U.S. Followed the Global Trend for Increasing Transparency in Extractive Industries

15 July 2016

More and more countries all over the world join the extractive industries transparency initiative. Thus, one of the world’s largest markets — U.S. — has at last implemented the country-by-country reporting provisions set by the Dodd-Frank Act back six years ago.

This means that the world’s largest extractive markets seek openness and transparency, and the public has a possibility to assess the performance of their governments in terms of rational spending of the funds received from extractive industries as rent and taxes.

Experience shows that only legislative approval of the transparency initiative may guarantee the implementation thereof by extractive companies. According to the Natural Resource Governance Institute, such companies as Exxon Mobil and Chevron that objected against information disclosure will have to disclose the required data once the Act is adopted.

For example, the data published by Royal Dutch Shell in April this year under the UK legislation showed that the company had received a significant tax refund in the U.S. and UK in 2015, and made Filipinos ask its government questions about how it had spent revenues from a large oil project.

The adoption of the Dodd-Frank Act means that large market players such as ExxonMobil, Chevron and Vale will have to disclose detail project-by-project information on all their payments equal or exceeding USD 100,000. Companies will start reporting on their payments in all reporting periods following 30 September 2018.

The U.S. PWYP coalition of the civil society shared its concerns about the fact that the Securities and Exchange Commission has bound companies to start reporting only in two years. Moreover, the Act allows an up-to-one-year delay in reporting payments relating to exploratory activities.

Despite this, the U.S. PWYP and NRGI approve of the adoption of these rules. “This rule marks the end of an era of secrecy,” said Suneeta Kaimal, Chief Operating Officer of the NRGI. “We’re still reviewing the details, but at long last, citizens will be armed with the information they need to combat corruption and hold governments to account for natural resources managed on their behalf. This rule will also provide investors with an important source of information in order to manage risk in the volatile commodities sector.”

The U.S. PWYP coalition underlined the importance of openness for the investment climate. “This rule will give investors the tools they need to assess and mitigate risk in the volatile extractives market, as well as empower citizens to hold their governments accountable for how their resource wealth is used”, said Jana Morgan, Director of PWYP-US.

The approval of the country-by-country reporting in the U.S., in a way, is a unique experience — unlike the EU and Canadian rules, the rules set by the U.S. Securities and Exchange Commission provide for targeted exemption from the disclosure rule to allow a one-year delay in reporting payments related to exploratory activities.

Project-by-project reporting rules have been introduced in the EU (including in the UK), Norway and Canada. The adoption of a similar law is extremely important for Ukraine as extraction of energy resources is one of the most corrupt and closed industries in the country.

Thus, the first Ukrainian EITI Report showed that some extractive companies were not yet ready for doing open and transparent business and were not going to disclose information about their activities until this rule becomes legislatively binding. In addition, relevant reporting requirements should apply to not only the oil and gas sector but also coal, iron ore and other crucial industries.

The draft Law “On Disclosure of Information in Extractive Industries” recently registered with the Parliament by a group of MPs also provides for project-by-project reporting and is meant to regulate the disclosure of beneficial owners. The document was elaborated by a working group created on the basis of the Ministry of Energy and Coal Industry of Ukraine with the participation of the EITI Secretariat in Ukraine and DiXi Group think tank and support of the International Renaissance Foundation. This draft Law was supported by the line committees and recommended for adoption in the first reading.

Improvement of financial management, accounting, investment climate and enhanced fight against corruption will be the key outcomes of the implementation of this draft Law. The adoption of the document will allow positioning of Ukraine as a country that supports the world’s transparency trends and seeks to attract as many investor in the industry as possible.

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