 "Companies required to report payment that exceeds $1 lakh: Dominic Eagleton")
Dominic Eagleton, a member of Global Witness, a UK-based NGO that campaigns to prevent natural-resource related corruption, which has been calling for transparency laws in the extractive industries sector, tells Aditi Phadnis about new laws that will make the mining industry more accountable. Excerpts:
What are the implications of the new laws on mining passed in the US and the laws that are going to come into force in the EU ?
Every year oil, gas and mining companies pay hundreds of billions of dollars to governments across the world for access to natural resources. Despite this abundance of natural wealth, millions of people living in resource-rich countries and regions are mired in desperate poverty.
All this is about to change however, as the new laws force companies to disclose their payments to governments, including taxes, royalties and licence fees, giving people the information they need to see who’s benefiting from the natural resources that lie beneath their feet.
In August 2012, the US Securities Exchange Commission (SEC) approved the final rules for Section 1504 of the Dodd-Frank Act. Section 1504 requires all US-listed oil, gas and mining companies to disclose the payments they make to governments in every country they operate in, including payments for each individual resource project they invest in, on an annual basis.
Indian extractive companies that are currently listed in the US, or that apply to list in future, will need to comply with the Act. For example, under Section 1504, Sterlite Industries will be required to report to the SEC the revenue payments it makes to the Indian government, and also payments made to the Australian government for its mining operations in that country.
Companies are required to report any payment that equals or exceeds US$100,000. The types of payments to be disclosed include taxes, royalties, license fees and signature bonuses. Companies are to provide publicly accessible reports to the SEC, beginning with fiscal years ending after 30 September 2013.
The EU has decided to introduce similar legislation but that will take time to kick in.
Crucially, the new laws compel companies to reveal the payments they make to governments for each individual resource project they operate, wherever it is in the world.
All payments of US$100,000 and over must be reported, on an annual basis. So for the first time, communities living near mines or oil fields will have easy access to detailed information about the wealth being generated by resource projects in their backyard.
This will put them in a better position to demand a fairer share if they are not seeing the benefits.
The new laws will also provide easy access to information that can be used to combat large-scale corruption, such as the Coalgate and iron-ore mining scandals.
Many investors are strongly supportive of the new rules as they improve fund mangers’ ability to assess risk, while progressive companies know they will enhance their ‘social licence’ to operate.
No-one is suggesting the new laws will kill off all corruption in one fell swoop. But there can be no accountability without transparency, and in this sense the new rules represent a watershed moment in the fight against natural resource-related corruption.
What are the implications for Indian companies?
Any oil, gas and mining company that trades shares in the US or EU has to comply with the new rules. This includes some Indian household names like Reliance Industries, Aditya Birla, Tata Steel, and Vedanta.
So Reliance, for example, will need to reveal the taxes, royalties, licence fees and other revenue payments it makes to the Indian government for each of its natural resource projects here.
Also, under the new rules, Reliance will have to disclose the payments it makes to the governments of Peru, Kurdistan, the US, East Timor, Colombia, Yemen and Australia for its oil concessions in those countries. Many foreign players operating in India will have to follow the new standard, such as BP, Rio Tinto, Shell and British Gas.
Many of these companies’ competitors are not listed in the US or EU and so, of course, are exempt from the regulation. This creates an uneven playing field for extractive companies in India.
However, the new US and EU rules cover around 70% of the global industry by value, and they reflect strong momentum towards a global transparency standard for natural resource deals. International fora such as the G20 are calling for oil, gas and mining firms to disclose their payments to governments, and 37 resource-rich countries will soon require companies to report payments on a project-by-project basis through a scheme known as the Extractive Industries Transparency Initiative.
Given the huge benefits that can be gained from making a simple change to company reporting requirements, we hope that Indian policymakers will consider introducing similar measures here. Doing so would establish India as a world leader in the movement to promote transparency as a tool to fight poverty and corruption, as well as levelling the playing field for companies in the Indian industry.
How are communities living in the vicinity of mining areas going to be affected by these laws ?
The new rules will give people the answer to a simple but important question: how much are we getting for our natural resources? Knowing this will empower communities to demand a fairer share of the revenue being generated by projects in their local area.
If a mine is making huge profits but people are seeing few benefits, they will be better equipped to demand improved local services or infrastructure. If a project is contributing little or no tax, communities can start to ask why, and whether the company is paying its way.
Another way the laws could bring benefits is by complementing the Mines and Minerals (Development and Regulation) Bill, which entitles mining-affected communities to a share of the revenue generated by projects in their local area. Assuming this provision is kept in the final Act, the information generated by the US and EU rules will be of strong interest to communities who are entitled to a share of those revenues.
What are the implications of the new laws on mining passed in the US and the laws that are going to come into force in the EU ?
Every year oil, gas and mining companies pay hundreds of billions of dollars to governments across the world for access to natural resources. Despite this abundance of natural wealth, millions of people living in resource-rich countries and regions are mired in desperate poverty.
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Currently, the payments made by extractive companies to governments are shrouded in secrecy, leaving citizens in the dark over how their natural resource wealth is being used.
All this is about to change however, as the new laws force companies to disclose their payments to governments, including taxes, royalties and licence fees, giving people the information they need to see who’s benefiting from the natural resources that lie beneath their feet.
In August 2012, the US Securities Exchange Commission (SEC) approved the final rules for Section 1504 of the Dodd-Frank Act. Section 1504 requires all US-listed oil, gas and mining companies to disclose the payments they make to governments in every country they operate in, including payments for each individual resource project they invest in, on an annual basis.
Indian extractive companies that are currently listed in the US, or that apply to list in future, will need to comply with the Act. For example, under Section 1504, Sterlite Industries will be required to report to the SEC the revenue payments it makes to the Indian government, and also payments made to the Australian government for its mining operations in that country.
Companies are required to report any payment that equals or exceeds US$100,000. The types of payments to be disclosed include taxes, royalties, license fees and signature bonuses. Companies are to provide publicly accessible reports to the SEC, beginning with fiscal years ending after 30 September 2013.
The EU has decided to introduce similar legislation but that will take time to kick in.
Crucially, the new laws compel companies to reveal the payments they make to governments for each individual resource project they operate, wherever it is in the world.
All payments of US$100,000 and over must be reported, on an annual basis. So for the first time, communities living near mines or oil fields will have easy access to detailed information about the wealth being generated by resource projects in their backyard.
This will put them in a better position to demand a fairer share if they are not seeing the benefits.
The new laws will also provide easy access to information that can be used to combat large-scale corruption, such as the Coalgate and iron-ore mining scandals.
Many investors are strongly supportive of the new rules as they improve fund mangers’ ability to assess risk, while progressive companies know they will enhance their ‘social licence’ to operate.
No-one is suggesting the new laws will kill off all corruption in one fell swoop. But there can be no accountability without transparency, and in this sense the new rules represent a watershed moment in the fight against natural resource-related corruption.
What are the implications for Indian companies?
Any oil, gas and mining company that trades shares in the US or EU has to comply with the new rules. This includes some Indian household names like Reliance Industries, Aditya Birla, Tata Steel, and Vedanta.
So Reliance, for example, will need to reveal the taxes, royalties, licence fees and other revenue payments it makes to the Indian government for each of its natural resource projects here.
Also, under the new rules, Reliance will have to disclose the payments it makes to the governments of Peru, Kurdistan, the US, East Timor, Colombia, Yemen and Australia for its oil concessions in those countries. Many foreign players operating in India will have to follow the new standard, such as BP, Rio Tinto, Shell and British Gas.
Many of these companies’ competitors are not listed in the US or EU and so, of course, are exempt from the regulation. This creates an uneven playing field for extractive companies in India.
However, the new US and EU rules cover around 70% of the global industry by value, and they reflect strong momentum towards a global transparency standard for natural resource deals. International fora such as the G20 are calling for oil, gas and mining firms to disclose their payments to governments, and 37 resource-rich countries will soon require companies to report payments on a project-by-project basis through a scheme known as the Extractive Industries Transparency Initiative.
Given the huge benefits that can be gained from making a simple change to company reporting requirements, we hope that Indian policymakers will consider introducing similar measures here. Doing so would establish India as a world leader in the movement to promote transparency as a tool to fight poverty and corruption, as well as levelling the playing field for companies in the Indian industry.
How are communities living in the vicinity of mining areas going to be affected by these laws ?
The new rules will give people the answer to a simple but important question: how much are we getting for our natural resources? Knowing this will empower communities to demand a fairer share of the revenue being generated by projects in their local area.
If a mine is making huge profits but people are seeing few benefits, they will be better equipped to demand improved local services or infrastructure. If a project is contributing little or no tax, communities can start to ask why, and whether the company is paying its way.
Another way the laws could bring benefits is by complementing the Mines and Minerals (Development and Regulation) Bill, which entitles mining-affected communities to a share of the revenue generated by projects in their local area. Assuming this provision is kept in the final Act, the information generated by the US and EU rules will be of strong interest to communities who are entitled to a share of those revenues.