In an interview with Critical Resource, Fredrik Reinfeldt – Chair of the Extractive Industries Transparency Initiative (EITI) and former Prime Minister of Sweden – outlines why mining companies are leading the transparency agenda ahead of oil and gas firms, and expresses concerns over plans before the US Congress to roll back transparency regulation.
The Extractive Industries Transparency Initiative (EITI) is a global standard which promotes the open and accountable management of oil, gas and mineral resources. Fredrik Reinfeldt was elected as chair of the EITI in February 2016, and was formerly Prime Minister of Sweden (2006 to 2014).
Mining companies are leading the transparency agenda ahead of oil and gas firms
“I think that the mining sector is more transparent than oil and gas companies when it comes to contracts and revenue payments. Mining
tends to be more conflict-prone because operations are longer-term and often more visible. Mining companies are therefore usually more exposed to questions about local communities and more vulnerable to protests. As a result, I think the mining industry has understood that an answer to local demands, reactions and demonstrations is to be more transparent. By contrast, a lot of oil drilling is offshore, so there are differences in the attitudes of oil and gas companies towards these issues.
Meanwhile, larger companies are generally seen to operate to higher international standards than smaller companies, because, for example, they have more employees and can have teams that work specifically on transparency matters. For a smaller company, it can be more of a learning curve to understand how to follow international standards. Nonetheless, size is not always a determining factor in this respect – a number of examples show that smaller companies can grow and adapt more easily to work in a transparent and modern way.”
US Congress needs to ensure hard-won gains on transparency are not threatened
“The proposed Congressional Review Act resolution now being considered by Congress would overturn the SEC Rules – adopted in June 2016 – that requires resource extraction issuers to disclose payments made to governments for the commercial development of oil, natural gas or minerals as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank 1504). The European Union and Canada have adopted similar requirements.
The EITI has in recent years frequently spoken about the ways in which disclosure requirements like Dodd Frank 1504 and the EITI complement each other. See for example, the EITI Statement on the SEC’s regulation on mandatory company disclosure. I reiterate earlier held EITI positions on this matter. Our aim is to ensure responsible and transparent resource governance and this requires multiple efforts. The SEC took great care in drafting these rules in consultation with industry to ensure that they complement the EITI’s efforts and avoid unnecessary duplication. I would urge Congress to consider this matter thoroughly, and to ensure that any action does not undermine the hard-won gains in this arena.”
Revealing beneficial ownership is essential to globally exposing the roots of corruption
“In 2016, beneficial ownership became a major source of interest. We saw the Panama Papers case and many discussions related to it, for instance on closing tax havens. The interesting thing with revealing beneficial owners in the extractive industry is that, in some cases, it can lead us to the source of these global issues – namely corruption linked to natural resources.
At the EITI, we are therefore spending a lot of time working with our member countries to prepare them for meeting the beneficial ownership requirement in the EITI Standard. We want member countries to publish reports on how to implement this requirement already in 2017, and have the full requirement met from 2020. As part of our preparations, we are supporting our member countries in developing definitions of beneficial owners. It is of course ground-breaking to have a standard around something like this that covers 51 different countries, and we expect that all our members will be asking the same question: “how do we define beneficial owners?” Currently, member countries vary in that some already have legal frameworks, strict confidentiality provisions or national registers around beneficial ownership. To produce a standard that complements these existing legislations and works for all of them is both very time-consuming and rewarding.”
Transparency is only the first step, accountability and reforms need to follow
“For a lot of our member countries, 30-40% (and even in some cases 60-70%) of government revenues come from the extractive sector, which makes up a large proportion of the state budget. A problem, which I know from my own experience as Prime Minister of Sweden, is that you are often asked to pinpoint where specific tax revenues are being spent. But when you create a budget, you do not tend to link specific expenditures to specific taxes or fees. You just show your income and your expenditures.
However, with our multi-stakeholder approach, we are creating a space for stakeholders at the national level to ask better questions such as: “so these are the figures, but what do we do with them?” and “how do we create reforms out of this knowledge?” This is leading stakeholders to push the agenda from just asking for transparency towards accountability and discussions on how resources are used.”
EITI creates a level playing field for investors in 51 countries
“When companies domiciled in different countries operate in the same jurisdictions, a range of legislations come into play, such as the Dodd Frank Act in the US, the EU Transparency Directive and national reporting requirements, with firms required to adhere to different home country requirements. What happens as a result is clear: companies complain that they follow different rules and are operating to different standards within the same country.
That is where the EITI comes in. What is special about our work is that it serves as an international standard for all extractive companies operating in an EITI member country to follow. It creates a level playing field for our 51 member countries by offering a host country, rather than home country, perspective and disclosure framework. Where some host countries, especially in the OECD family, already have relevant legislation of their own, we think the EITI and national reporting requirements can complement each other.”
Lower commodity prices reduce corruption but strain budgets in countries like Nigeria
“I travelled to Nigeria just prior to becoming EITI Chair in early 2016. This was during a time of very low commodity prices. What they said was interesting: “with lower oil prices, there is less money floating around so corruption is falling.” But at the same time, many of these resource-rich countries have a high degree of dependency on resource revenues, so lower commodity prices have a huge impact on national budgets. This creates nervousness around government spending capability.
Meanwhile, a lot of our own funding at the EITI comes from mining and petroleum companies, which, particularly in 2016, saw lower margins linked to falling global prices. Whilst we could easily get more members to join, this would place greater pressure on the international secretariat’s funds. The priority currently is to maintain high standards in what we are doing with the resources we have, rather than rapidly grow our membership.”
A shifting EITI membership brings fresh challenges
“The main discussion for the EITI Board has been around acknowledging the great and growing differences between our 51 member countries. Our membership is shifting – a lot of the newer members are OECD countries. Germany joined, and Australia, France and the Netherlands have committed. We foresee more of the OECD family participating in the EITI, including middle-income nations like Chile and Mexico. These countries offer a different kind of challenge compared to the less developed resource-rich countries in parts of Asia and Africa which originally dominated EITI membership. The question is, how do you work with the same standards given the very diverse conditions?
Some of our member countries have been meeting our requirements on reporting and transparency for many years. For a lot of them, especially in the OECD family, their reporting is already very transparent. Our aim for these countries is to encourage reporting and transparency to become integrated into government structures and processes alongside their independent EITI transparency reports. Meanwhile, other member countries are at earlier stages in their transparency reporting. The challenge is therefore to adapt to the differences between our member countries.”