Guidance

Transparency in the world’s oil, gas, and mining industries - the UK's contribution

Published 3 April 2019

What is the UK’s contribution to the transparency in the world’s oil, gas, and mining industries? We tried to answer this complex question during the biggest and the most attended event of our Open Government Week. The panel discussion with representatives from civil society groups, government, and the private sector was chaired by Matthew Ray from the Department for Business, Energy & Industrial Strategy who is the Chair of the Extractive Industries Transparency Initiative (EITI) Multi-Stakeholder Group in the UK.

There are currently 51 countries that are signed up to EITI, the global standard for the good governance of oil, gas and mineral resources. The EITI Standard requires the disclosure of information along the extractive industry value chain from the point of extraction, to how revenues make their way through the government, and how they benefit the public.

Miles Litvinoff from Publish What You Pay UK began the discussion by setting the background on the resource curse. The term refers to the failure of many resource-rich countries to benefit fully from their natural resource wealth, and for governments in these countries to respond effectively to public welfare needs. This leads to poor development and growth, and facilitates corruption and mismanagement. Too often, little of the profit that multinational enterprises (MNEs) registered abroad as well as state-owned enterprises make has any positive impact on citizens or on the overall economic development of those countries.

As Miles pointed out in his presentation, countries like Angola, Russia, and Brazil have not signed up to EITI despite having major extractive industries. Civil society groups worldwide argue for mandatory publishing rules on payments to governments. In the United States, the process to introduce the mandatory publishing rule has been ongoing for nine years. In Europe, the EU Accounting Directive: extractive industries reporting was introduced in 2013. The UK has been a leader in the field, involving the government and civil society to work on data and reporting together. Some of the achievements listed by Miles are the UK being the only country in the EU that requires the payment data to have an open and machine-readable format; and that has a central government repository for company reports for extractive services since 2016.

Overall, although the UK’s contribution to transparency in the extractive sector is positive, Miles argued the Government should do more to oversee the reporting, and not rely too heavily on civil society groups. He also argued the Government should continue supporting their advocacy and listen to their comments on the quality of data and reports. Civil society would like to see the UK Government engage with the government of the US to encourage the implementation of the mandatory publishing rule in the UK and lead the global dialogue on commodity training. For civil society, Miles recommended to work on developing their skills and capacity to use the data, continue to push for assessment of gender impacts through EITI, and address the need for low carbon transition.

Our next speaker, Joe Williams from the Natural Resource Governance Institute, focused on the issue of accessibility. Finding various reports, for instance on the local income from extractives, can be very challenging, particularly from developing countries’ perspective. Europe-based business registers are often paid which creates additional barriers; e.g. in Sweden. Globally, there are currently 750 reporting companies. Approximately 90-95 are UK-listed and they constitute the largest percentage of payments by value.

The country with the highest number of reporting companies is Canada, that according to Joe has been doing relatively well. Data of the Canadian-registered companies can be accessed in Excel or PDF formats which makes it harder for the civil society to make the data clean and usable; however, there is a single page focused on reporting. Nevertheless, many companies and their subsidiaries report under other countries which makes it challenging for the citizens to track their actions. ResourceProjects has $605 billion worth of payments and is still growing.

Dominic Eagleton from the Global Witness spoke about Finding the missing millions, a handbook developed by Global Witness for using extractive companies’ revenue disclosures to hold governments and industry to account. Dominic emphasised the importance of project by project reporting, considering that benefits for the local communities are often determined on the project level. Similarly, corruption, mismanagement, and tax avoidance tend to happen at the project level as well and payments from individual projects can be of very high value, reaching billions of dollars and in some countries being much higher than, for instance, spend on education for the entire country, e.g. in Azerbaijan. The handbook demonstrates how to use the extractive industry data to identify problems with the payments and learn to recognise suspicious, potentially corrupt payments. Dominic also mentioned that although in some countries subnational payments for the communities affected by the resource extraction are common (for example, in India, for every project agreed before 2015, 30% of the royalties from extracting natural resources should go to the district authority).

Bringing the private sector perspective to the discussion, Sophie Durham from Kosmos Energy outlined the strong commitment that Kosmos have to contract transparency since 2007. They have been publishing payments on a project by project basis from 2014 onwards and have been working with the Global Witness to ensure their reporting was accurate. Kosmos are listed in New York and London, and are one of the very few US-registered companies publishing their contracts and petroleum agreements.

According to Kosmos, the business advantages of contract transparency are as follows:

• Transparency helps mitigate the risk of corruption

• The company gains more stakeholder support

• It creates better, more trusting environment to operate in long-term and enables stronger relationships with stakeholders that then help secure longer investments

• It enables the business to provide details on the contribution of the industry to the home countries

The lessons learned by Kosmos during the process are that transparency is not enough - what is needed is understanding of the data, mutual trust, and dialogue between all actors. The data is still difficult to access and understand for the people from outside of the business and there is a need to work collaboratively on improving capabilities, as well as the quality of the data. For the private sector, it is particularly important to share examples of the data being used by local communities that enable positive outcomes and drive change on the ground.

Finally, Rhona Birchall from the Department for International Development outlined the journey towards greater transparency from the UK Government’s perspective, with the Anti-Corruption Summit in 2016 and ongoing dialogue with the OECD Development Centre as some of the highlights. For DFID, it is important to raise awareness of payments disclosure in the sector, share best practices, conduct scoping studies, ensure synergies with work towards greater transparency over company beneficial ownership, and constantly re-evaluate further actions that the UK can take. What DFID is currently working on is reconfirming the UK’s commitment to EITI, and mapping the broader agenda of financial flows through incorporating the extractive industry data within the overall financial picture to encourage collective action and ongoing dialogue.

The discussion and Q&A part of the session provided ideas on what should be done to advance the EITI agenda in the future. The audience identified the need to expand and modify some of the principles, put an emphasis on the regulatory capacity, particularly when looking at the on the ground impact of the data; the significance of working with communities to calculate how much money they are supposed to receive from royalties; encourage more local participation and emergence of ‘infomediaries’ doing advocacy in the home countries and building up data literacy and awareness there.

The main challenges identified were:

• data accessibility and quality

• maintaining high aspirations for the future of EITI, but avoiding over ambition

• consistency in applying EITI principles in non-EITI countries and maintaining transparency standards in the most difficult and corrupt cases, particularly from the private sector perspective.

There was a lot of enthusiasm in the room and recognition of progress to date, but also an understanding that more change needs to happen on the ground to maintain the ambition and reputation of EITI.

This is an open discussion led by DCMS and our civil society partners, not an official statement of policy.