New Report on Revenue Transparency and the Extractive Sector

Transparency International and Revenue Watch have released a report, Promoting Revenue Transparency: 2011 Report on Oil and Gas Companies, that is indicative of the pressure being placed on extractive sector companies to report on their payments to host governments and the value-sharing stipulations in their contracts.

The report ranks 44 oil and gas companies – both publicly listed and national oil companies – in three different areas:

  1. Reporting on anti-corruption programs – This section of the report looks at corporate policies and management systems, including whether information on such programs is available to the public;
  2. Organizational disclosure – This section examines whether companies disclose their upstream project partners, subsidiaries, fields of operations, and accounting practices; and
  3. Country-level disclosure – This section reviews whether companies report on: payments to governments; operating data, such as reserves and production; and data from profit-and-loss accounts – all on a country-by-country basis.

According to the report, companies have improved their performance in the first category, but score much lower in the third category. Companies such as BP, BG Group, and BHP Billiton scored high in the first two categories, but joined their peers’ lower rankings in the third category. Generally, publicly listed companies scored significantly better than national oil companies, with the exception of Statoil, a Norwegian state-owned company.

The report’s focus on country-level data suggests that civil society will continue to push companies to reveal more disaggregated data on payments made at the country and project levels. Led by umbrella organization Publish What You Pay, civil society organizations have already successfully advocated for legally-mandated extractive sector reporting regarding payments to governments through the passage of Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Securities and Exchange Commission has yet to issue its final rules guiding the disclosures required by Section 1504, but it is likely that the reporting will be on a project basis, and by type of payment – such as taxes and royalties. These requirement are more specific than what is currently required by the Extractive Industries Transparency Initiative, a voluntary initiative in which many extractive sector companies participate.

Section 1504 has come under fire from a number of companies, including Royal Dutch Shell, whose CEO stated recently, “Dodd-Frank treats foreign governments not only as irrelevant, but as a problem and not a solution.” Meanwhile, civil society organizations are seeking to expand the requirements of Section 1504 to other jurisdictions – an initiative that received support from some European leaders. 

In January, French President Nicolas Sarkozy wrote to U2 rock star-activist Bono, stating “I have decided to ask the European Union to adopt as quickly as possible legislation forcing companies in the extractive sector to publish what they pay to host countries.” He has since reiterated this position. In February, the U.K. Finance Minister publicly supported a plan put forward by President Sarkozy for new E.U.-wide rules. Whether such rules are passed remains to be seen, but Section 1504 of the Dodd-Frank Act has already made it clear that the rules are changing, and that companies will be expected to be more transparent than ever before.

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