For many us, whom have dedicated years to advocate for the laws that require the disclosure of payments in Canada, the time has come! Reports required to be disclosed in accordance with the Extractive Sector Transparency Measures Act (ESTMA) are piling up, and shortly (May 2017) we expect there to be hundreds and hundreds of disclosures covering countries from every continent. You can explore the reports here.
Reports by Canadian or Canadian-listed extractive companies stand out from their peers in a couple of ways: Firstly, most of the reports will be for mining companies; secondly, many of the companies are small, with just a few projects, and thirdly, Canada has strong project-level disclosure requirements for public mining companies, which means that there will a lot of complementary information available for each mining company/project.
One of the big questions is: what can I do with this data? Well, there are lots of possibilities. Once the reports have all been filed sometime next fall, we will be able to pull it all together into one dataset, so that we can identify trends and aggregate data. However, before this happens, there is an important opportunity to dig into individual company reports.
At Publish What Pay Canada’s retreat this year, this is exactly what we did. Participants attending the retreat were divided into groups and each group was given one of the mining projects below:
Every member of the group was provided with a folder complete with information on their assigned mining project. The information in the folders drew from 5 primary documents types: Investor presentations, mine project webpages, regulatory filings (technical reports, audited financials), and at times external sector specific information, such as EITI reports or data on uranium production and pricing from the World Nuclear Association. The latter was particularly important, because unlike gold, uranium is often sold on long-term contracts with negotiated prices, rather than using a global price.
Participants were asked to look for certain pieces of information, including:
But most importantly, they were asked to determine whether they could conduct a royalty audit. A royalty audit involves comparing the royalties paid with a calculated assumption of what should have been paid. To conduct a royalty audit, one needs access to project-level production, average annual sale price and the royalty rate. Further, the royalty must be production-based.
With one hour to dig deep into the information at hand, participants come up with some interesting results. Below we explore the results from two groups.
The group that analyzed Perseus Mining Company’s project, “Edikan Gold Mine” found that 10% of mining royalties in Ghana are transferred from the central government to local governments and local land-owning authorities. According to the ESTMA report, Perseus paid 17,890,000 Australian dollars /13,856,860.00 USD (given the exchange rate of 0.74425 provided in the ESTMA report) in royalties from July 1st 2015 – June 30th 2016. As a result, 1,789,000AUD/1,385,686.00 USD should have been transferred to local governments and authorities. The group concluded that it would be worthwhile to follow up to see whether the money was transferred and what it was used for.
The group also conducted an audit on the royalties paid by Perseus for the production at the Edikan mine. The royalty audit involved comparing the royalty payment of 13,856,860.00 USD with the royalty payment calculated by the group given annual production, average price, and the royalty rate. All data was found in Perseus annual report.
In this case the calculation relied upon gold sold versus gold produced, although the numbers are very similar. While the group stumbled at first, given the different currencies used in the annual report (USD) and the ESTMA report (AUD), the final royalty audit showed a discrepancy between the royalty payments reported and that revealed through the royalty audit we conducted. The royalty audit revealed a figure 4.5 million USD below that which was reported. It would be worth reaching out to Perseus to better understand why the royalty audit revealed a figure well below what Perseus Mining paid in royalties for the Edikan project in 2015/2016.
Annual gold sales of 153,957 ounces x average annual price 1,224.00 USD/ounce x Royalty rate 5% = 9,442,168.00 USD
The group looking at the Selinsing Mine in Malaysia was able to complete a royalty audit using available information. To conduct the audit the group first had to convert the royalty payment reported in the ESTMA report from Canadian into US dollars. Given that the ESTMA report did not outline the CAD/USD conversion, an average rate for 2016 of 0.75 USD to each 1 CAD was used, thus royalties of 1,150,000.00 CAD became 862,500 USD. Additionally, given that Monument Mining settled a gold forward sale contract in 2015/2016 for 5,000 ounces/gold at $519.00/USD, the group had to calculate and add two different figures for royalties, assuming that royalties were paid in 2015/2016 on the gold forward sale.
Gold Sales 18,150 ounces x 1,157.00 USD/ounce x royalty rate of 5% = 1,049,975.50 USD
Gold forward contract settled for 5,000.00 ounces/gold x 519.00 USD/ounce x royalty rate of 5% = 129,750.00 USD
Total Sum: 1,179725.50 USD
While the group noted that the royalty rate in the ESTMA report were roughly similar to the royalties revealed by the audit, with the exchange rate factored in, there appears to be a discrepancy of over 300,000 USD. Some of this difference may be due to the actual exchange rate, but it would still be worthwhile to question the company about this difference.
Another thing noted by the group was the highly variable corporate expenses charged by the company to the project, ranging from 19% of revenues in 2014 to 9.49% in 2015, to 16.5% of revenues in 2016. The group noted that it would be interesting to further understand why corporate expenses are so high.
Paladin Energy posed a challenge, as the royalty rate applied to the project in Namibia was not publicly disclosed. Research conducted after the group exercise shows that the Langer Heinrich mine may be subject to a 3% royalty rate, however, Paladin reported the project was subject to a 2% royalty in 2006.
Another important point noted in research conducted after the group activity, was that Paladin Energy reported 6,600,000.00 USD in royalties paid to the government of Namibia in their ESTMA report, a figure that is markedly different from that reported in its annual report of 4,982,697.00 USD in royalties to the Government of Namibia for FY 2016 (p.47). Both figures were cited as referring to financial year 2015/2016. This discrepancy merits further discussion with the company.
Given that the royalty rate applied to the project was unclear, the group sought to identify the royalty rate paid by Paladin given production and price. Luckily, Paladin had only one producing property in FY 2016, thus all figures in the annual report reflected production at the Langer Heinrich project. It can be noted that the royalty rate ranged from 2.7 to 3.65% depending on whether it was calculated using the Annual report or the ESTMA report. I will follow up with Paladin to try and understand the discrepancy between the ESTMA report and the annual report and can report back any findings.
Using royalty payment reported in Paladin’s Annual Report
In FY2016 production was 4,763,000 lbs x price 37.75/lb = $179,803,250.00/4,982,697.00 = 2.77 % royalty rate
Using royalty payment reported in ESTMA report
In FY2016 production was 4,763,000 lbs x price 37.75/lb = $179,803,250.00/6,600,000 = 3.65 % royalty rate
All the groups noted that the exercise was more challenging than anticipated. Moreover, to write up and verify the results took me considerable time, piling back through company reports and taking into account new information not available during the group exercise. That said, royalty auditing is empowering, arming civil society with critical questions which can be asked of governments and companies. Similar, a closer look at each project yielded other questions, which can form the basis of an informed conversation with companies and governments.
A change in government often brings significant shifts in policy. Major initiatives taken up by a previous administration can be slowed or reversed, and information that was once publicly available may be taken down or censored. The White House webpage provides some clear examples of this phenomenon. Following the inauguration this past January, press reported that the Trump Administration White House homepage underwent some changes, such as striking references to climate change and removing a spanish language option. Fortunately, if a user wants to view the content from the White House homepage of President Barack Obama, it is still possible to do so by navigating to https://obamawhitehouse.archives.gov.
Citizens can also use the Internet Archive “Wayback Machine” to access www.WhiteHouse.gov and see content for any given day going back several years. These archive solutions are helpful for viewing web content, but hosted files on these pages still have the potential to get lost. Documents that are hosted on pages can become inaccessible as other content is changed.
Since 2010 the Publish What You Pay coalition, academics, industry, investors and other actors submitted hundreds of comment letters to the Securities and Exchange Commission (SEC) to influence the agency’s Section 1504 rulemaking. Every single comment that has been submitted to the SEC is available on the regulatory agency’s website. The comments are available as pdf files on four separate comment records: 2010, 2010-2012, 2013-2015, and 2015-2016. Because of the current wave of government self-censorship, we wanted to make sure we could preserve the evidence in the Section 1504 record. This post will provide the steps to download all linked documents, such as pdf files, from a website. The SEC comment record will be used as an example, but the same steps can be used to download and preserve files hosted on any site.
As with other data scraping and organizing processes, the steps described in this post could be carried out manually. For example, scraping data from a company pdf report can be done manually, with a user entering in data line by line into a spreadsheet, but that is a time-consuming process. As we described previously on Extract-A-Fact, there are tools to help speed up data scraping. To automate the downloading of all linked files on a website, we will use the Google Chrome extension, Chrono Download Manager - see the tutorial below.
Step 1 - Install the Chrome extension
Navigate to the Chrome web store page for the Chrono Download Manager and click the ‘Add to Chrome’ button in the upper right. A notice will pop up and you can safely click ‘Add extension’ to confirm installation. When the installation completes you should find a new icon in the upper right corner of your Chrome browser.
Step 2 - Download linked files
Before proceeding, we recommend you set a dedicated folder for downloads. Navigate to chrome://settings in your Chrome browser and set a specific downloads folder. See the image below for an example.
Next, navigate to the page with the files you intend to download. In this case we will use the most recent 1504 comment record. Once on the page, click the Chrono Download Manager icon in the upper right. Select the ‘Document’ tab in the window that pops up.
The ‘Document’ window presents a list of all the links on the page that are interpreted as documents. In this case, we are only concerned with downloading the pdf files. To narrow the selection, click the ‘pdf’ check box as shown below.
Once you’ve selected all the relevant documents you can click ‘Start all’ in the lower right of the window to download the files into the folder you selected in the Chrome browser settings.
*Optional Step 3 - Categorize the downloaded files
If you follow the steps above you will be able to successfully download all of the files from a webpage, which will simply be listed by their filename (e.g. s72515-1.pdf). To help organize the files, you can have Chrono Download Manager automatically attach the descriptive text corresponding to each file. Click the first document highlighted in green (see image above), scroll down to the last pdf and press shift+left mouse button on the last highlighted pdf. With all of the pdf files checkmarked and selected, click the ‘Task Properties’ tab as shown below.
Click the text box next to ‘Naming Mask’ and select ‘*text*.*ext*’ then click ‘Start All’ to download all of the files. You’ll find that the downloaded files will now appear in the folder with a descriptive title (e.g. Jana L. Morgan, Director, Publish What You Pay – United States) rather than the numbered file name.
Glencore’s $75 Million Payments Show Why the EITI Must Enforce Project-level Reporting by Oil and Mining Companies
By Dominic Eagleton, Global Witness
This post originally appeared on GlobalWitness.org on March 7, 2017
Tomorrow the Extractive Industries Transparency Initiative (EITI), a global scheme of 51 implementing countries that aims to stop corruption in the oil, gas and mining industries, will meet in Bogota to make critical decisions about a game-changing measure known as project-level reporting.
The EITI requires oil, gas and mining companies to report details about the trillions of dollars they pay to governments across the world for the rights to natural resources. The reporting requirement applies equally to governments who must publish the receipts, enabling citizens in resource-rich countries to follow the money and ensure it’s used for their benefit instead of lining the pockets of corrupt elites.
In most cases however, EITI reporting doesn’t go into enough detail. Payments are generally disclosed only at the company level. So if a company operates five oil projects in a country, often its payments from each project will be lumped together and reported as an aggregate sum. Although this kind of reporting is a step in the right direction, it still allows companies or governments to hide payments from individual projects, which can reach into billions of dollars from a single project – and can easily go missing.
A new Global Witness investigation highlights the need for EITI countries to ensure payments are reported separately for each oil, gas or mining project. Our research shows that between 2013 and 2016 the mining giant Glencore redirected over $75 million to Dan Gertler, a controversial businessman accused of bribing senior officials in Democratic Republic of Congo to advance his mining interests.
The payments arose from Glencore’s Katanga mining project in Congo and, under the terms of the original contract, should have been transferred to the Congolese state. Instead the money was redirected to Dan Gertler’s Africa Horizons company, registered in the Cayman Islands.
Glencore’s disclosures in Congo’s EITI reports – a relatively rare example of project-level reporting in the EITI – played a critical role in revealing that the payments were being redirected. Glencore admitted the payments were made to Gertler. Gertler contests accusations of wrongdoing in his dealings in Congo.
This case highlights why all 51 countries that follow the EITI’s rules need to implement project-level reporting. Corruption happens at the project level in the oil and mining industries, and there’s no way of know for sure where the money is going unless payments are reported at this level of detail.
Pressure from campaign groups including Global Witness prompted the EITI to adopt project-level reporting in the EITI’s global standard in 2013. But the measure has been strongly resisted by a small number of oil companies including Chevron and Exxon, who advocate a much weaker standard for disclosing payments. After three years’ of stalling, project-level reporting has still not been implemented across EITI countries.
There’s no reason why this can’t be done. A small number of EITI countries have published reports that include project-level payment disclosures, including Indonesia, Ghana and Iraq, as well as Congo. Since 2013, 30 countries have introduced laws that compel their oil, gas and mining companies to report payments at the project level, including the UK, Canada, France and Norway. In the UK alone, over 80 extractive companies have disclosed project-level payments worth around $100 billion since 2015, with no ill effects.
The EITI is lagging behind. Moving at this embarrassingly glacial pace means it risks being eclipsed by global developments. The Bogota meeting is an opportunity for the EITI’s international board to show leadership and agree to bring the requirement for project-level reporting into effect. Otherwise oil and mining companies will be able to continue making payments in secret, and money that resource-rich countries badly need will continue being stolen.
By Miles Litvinoff, Publish What You Pay - United Kingdom
This post originally appeared on PublishWhatYouPay.org on January 3, 2017
Mandatory reporting by oil, gas and mining companies under European Union country-by-country disclosure laws began in the UK and France in 2016. Key aspects of the reporting requirements – which have equivalents in Norway, Canada and the USA – are especially useful in preventing corruption: granularity (disaggregation by project and by recipient government entity); comprehensiveness (all countries of operation without exemptions); and timeliness (the most recent financial year).
Eighty-six extractive companies reported under UK law in 2016UK-incorporated extractive companies must disclose payments within 11 months of each financial year-end, and London Stock Exchange-listed (Main Market) extractive companies within 6 months (unless the LSE is their secondary listing). UK-incorporated companies must provide open and machine-readable data. For most in-scope companies, the first reporting deadline was 30 June 2016 (if LSE-listed) or 30 November 2016 (if UK-incorporated and unlisted).
According to an assessment by PWYP UK and NRGI, by end-2016 disclosures of 2015 or 2015/16 payments to governments had been published by 86 UK-incorporated and/or LSE-listed oil, gas and mining companies (plus one forestry company). Prominent reporting companies include Anglo American, BG Group (now part of Royal Dutch Shell), BHP Billiton, BP, Cairn, Centrica, Gazprom, Glencore, Lukoil, Premier Oil, Randgold, Rio Tinto, Rosneft, Royal Dutch Shell, Soco, Total (main reporting obligation in France), Tullow and Vedanta. LSE-listed China Petroleum & Chemical (subsidiary of Chinese state-owned Sinopec Group) should have reported payments made in Angola and China but appears not to have.
Payments in which countries?Disclosures from the above named 18 companies provide data on 84 host countries. These include resource-rich developing and transition states where extractive revenues may be hidden or associated with the “resource curse”, and developed economies that also may fail to gain optimal outcomes from resource extraction (see graph and table of some of the countries where these 18 companies report).
How good is the reporting?This growing body of extractives data is essential – if not sufficient – to inform citizens, civil society, journalists and parliamentarians about the revenues generated by exploitation of their countries’ natural resources, how well the money compensates for negative social and environmental impacts and which government entities get paid (see PWYP’s Chain for Change).
The first year’s reporting in the UK needs improvement, however, and company disclosures are not always complete.
Difficulty in locating some reports and lack of open data
All UK-incorporated companies’ reports are available online in open data from Companies House, but there is no annual index; site users need to insert a blank space in the search box to produce a list of reports. LSE-listed companies’ disclosures currently lack a central location, making it hard to know how many have reported, and need not be in open data format. (Similar challenges occur with companies reporting in France.) LSE-listed companies are required to announce their report on the National Storage Mechanism but many do not, and none have used the correct classification. However, all LSE-listed companies will be required to upload their reports centrally in open data from 2018.
Over-aggregated or omitted data
Several companies have broadly – and geographically – aggregated data for multiple different oil and gas fields or mines: Shell (“Gulf of Mexico (West)”, “Northern North Sea”, “Sabah Inboard and Deepwater Oil”, “SPDC East”, “UK Offshore”); BHP Billiton (“Gulf of Mexico”); BP (“Gulf of Mexico Central”); Glencore (“DRC Copperbelt Region”). Very broad project aggregation may result in companies hiding suspect payments and arguably contravenes the law’s purpose.
Other companies fail to identify the government entities they pay, which PWYP considers a legal infringement. Lukoil lumps together payments to unnamed “state authorities”. Aggregate Industries (part of LafargeHolcim, which reports in France) identifies only unnamed “national” or “regional/local” governments. Petrofac initially failed to identify government entities but subsequently corrected this.
Companies are required to specify in-kind payments by value and volume and to explain how the value was determined. To verify price per barrel, value should be divisible by volume. However, Shell has for at least one project in Nigeria combined oil and gas in-kind payments in a single figure, making the price per barrel for each incalculable, and when requested refused to fully clarify. Petrofac originally combined cash and in-kind payments in Tunisia in a single uncheckable figure but then amended its report.
BP omits payments by non-subsidiary joint ventures (JVs), and Shell excludes payments by JVs over which it has joint control. Given the frequency of JVs in resource extraction, and because JV production entitlements are often the largest payment to a government, non-reporting of JV payments by non-operating partners – which could be reported proportionately – will leave large sums of money undisclosed.
Disclosures by Total and some other companies contain omissions of certain types of payments that require further investigation.
Civil society has been active in accessing and analysing the data, including via PWYP’s Data Extractors programme and PWYP US’s Extract a Fact site. Our work with the data will be the subject of future blogs.
The UK will review its regulations in 2017, followed by the European Commission’s EU-wide review in 2018. Civil society needs to engage with these processes to defend the value of mandatory reporting and, where possible, persuade policy makers to close loopholes and strengthen the law.
Click here for the archives to see our full list of posts.