U.S. energy companies will soon have to reveal how much they pay foreign governments for rights to produce crude oil, natural gas and minerals around the world.
Tucked near the end of the more than 2,000-page final version of the financial reform bill is language requiring energy companies to submit the payment information annually to the U.S. Securities and Exchange Commission. The provision was added by Democratic Sen. Patrick Leahy of Vermont, a long-time supporter of the voluntary Extractive Industries Transparency Initiative, and by Sen. Ben Cardin of Maryland, also a Democrat. That global initiative is backed by the World Bank, United Nations, and other groups, and aims to combat government corruption in resource-rich countries by monitoring and verifying payments received from energy and mining companies.
The new U.S. requirement is good for investors, said Leahy, chairman of the Senate Judiciary Committee. “When oil, gas and mining companies do business overseas – whether in Angola, Kazakhstan, Burma, Venezuela, or any other country – they pay those governments for concessions, royalties and other fees,” he said in a statement. “The American people and investors need this transparency to know if they are investing in companies that are operating in dangerous or unstable parts of the world.”
Human rights advocates hope the U.S. action will influence other countries. “This is going to be a tipping point because once the United States requires this, it’s only a matter of time until other countries require corporate disclosure of this kind,” said Isabel Munilla of Publish What You Pay, a coalition of human rights and environmental groups. The Hong Kong stock exchange recently adopted a similar requirement for companies traded on it, and there is a move underway by some British lawmakers to impose the requirement on the London stock exchange, she said.
The American Petroleum Institute, which represents some 400 energy companies, opposes the new mandate.
Requiring only U.S. energy companies to report payments to host governments will hurt their ability to compete with quasi-governmental and national oil companies such as Russia’s Gazprom and China National Petroleum Co, API chief executive Jack Gerard said in a May letter to lawmakers. “Disclosing payments at this level of detail, including payments on a project level, means that foreign competitors would have access to very specific, propriety information that can be used against U.S.-listed companies in contract negotiations and for other purposes,” the letter said. That could mean lost jobs, he said.
The API criticized what it called the bill’s “unilateral approach” by the U.S. government. Instead, the industry group said it prefers to see countries adopt the Extractive Industries Transparency Initiative because it requires all companies operating in a specific country to report their payments and protects proprietary information, according to the letter. “We don’t believe that a U.S.-only approach is the best way,” API spokeswoman Cathy Landry said.
In addition to detailing annual payments to foreign governments, U.S. energy and mining companies must also disclose how much they paid to various U.S. government agencies for production rights, according to the bill.
The financial reform bill, which focuses mostly on U.S. banking regulation and consumer financial protection, gives the SEC nine months to issue rules spelling out exactly how firms will report their energy and mining payment information. Companies must categorize the payments and include the currency used, the business unit that made the payments, the government that received the payments, and identify the project, the bill says. Reported payments must include taxes, royalties, license fees, production entitlements, bonuses, and other benefits that are part of the revenue stream from commercial development of oil, natural gas or minerals.
The SEC can demand any other information it finds “necessary or appropriate in the public interest or for the protection of investors,” the bill said. It set a nine-month deadline for the SEC to issue the regulations after the bill is signed into law. The House and Senate are expected to soon vote to approve the final language of the wide-ranging financial reform measure, sending it to the president for his signature.
ABOUT THE DATA:
What: Annual summary of U.S. energy, mining company payments to governments
Where: U.S. Securities and Exchange Commission
Availability: When SEC completes rulemaking, possibly in 2011
Format: Electronic data