By Luke Balleny
BRASILIA (TrustLaw) – The movement to bring greater transparency to the oil, gas and mining industries is facing a crucial time in its development and needs to overcome three significant challenges to continue to be successful, Daniel Kaufmann, head of the international transparency watchdog Revenue Watch Institute told TrustLaw.
The transparency movement must become more global, the data produced by the extractive industries must be clear and comparable across countries, and the movement must work to build up expertise within resource-rich countries so that local transparency watchdogs, governments and media can interpret the data, Kaufmann, a former World Bank economist, said.
Kaufmann spoke to TrustLaw on the sidelines of the International Anti-Corruption Conference in Brasilia, just over two months after the U.S. Securities and Exchange Commission (SEC) published the regulations that will govern section 1504 of the Dodd-Frank Act, that will force oil, gas and mining companies listed on a U.S. stock exchange to disclose all payments made to governments.
GLOBALISATION OF TRANSPARENCY
“We are on the verge of a game changer in terms of the globalisation of transparency norms and the U.S. Dodd-Frank has taken the lead, it was a watershed moment,” Kaufmann said.
Since the Dodd-Frank Act was passed in July 2010, the European Parliament has begun debating its own extractive transparency laws which, in some ways, are even tougher than those contained within the Dodd-Frank Act. The European laws mirror the U.S. laws but include both European listed and private companies and extend the requirement to the forestry sector in addition to the oil, gas and mining sector. The final language of the law is expected to be voted on in early 2013.
“Let us not be naive, in Europe there are still quarters that are against it for a variety of reasons,” Kaufmann said.
“But having said all that, if things continue to progress, this is a game changer because once you have Europe and the U.S., this becomes global,” Kaufmann added.
While it is unlikely to do so in the near future, even China may pass an extractive transparency law, Kaufmann said.
“China is watching,” Kaufmann said.
“China, at the end of the day is very pragmatic ... they want their investments to be protected,” he added.
AVOIDING ZOMBIE DATA
Since 2002, the voluntary Extractive Industries Transparency Initiative (EITI) has been working to convince companies in extractive industries to publish what they pay and governments to disclose what they receive to enable society to hold leaders and corporate executives to account.
While Kaufmann supports the EITI, Kaufmann described the data that the EITI currently provides as “zombie data” because it is overwhelming and very difficult to analyse or compare across countries.
“So far (transparency data) is disorganised and anarchic and at some point the chicken will come back to roost because if all of this information that is being produced becomes ‘zombie information’ ... there may be a backlash,” Kaufmann said.
Kaufmann sees both a macro and a micro challenge in aligning the data produced for EITI which will, in time, come from the implementation of the Dodd-Frank and European laws.
The macro challenge is to align the data with internationally recognised statistical standards, Kaufmann said.
“Right now, they are not aligned at all so basically if I, as a macro economist, want to do an analysis it is extremely difficult,” Kaufmann said.
The micro data challenge for the EITI is to provide more disaggregated data, Kaufmann said. The EITI needs to start asking companies to provide the payments that they make to governments on a project-by-project basis as opposed to an aggregated country level basis, as is currently the case.
One of the regulations published by the SEC on Aug. 22 was that companies should publish their payments on a project-by-project basis, a provision for which transparency watchdogs had lobbied hard to be included.
“There is going to be much more disaggregated reporting, that is the way we are going,” Kaufmann said.
“If we are not ready as a movement, as an industry, to manage the data and organise and we drop that ball ... civil society will not be able to be empowered and use it and hold the governments accountable,” Kaufmann added.
BUILDING THE EXPERTISE TO INTERPRET THE PAYMENTS
The movement needs to be ready to be able to interpret the enormous amounts of raw data that the extractive industries will soon be forced to publish on their payments to governments, Kaufmann said.
“I do not think we have taken in yet, given the game changer that this implies in terms of globalisation of norms ... what type of capacity building will be needed at the country level to be able to basically analyse record, process this data and write the reports,” Kaufmann said.
While transparency watchdogs will need to be trained in how to interpret the payments made to governments by the extractive industry, other sectors of society should not be forgotten in the drive to build up the necessary expertise, Kaufmann said.
“When we talk about capacity building, particularly in this setting, the reference is to civil society and we need to focus also on government officials for capacity building,” Kaufmann said.
“We are doing a lot of capacity building on these issues with parliamentarians (and) we just started a programme in Africa for media, for journalists on this issue,” Kaufmann added.