A global campaign for revenue transparency in the oil, gas & mining industries

Despite billions of dollars of incoming revenues from oil, gas and mining extraction, citizens of more than 50 resource rich countries around the world remain steeped in poverty. If governments managed these revenues transparently and effectively, they could serve as a basis for successful economic growth and poverty reduction. This has proved to be the exception rather than the rule.

Governments and other institutions that manage these resources are often weak and, in practice, unaccountable to the parliaments and citizens of their countries. Many resource-rich countries are kleptocracies, where officials rule by force to steal from the proceeds of natural resource extraction. The extractive industry is associated with high levels of corruption. Oil and mining companies have, on occasion, engaged in corrupt practices (e.g. payment of bribes) in order to secure contracts or to gain influence over public officials. Revenues from resource extraction are very often not disclosed by the governments or the companies involved; in some cases this information is a state secret. This lack of accountability facilitates embezzlement, corruption and revenue misappropriation. In extreme cases, access to resources can fuel and sustain national and regional conflicts, thereby weakening governments and institutions furthermore. Such disorder is exploited to facilitate further large-scale misappropriation of state assets.

The call for companies to “publish what you pay” and for governments to “publish what you earn” is a necessary first step towards a more accountable system for the management of natural resource revenues. If companies disclose what they pay, and governments disclose their receipts of such revenues, then members of civil society in resource-rich countries will be able to compare the two and thus hold their governments accountable for the management of this valuable source of income. Revenue transparency will also help civil society groups to work towards a democratic debate over the effective use and allocation of resource revenues and public finance in order to meet development objectives, improve public services, and redistribute income.

Mining, gas and oil companies cannot control how governments spend taxes, royalties and fees. But they do have a responsibility to disclose the payments they make so citizens can hold their governments accountable. Companies that fail to do so are complicit in the disempowerment of the people of the countries to which the resources belong. Transparency will strengthen companies’ social “licence to operate”, by demonstrating their economic contribution to society, and increase the likelihood that the revenues they pay to governments will be used for sustainable development – which creates a stable business environment – rather than being wasted or diverted by corruption, which exacerbates social divisions and can lead to weak and unstable states and conflict.

There is now wide international consensus in favour of increased transparency in the extractive sector as evidenced by, for example, the immense support from governments, companies, investors, financial institutions and civil society for the Extractive Industries Transparency Initiative (EITI). Mandating disclosure of payments and revenues is consistent with this consensus and can be achieved by way of simple and logical adjustments to existing company law, accounting standards, stock exchange disclosure rules, and the lending conditions of international financial institutions, regional development banks, export credit agencies and private sector banks.

Accordingly, the Publish What You Pay coalition calls on:

• Multi-national, private and state-owned extractive companies to disclose a net figure for all types of payments (royalties, taxes, bonuses etc) made to governments for every country of operation in their annual financial accounts, and to disclose to which level of government payments are made;
• Governments of resource-rich countries to:
  • Require disclosure of payments by all extractive companies operating in their territory on a company-by-company basis and by payment type;
  • Publish What You Earn, i.e. disclose fully revenues from resource extraction;
  • Independently audit and verify this information in line with best international practice. This can be achieved by way of full implementation of the Extractive Industries Transparency Initiative and compliance with international codes and standards on natural resource and fiscal transparency, such as the IMF Guide on Resource Revenue Transparency;
  • Put in place mechanisms for sub-national reporting of payments and revenues;
  • Establish open, participatory and transparent budget processes at national, regional and local levels in order to consult with civil society on the effective allocation and management of revenues from resource extraction and public finances in order to promote broad-based economic and social development;
• Governments of OECD countries to require country-by-country disclosure of payments of all extractive companies registered or listed on financial markets in their country;
• Bilateral and multi-lateral financial institutions, including the World Bank Group, IMF, regional development banks, export credit agencies and private sector banks, to require extractive companies to comply with the Publish What You Pay requirements on transparency of payments as a pre-condition of all project support, and governments to have in place a functioning system to account for and independently audit revenues from extractive industries in return for non-humanitarian/non-emergency development, technical and financial assistance;
• Donor organisations to promote the empowerment and capacity building of civil society organisations across resource-rich countries in order to allow citizens to hold their government accountable for the management and expenditure of revenues received from the extractive industries.

• In addition to these measures:

Extractive companies and local authorities should disclose information about social investments and payments to local budgets made by extractive companies. These payments and investments can be important factors of sustainable social and economic development and thus the public should be involved in the process of managing these revenues;

To promote full accountability of companies and governments in the management of resource revenues we also call for the public disclosure of extractive industry contracts and for licensing procedures to be carried out transparently in line with best international practice. As contracts typically include schedules, formulas and other determinants of the government’s potential revenue streams (such as revenue sharing arrangements, taxes, royalties, bonuses, social benefits, etc., and exemptions from any of these) fulfilling the public’s right to access these contracts (with exemptions for provisions that are genuinely commercial confidential information) will help inform citizens about how much their government is supposed to receive from resource extraction, which can then be compared with how much the government actually receives. Contract transparency can thus help civil society understand whether governments have struck deals with extractive sector projects that are in the public interest, and then whether promised revenues actually materialise.

Promoting transparency of revenues and of extractive industry contracts is a vital first step towards alleviating the crushing poverty of ordinary citizens in many resource-rich developing countries around the world. It is fully consistent with internationally agreed objectives of good governance, corruption prevention, corporate accountability and sustainable development. Transparency is in the best interests of everyone concerned – citizens, companies, governments and the wider international community – and so we call on all relevant stakeholders to play their part in making it a reality.

June 2007

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Notes:

1. The definition of a “resource-rich” country is taken from the IMF “Guide on Resource Revenue Transparency”. A country is classified as such on the basis of meeting either of the following criteria: (i) an average share of hydrocarbon and/or mineral fiscal revenues in total fiscal revenue of at least 25 percent during the period 2000-2005 or (ii) an average share of hydrocarbon and/or mineral export proceeds in total export proceeds of at least 25 percent during the period 2000-2005. See: http://www.imf.org/external/np/pp/2007/eng/051507g.pdf
2. According to the Transparency International Bribe Payers Index (2002), the oil/gas and mining industries are ranked 3rd and 7th, respectively, in terms of the likelihood that public officials would demand or accept bribes (e.g. for public tenders, regulation, licensing etc.) in these business sectors. For full details see: http://www.transparency.org/policy_research/surveys_indices/bpi/bpi_2002