January 2007. The Government and regulatory agencies
should take concerted action to implement the Directive's recommendations
as a bare minimum for listed companies in the UK.
11. A requirement for country-by-country
reporting of payments to governments should be incorporated into
relevant national and international accounting standards. The
International Accounting Standards Board has initiated research
into a proposed International Financial Reporting Standard for
Extractive Industries, providing an unprecedented opportunity
to do so. A global, uniform standard for reporting by extractive
companies on financial payments and commercial performance for
all countries where companies are active, would bring about a
level-playing field and provide vital data to shareholders and
investor firms.
12. The Export Credits Guarantee Department
(ECGD), which has backed several natural resource projects abroad
including the Baku-Tbilisi-Ceyhan pipeline, should incorporate
revenue transparency into all future export credit agreements
with extractive sector clients. Transparency should be a minimum
requirement to prevent corruption and to ensure accountability
over investments backed by tax payers' money. The ECGD should
conform to the IFC and MIGA's standards as they have already committed
to transparency requirements for all natural resource project
finance. The UK Government should also work through the OECD Export
Credit Working Group to ensure consistency in all ECA policies
for extractive industry insurance and guarantees. Commercial banks,
and particularly signatories to the Equator Principles, should
equally follow suit; the Government should encourage such steps
to be taken.
13. Regarding international financial institutions
and regional development banks, the policy of the Government should
be that any project-level or country-level financial assistance
can only be extended if revenues from extractive sector are published
and audited. This would be consistent with the US Government's
position, set out in legislation passed in 2004 and 2005 concerning
the re-authorisation of US funding for international financial
institutions.
14. Promoting natural resource revenue transparency
will go a long way to ensure that the private sector contributes
to sustainable development and economic growth in developing countries.
To this end, a coherent and joined-up approach by the Government
that looks beyond just EITI is required. The International Development
Committee should call for such action by all relevant parliamentary
committees, Cabinet and their government departments.
February 2006
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