Will the EU deliver transparency in the oil and gas sector?

Tomorrow, European Commissioners decide the final text of proposals to make it mandatory for oil, gas and mining companies listed in the EU to disclose payments to governments. Carl Dolan, policy officer for Transparency International in Brussels, calls for more pressure on Brussels to deliver strong measures.

There is a depressing correlation between natural resource wealth and corruption. A quick glance at TI’s Corruption Perceptions Index shows that those countries most blessed (or cursed) with natural resources are often those most afflicted by poor governance, graft and illicit capital flight. Fortunately, there is nothing inevitable about this process – mineral-rich Botswana is an obvious success story – and there are simple solutions that will reduce the scope for corruption.

One of these solutions is to make oil, gas and mining companies publish all their payments to governments (e.g. taxes, royalties, bonuses) as well as their profits, sales, reserves and other key data. This simple act of public disclosure would allow hard questions to be asked of officials and elites about the use of natural resource revenues. And it would make companies more accountable for their contribution to the economies of the countries and communities in which they operate and where they reap large profits. 

There have been tentative steps over the years to make this an international standard, notably through the efforts of the Extractive Industry Transparency Initiative (EITI), but the big breakthrough came last year with the passing of the Dodd Frank Act in the US. Coming right at the end of a mammoth 800 page bill, section 1504 makes it mandatory for all oil, gas and mining companies listed on the US stock exchange to disclose payments to governments for every project that they operate.

Now the EU is following suit. Tomorrow, after months of consultation and deliberation, EU Commissioners will decide the final shape of these proposals. The signs are promising. Nicolas Sarkozy, David Cameron  and Commissioner Michel Barnier, the chief architect of the proposals, have publicly backed Dodd Frank-style legislation in the interests of creating a global standard. Leaked drafts confirm this impression, and indicate that the EU wants to extend this standard to other sectors, such as forestry.

But the drafts also show that the Commission wants to get extractive transparency on the cheap. The proposals allow companies a lot of latitude to define a “project” and, worryingly, do not require companies to have the information audited, pandering to industry concerns about the cost of compliance (despite the lack of hard evidence on this score). 

This will make the data substantially less reliable and comparable. There is also no provision to make the data available in a user-friendly manner, so that the entire point of the legislation – to help citizens hold their governments to account – will be undermined. Finally, the proposals focus exclusively on payments. Companies who book their profits in tax havens and use unequal bargaining power to secure more favourable deals will still operate under a cloak of secrecy.

So there is much still at stake in tomorrow’s discussions.  Naturally, there has been strong industry push back on the proposals, and not all  policy makers have been convinced by the need for change . The German Commissioner for EU energy policy, Guenther Oettinger, is reportedly concerned about the impact of the legislation on the industry. If you wish to see a robust set of proposals that will be a huge leap forward in the transparent governance of natural resources, it’s not too late to make your views heard.