Global Witness published a report in December 1999 called A Crude Awakening, an exposť of the apparent complicity of the oil and banking industries in the plundering of state assets during Angola's 40-year civil war. It became clear that the refusal to release financial information by major international oil companies aided and abetted mismanagement and embezzlement of oil revenues in the country. The report concluded with a public call on the oil companies to "publish what you pay. It soon became clear that this problem was evident in many other developing countries. The campaign was born as more NGOs agreed that the lack of transparency was a fundamental resource governance issue in its own right and that voluntary efforts by industry to address this problem had failed. ^back to top
The appeal is consistent with the notion of an open society, the foundation of George Soros' political philosophy and philanthropic mission. Soros believes that raising the standards of corporations principally geared towards markets in the developing world would go a long way towards ameliorating negative effects of globalization. ^back to top
There is a clear moral issue at stake: natural resources are held in trust by the state for the ordinary citizens of a country. Those citizens have a clear right to information about the management of revenues associated with their resources.
We want transnational resource companies to reveal the same basic information about net payments to a state that they already routinely disclose in the developed world in the developing world. This information will help citizens call their governments to account over the management of those revenues.
Revenue transparency itself is a fundamental criterion for good governance: you cannot manage what you cannot measure. This point was re-iterated by the recent IDA and IMF Review of National Poverty Reduction Strategies, which concluded that openness and transparency within countries and international development partnerships are critical for successful poverty reduction efforts.
As Felix Frankfurter, President Franklin Roosevelt's appointee to steer the 1933 Securities Act through the U.S. Congress, wrote in Fortune magazine that August:
The Securities Act is strong insofar as publicity is potent; it is weak insofar as publicity is not enough ... The existence of bonuses, excessive commissions and salaries, of preferential lists and the like, may all be open secrets among the knowing, but the knowing are few. There is a shrinking quality to such transactions; to force the knowledge of them into the open is largely to restrain their happening. Many practices safely pursued in private lose their justification in public. Thus, social standards newly defined gradually establish themselves as new business habits. ^back to top
1. Right to information on resource revenues
For example, Angolan Law No 13/78 of August 1978 established that "all deposits of liquid and gaseous hydrocarbons which exist underground or on the continental shelf within the national territory, up to the limit of the jurisdictional waters of the People's Republic of Angola, or within any territory domain over which Angola exercises sovereignty, as established by international conventions, belong to the Angolan People." Thus, it is outrageous that those people are not allowed to know, and are actively deterred from finding out, what their resources are worth.
2. Importance of resource revenues to least developed countries and the paradox of plenty
Revenues from resource exploitation are therefore the major source of income for many governments in least developed countries. If the revenues from such investments were transparently and accountably managed, they could provide the basis for successful growth and poverty reduction.
Dependency on extractive resources tends to lead to unaccountable state institutions linked to poverty and child malnutrition. The political structures that accrete around a 'bonanza' economy generally fail to bring about social and cultural changes that lead to long-term investment in social development because resource-rich governments use low tax rates and patronage to dampen democratic pressures and spend an unusually high fraction of their income on internal security. States that are dependent on oil and mineral wealth also face a much higher chance of civil war and conflict; comparisons show that primary commodity dependent states are almost a quarter (22.5 percent) more likely to have civil conflict.
Further, extractive industries are becoming increasingly located in less developed countries where civil society and government transparency are proportionately weaker and due to the long horizons on investment involved, resource extraction companies cannot quickly and easily divest from conflict areas. Thus, a lack of transparency and the role of resources in funding conflict are likely to deepen over time. ^back to top
This problem extends to all countries where natural resources provide a major proportion of state income, where corruption associated with state income is of concern, and where companies are not fully transparent about their payments to national governments. Oil, gas and mining industries are important in over 50 developing countries, which are home to some 3.5 billion people and where 1.5 billion of these people live on less than $2 a day. Twelve of the world's 25 most mineral-dependent states and six of the world's most oil-dependent states are classified by the World Bank as "highly indebted poor countries" with amongst the world's worst Human Development Indicators.
Recent extractive resource governance problems have been cited in, for example, Algeria, Angola, Azerbaijan, Burma/Myanmar, Cambodia, Chad, Congo-Brazzaville, Democratic Republic of Congo, Equatorial Guinea, Gabon, Kazakhstan, Nigeria, Sudan and Venezuela.
Despite the resource wealth extracted from the continent, over 300 million Africans live on less than a dollar a day; life expectancy is 48 years and falling; one-third of children malnourished; and 40 percent of children have no access to education. In the Great Lakes region, five million people were killed in violent conflict in the last decade, most of which is directly or indirectly funded by resource extraction. One-fifth of the world's small arms are circulating in Africa and South Asia—the world's two poorest regions—and both have seen increases in military expenditure driven by unaccountable revenue streams.
The British government-commissioned report "Peace Building and Civil Society in Angola" (October 2001) states that companies need to increase their transparency in order for peace building and participatory politics to occur.
4. Equatorial Guinea
Relying on voluntary transparency is problematic as companies face having their operating licenses revoked and awarded to less scrupulous competitors. As a result, regulation is needed to level the playing field to allow companies greater freedom of responsible action.
The announcement of British Petroleum's intention to "publish what they pay" in Angola brought threats of concession termination from the Angolan oil company, Sonangol. British Petroleum has not yet disclosed information about tax payments and royalties to the government but it did disclose its signature bonus.
Mandated payment disclosure would solve a number of problems that have hindered voluntary disclosure, including:
No. We are calling upon companies to reveal the same basic information about net payments to the state that they already routinely disclosure in the developed world.
Companies may claim that they have signed confidentiality clauses over payment data in their licensing agreements with host governments. However, these agreements normally have a get-out clause for information that is required to be disclosed by regulation. For example, Article 33(2) of the standard Deep Water Production Sharing Agreement in Angola states that, "either Party may, without such approval, disclose such information to the extent required by any applicable law, regulation or rule (including, without limitation, any regulation or rule of any regulatory agency, securities commission or securities exchange on which the securities of such Party or of any of such Party's affiliates are listed)."
In addition, such agreements are normally a partnership between the contractor (i.e. a transnational resource company) and a state operating company, implying that confidentiality only applies to the two companies involved and not to the revenue generated from several different concessions or to tax payable to the government.
The bidding process for minerals concessions is clearly confidential whilst underway. The time for public disclosure should be after the bidding process has been completed and the operator and its partners have been chosen. ^back to top
Yes. A market cannot behave effectively if information is not provided.
Furthermore, it is in business interest to do so:
Better financial information
Long-term shareholder value
1. United Kingdom
Companies listed on the London Stock Exchange and other UK exchanges have to comply with disclosure requirements contained in the Listing Rules. The rules are governed by the UK Listing Authority (under the Financial Services Authority, which regulates the financial service sector). Whilst the UKLA is operationally independent, it is accountable to the Treasury. The Treasury has power to set annually the objectives of the UKLA. We seek the adoption as a 'Specific Objective' of the Listing Authority to incorporate a requirement that mineral companies disclose the amount or a reasonable summary of payments made to governments for any country of operation into the Listing Rules.
It is not problematic to confine this requirement to minerals companies: special rules already apply to them within the Listing Rules and the new requirement could be easily incorporated into those rules.
The time is ripe for seeking a change to the Listing Rules: a review of the Rules is to be undertaken within the next 18 months.
3. United States
As home to most of the major players in the extractive industry, the G7 must take a lead in this process and we want to see the UK Government convening a working group on this issue and leading the WSSD response on this topic. The WSSD will set the agenda for resource governance for the next few years and incorporation of a clear consensus on the necessity of transparency by government, business and civil society is therefore very important. There is already a clear call for promotion of transparency over water resource management, so why not one for revenue transparency from the resource sector? The G8 should propose this action as part of an enabling environment and civil society empowerment necessary for the NEPAD to succeed.
Specific actions should include:
It is important to follow-up improved disclosure by multinational companies with actions to promote capacity building for the management of newly identified revenue streams and awareness raising in civil society. The international financial institutions, the G8 and the OECD for example, should develop clear guidelines to end secret deals with unaccountable regimes through clear guidelines on how to structure resource management regimes with host governments and make observance of those guidelines dependent on export credit agency and risk insurance support.
Additionally, we want to see international financial institutions, national development assistance agencies and others mainstreaming transparency as a central component of technical assistance with resource governance and poverty reduction programmes as well as applying persistent pressure for transparency and the empowerment of civil society in all their areas of operation. NEPAD could also play a central role in promoting the growth of civil society to call government to account over revenue management and budgeting through its proposed peer review mechanisms. ^back to top
No. There would be no need, as a regulatory requirement for disclosure would void confidentiality clauses in most of their licenses, as information required for regulatory purposes is routinely exempt. De-listing would also suggest collusion with corrupt governments and would risk the good name of a major international company.
Whether some small/medium-sized companies that are involved in more questionable resource extraction ventures would list on an exchange is another matter, but this issue should be seen as part of a valid attempt to 'raise the international standards of corporate governance' to deny credit to unscrupulous companies supporting unaccountable regimes or directly funding conflict. ^back to top
We are waiting to hear a response from Prime Minister Tony Blair's Office following letters by Soros and Mike Aaronson of Save the Children UK. Currently, under current UK listing requirements and existing company law, resource extraction companies do not have to disaggregate the amount of revenues that they pay to reveal revenue to each country. ^back to top
The U.S. government has not been formally approached but recent landmark reports by the African Oil Policy Initiative Group (who have signed on to our coalition) and the Council of Foreign Relations have suggested that corporate governance should be on the US foreign policy agenda to promote global financial sustainability. This call should be seen as one clear way to help promote this outcome.
As World Bank President James Wolfensohn wrote after the terrorist attacks of September 11, "Central to conflict prevention and peace-building must be strategies for promoting social cohesion and inclusion, ensuring that all have opportunities for gainful employment, that societies avoid wide income inequalities that can threaten social stability and that poor people have access to education, health care, and basic services such as clean water, sanitation and power". This call for disclosure promotes those ends. ^back to top
The Corporate Responsibility Bill is a Ten Minute Rule Bill sponsored by MP Linda Perham, supported by Save the Children, CAFOD, Amnesty International, Friends of the Earth and New Economic Foundation. It requires all companies with a turnover of more than £5 million to report annually on their environmental, social and financial impacts. Some 155 MPs are supporting the bill and, although it is unlikely to receive little more than 20-minutes of parliamentary discussion time in October, it will act as a stalking horse to influence the Company Law Review that will start this autumn. ^back to top
1. Corporate governance
2. Botswana and diamond revenues
Its mines are jointly owned by the government and De Beers through a company called Debswana and the country is now the biggest producer of diamonds in the world. Some US$1.7 billion worth of diamonds were mined in 1999, and this figure is expected to climb significantly. Diamonds account for more than 65% of all government revenue and there is full transparency of its diamond income. Over the years Botswana has been able to earn an unprecedented US$6.5 billion in foreign exchange reserves, which benefits a population of 16 million with highest per capita spending on education in the world - nearly 30% of the annual budget, and free medical facilities. Fair elections have been held every five years for the past 34 years since independence.
"The secret of Botswana's success rests on twin factors," says De Beers Chairman Nicky Oppenheimer. "Good resources and good governance. Diamonds can be deployed for the benefit of a country as a whole rather than lining the pockets of the greedy and corrupt few".
Botswana has problems too. It still faces 20 percent unemployment and a high HIV prevalence. Poverty, though much lower than before the start of diamond production, still encompasses 40 percent of the population. "In a way, our dependence on diamonds is our vulnerability," says Keith Jefferis, deputy governor of the Bank of Botswana. "As a result, 27 percent of government spending concentrates on education—we want to look down the road at a skilled and diversified work force."
3. India and developments contractors
4. Children's budgets
Budget monitoring also helps to identify resource gaps. For example, if a National Poverty Reduction Strategy states that primary education is to be provided free of charge, it is possible to make projections of the cost of this pledge and to track the real budget output. Where government expenditures and donor contributions fail to cover the whole cost of a sector programme, or when a sector programme is manifestly unable to meet the demands being put upon it, budget monitoring can be a key tool to advocate for increased funding from other sources.
The Tanzanian programme, for example, will:
This process will help SC-UK to participate in future reviews of the Tanzanian PRSP and will enable them to base calls for an increased focus on and allocation towards tackling childhood poverty on detailed analysis. Transparency is a prerequisite to any effective monitoring of policy reform and as part of an enabling environment in which to engage with democratisation of resource governance and unblocking legislative and institutional obstacles by enhancing technical and institutional capacity to manage complex policy dialogues.
That said, there are important signs that democratic debate about revenue management and accountability are now underway, especially given recent attempts by the delta's inhabitants, who are amongst the poorest people in the country, to get a larger share of the oil revenues as they have borne disproportionate negative impacts from oil exploitation. A more equitable share of Nigeria's oil wealth, given that they now know how much is coming in, will be a major factor in addressing Nigeria's deep and long-running social tensions. ^back to top
The MMSD Sustainable Business Principles state the need for mining industries to "ensure a fair distribution of the costs and benefits of development for all those alive today" and to "ensure transparency through providing all stakeholders with access to relevant and accurate information".
John Browne of British Petroleum (BP) in BP's "Business Policies" (June 2000), has stated that he aims for "radical openness".
AngoloAmerican in "Good Citizenship: Our Business Principles" (2002) states, "We are committed to good corporate governance, transparency and fair dealing" in its section on investors.
Shell's Business Principles state that "all business transactions on behalf of a Shell company must be reflected accurately and fairly in the accounts of the company in accordance with established procedures and be subject to audit." ^back to top