Oversight actors can detect and prevent corruption in the oil, gas and mining sectors if they ask the right questions. Corruption schemes can be complex and opaque, yet clear patterns and similar signs of problematic behavior do exist across resource-rich countries.

To find these, we examined over 100 real-world cases of license or contract awards in the oil, gas and mining sectors in which accusations of corruption arose. The cases come from 49 resource-producing countries.

​Based on this work, we developed a list of 12 red flags of corruption in extractive sector license and contract awards, with real-world illustrations for each. This list can provide a concrete, practical tool for many types of actors, not least:

• Government officials who design award processes. The rules and procedures that govern award processes can help guard against the kinds of problematic behavior described in this report.
• Government officials who oversee and approve awards. These officials, who could represent regulators, ministries, national oil or mining companies or cadasters, could use the red flags list to detect certain behaviors as the award process unfolds, and avoid controversial, inefficient decisions.
• Parliamentarians and government oversight actors.Some parliaments have a formal role in approving license awards, while others they can call on the executive to answer questions about an award. Members of anticorruption commissions, national Extractive Industries Transparency Initiative (EITI) chapters, supreme audit institutions and other government bodies could also use the list in their work.
• Law enforcement officers. Domestic or foreign law enforcement officers could use the list to help organize their investigations into a suspect award process, or as a source of leads and lines of useful inquiry.
• Extractive company officials. As company executives evaluate whether to participate in an award process or whether to partner with a certain company, our red flags list can help them assess corruption risks—for example, as part of their anticorruption due diligence, risk management or compliance functions.
• Financial institution staff. Investors, including companies, banks, IFIs, and private equity firms, also need to gauge the risks of corruption from an award, and decide how and whether to finance a project.
• Civil society actors and journalists. NGO staff, campaigners, activists and reporters can use the list to probe the integrity and legality of ongoing or past award processes or individual awards. In particular, the list can help them to identify important lines of inquiry and to prioritize their scarce resources.

Download the full report on resourcegovernance.org

​Some days are more exciting than others when oil and gas companies disclose the payments they make to governments. We have seen a number of big days like this over the past years. 

Statoil became the first company to report under a mandatory payment disclosure regime in early 2015, undermining U.S. oil lobby arguments.

Shell, which had fought so vigorously against project-level payment disclosure laws, published its first payments to governments report under U.K. law in April 2016 and included information on China and Qatar, countries it previously claimed prohibited disclosure.

BP, which had barely published any country specific information (save for seven EITI countries, often with huge time lags), reported on USD 15.2 billion worth of project-level payments in 23 countries in June 2016.

These disclosures were exciting, and staggered. Over the last fortnight, similar reports have poured in.

On 31 May, Italian oil giant ENI published its first report (search for "ENI"). It includes information on payments of nearly EUR 5 billion in 2016 to government entities in 30 countries including Nigeria and the infamous OPL 245 oil block. The lack of any information on China is a concern, though, and requires follow up. ENI’s production in China was 2,000 barrels of oil equivalent per day in 2016. In 2015, where ENI’s production was 3,000 barrels of oil equivalent per day, it made tax payments of EUR 1.4 million according to a voluntary report.  

By last Friday, approximately 600 companies (not allowing for duplicates where a consolidated report was filed for multiple companies), had reported under Canada’s Extractive Sector Transparency Measures Act (ESTMA). The reports will take some time to sort through and NRGI is working on this with our partner PWYP Canada. In the meantime, there have been some pleasant surprises.

Chevron
Chevron has published its report for relevant subsidiaries under Canada’s ESTMA. We expected information related to its operations in Canada to be in this report. Indeed, Chevron’s U.K. subsidiary has reported on its U.K. operations under U.K. law, as is the case with the subsidiaries of other large U.S. companies like ExxonMobil and ConocoPhillips operating in the U.K. What we did not expect to find was Chevron’s Canadian subsidiaries reporting CAD 3.28 billion in payments to Indonesian and Nigerian government entities for projects such as its Rokan PSC in Indonesia or the Agbami field (OML 127/128) in Nigeria due to the way the corporation is structured. While this by no means captures all of Chevron’s payments to government worldwide, it is the first time Chevron has reported under a mandatory disclosure law in some of the key countries for which these laws were intended to increase transparency. Chevron was instrumental in lobbying for the disapproval of an effective transparency rule in the U.S. earlier this year. Today its anti-competitiveness claims look more ridiculous than ever.

CNOOC Ltd
CNOOC Ltd agreed to list on the Toronto Stock Exchange as per requirements when it acquired Canadian company Nexen. As a result, CNOOC Ltd has disclosed USD 2.6 billion in payments to government entities in 17 countries. This is the most comprehensive disclosure report we have seen so far by a Chinese state-owned company and puts it far ahead of ExxonMobil and Chevron in terms of the information on payments to governments it makes available to citizens around the world. CNOOC’s disclosures also raise questions as to why its peer Sinopec, which is listed on the London Stock Exchange, has not reported under U.K. law for its Angolan and Chinese operations. In another interesting quirk of these disclosure regimes, CNOOC has also filed its full payments to governments report in open data format (take your pick out of CSV, JSON or XML) with Companies House under U.K. law in order to meet the disclosure obligations of its U.K. subsidiary.

Royal Dutch Shell
To top all of this off, today Shell has published its report on payments to governments in 2016. It is available on Shell’s website, as well as via Companies House in CSV, JSON, or XML format. It is available as a stock exchange announcement, as well. This year, Shell has reported on USD 15 billion in payments made to governments in 31 countries.

This is up from 24 countries last year, partly due to Shell’s acquisition of BG Group (which explains the inclusion of Trinidad & Tobago and Tunisia). It’s a decrease in terms of payments, down from USD 21.8 billion last year. Nigeria is the largest payment recipient at USD 3.6 billion. In Canada, Shell has again reported payments to a number of First Nations entities. Like last year, Shell is actually receiving large tax refunds in the United States (USD 254 million) and the U.K. (USD 142 million). Shell’s project-level data needs careful examination to ensure the company is not aggregating legal agreements together to obscure project level reporting.

Finally, production entitlements account for nearly two-thirds of all payments reported by Shell. This is important. For example, Shell’s report reveals that it made in-kind payments (mainly in the form of production entitlements) totalling 134.2 million barrels of oil equivalent (BOE) in 2016 to at least three government entities in Malaysia, including Petronas, the national oil company. The question then becomes: What is the government doing with these barrels of oil equivalent and who is buying them? It is crucial that the buyers of these in-kind payments and the payments they make to purchase this production are included in these payment disclosure laws given the size of the transactions and their susceptibility to corruption. Thankfully, the launch of an international dialogue looking at this issue is taking place this week at the OECD in Paris to take forward commitments made by major trading hubs such as the U.K. and Switzerland at the 2016 London Anti-Corruption Summit.

A significant reporting shift
We are definitely at an inflection point. In addition to the ESTMA disclosures described above, over 90 companies have reported payment information under U.K. law for 2015. A similar number are reporting for 2016 (Shell’s report is one such disclosure.) In total, over USD 136 billion was paid to governments in 112 countries around the world by companies reporting under U.K. law for 2015. NRGI will detail this more fully in an upcoming report.

I encourage everyone—campaigners, investors, analysts, government official and others—to dive into these reports. The more eyes we have on them, the more likely we will see this transparency lead to empowerment of oversight actors and greater accountability.

There remains much work to be done, including ensuring these reports are more easily accessible; querying the reports with companies; improving the underlying legislation; analyzing them for insights; and using them to bring about accountability more purposefully in countries where accountability is lacking most. Please do get in touch if you would like to be involved with this work.

Joseph Williams is a senior advocacy officer with the Natural Resource Governance Institute (NRGI). ​

Tullow Oil, a U.K.-based company operating mostly in Africa, began voluntarily disclosing payments made to governments four years ahead of the mandatory requirements for EU-based companies.

​Accounting for half of the company’s 2016 production, Ghana is important to Tullow. The reverse is also true: Tullow is the operator of Jubilee and Tweneboa-Enyenra-Ntomme (TEN), the country’s major producing oil fields. Tullow’s sustained period of reporting in Ghana and elsewhere provides a unique opportunity to analyze how project developments affect oil company tax payments.

Tullow’s first year of reporting coincides with first oil from the Jubilee field in 2011. Recently released reporting for 2016 corresponds to production at TEN. This six-year span was particularly volatile: Ghana’s oil sector grew rapidly and was hit for the first time by a massive drop in oil price.

So what does the payment data tell us about this period?

NRGI collected and analyzed Tullow’s yearly disclosures across payment types required to be disclosed under EU rules and of relevance to Ghana: license fees, infrastructure payments, royalties and income tax. The payment data confirms some of the textbook features of royalty and tax-based oil and gas fiscal regimes. But it also provides unique insight on the contrary dynamics of a growing sector and dropping prices.

Our analysis excludes payments made to the state-owned Ghana National Petroleum Corporation regarding its approximately 15 percent participating interest in Jubilee and TEN. According to the latest 2014 Extractive Industries Transparency Initiative report and the 2015 Public Interest Accountability Committee report, these payments provided over half of the government's oil revenues. These payments were excluded because Tullow’s reports, unlike those of other companies, such as BP, do not include production entitlements states receive as participants in a project. While Tullow’s disclosure provides highly timely data for six years, its coverage is less comprehensive.

The payment data shows that license fees generate marginal, flat revenues (less than USD 100,000 per year), and payments for infrastructure improvements are also relatively small (USD 2 million to USD 10 million per year). License fees and infrastructure improvement payments represent less than 4 percent of payments disclosed under the rules.

Production entitlements, in this case the royalties (paid in kind), represent over half of the revenues. They have fluctuated considerably, between USD 37 million to USD 87 million annually, depending on the oil price and production volumes.

​But it is income tax that by has been most volatile. In 2013 and 2014, it was the largest source of revenues, generating over USD 100 million per year. None was collected in previous years, nor in 2015.

We previously analyzed and attempted to forecast 2015 oil revenues by building a fiscal model for the Jubilee field. Our retrospective analysis, which specifically investigates the drop in corporate taxes, found the international drop in oil prices accounted for some of this fluctuation. However, most of the difference came from deductions against taxable income from Jubilee. From 2010 to 2012, Tullow was recovering its investment in developing the field. Once these costs were recovered, it was paying large corporate tax in 2013 and 2014. But in 2015, Tullow started to offset costs associated with developing TEN against profits made on Jubilee. This led to unforeseen revenues reductions at odds with budgeted figures.

The good news for Ghanaians is that Tullow’s latest disclosure indicates deductions from TEN may have plateaued. Despite oil prices remaining low last year, Tullow reported some, albeit more modest, corporate tax payments in 2016. This indicates Ghana’s oil fields can remain profitable in the current environment and with reduced cost deductions, a relatively larger share of oil proceeds can accrue to the government.

But reasons for caution remain. Jubilee’s offshore platform is undergoing another round of costly repairs. Further TEN investment may come, hinging on an international tribunal ruling in favor of Ghana on maritime boundaries. The Atuabo Gas Processing Plant is being put to test with recent expansion of gas production, which might lead to additional maintenance costs. These potential further investments, though beneficial in the long-run, could again depress tax payments expected over the next years.

There is often a trade-off in the oil sector between increasing short-term tax revenues and attracting further investment. With the help of Tullow's payment disclosures, we can monitor where Ghana stands.

Data covering Tullow payment disclosures for Ghana from 2011 to 2016 can be found here. Additional payment data is available on ResourceProjects.org.

​David Mihalyi is an economic analyst with NRGI.

Tracking Australian mining, oil and gas companies around the world is challenging. Australia has one of the largest global footprints of extractives companies operating abroad. Research by Publish What You Pay (PWYP) Australia and ESG research house CAER in September 2016 found that the 22 Extractives Industries Companies on the ASX 200 had a presence in almost 50 countries. Trying to trace the payments between these companies and the governments of the countries in which they operate is difficult. But it could be done, and reasonably simply, if Australia introduced a mandatory disclosure reporting requirement that legally required ASX listed extractives companies to make public their payments to government in every country in which they operate.

​Legislation for mandatory disclosure was introduced in 2013 in the EU, and 2014 in Canada. The reporting requirements in both Canada and the UK have been in effect coming up to one year, and have already shown payments of $150bn to governments of over 100 countries — including to countries recognised as suffering from the ‘resource curse’, and payments to countries where Industry opponents to this legislation challenged their legal ability to report, such as Qatar and China. Even with just a single year data set to work from, civil society is already making use of this information in multiple ways. Some have used it to show how the UK reports are providing a new standardised data source for oil prices, while others are using it for global advocacy.

A case study by PWYP UK used payment data released under the UK legislation from Royal Dutch Shell in Nigeria; BG Group (now part of Shell) and Petrofac in Tunisia; BP and Shell in Indonesia; and Shell and BP in Iraq. PWYP UK then created infographics for 3 countries and a data summary for the fourth which were then shared with the PWYP Coalitions in these countries for their advocacy. It demonstrates how this data can be used by local civil society in their efforts to keep their governments accountable, and the global collaboration this data facilitates.

Ideally, that should be where the discussion stops; that Australia legislates to empower communities where Australian companies operate, and increase fiscal accountability and transparency of Australian companies. Unfortunately, there exist more concerning reasons why Australia requires this legislation. The recent ICIJ report A Fatal Extraction highlighted the high number of deaths linked to Australian extractives companies or operations in Africa. We have seen numerous allegations of corruption and bribery in the sector featuring Australian companies or subsidiaries, and the legal but unethical fiscal deals and tax breaks between Australian companies and African Governments which result in countries losing millions. Mandatory disclosure legislation in Australia wouldn’t automatically solve every single one of these issues, but none of them can ever be sufficiently addressed without it.

Domestically, the recent Petroleum Rent Resources Tax (PRRT) inquiry is a result of civil society organisations finding limited public information, using freedom of information requests to obtain additional data and exposing the declining revenue while Australia is in the midst of an LNG export boom and on the verge of becoming the world’s largest exporter of LNG. Had Australia has a mandatory disclosure regime in place, it would have made this issue more readily identifiable by civil society and the Commonwealth, as the data would have been publicly accessible.

Even if we remove the ethical impetus, there is a strong business case for this legislation. Increased openness in company reporting makes good business sense, it increases social license to operate, makes investment more attractive and complements work towards the emerging global reporting standard. It’s why Canada’s peak mining body, the Mining Association of Canada, was an active advocate for and has remained strongly supportive of this legislation, and also why Australia’s two largest extractive companies, BHP Billiton and Rio Tinto, who are captured by the UK legislation, also publicly state their support.

Of course, there are companies more comfortable in opacity. Introduction of this law domestically will create significant push back from some companies, and the influence and power of extractives industries globally or domestically is not underestimated by anyone. We only have to look to the US to see how the same specious arguments some industry members continually regurgitate to keep their payments overseas secret – arguments civil society and Industry supporters not only dispute, but have proven false – resulted in the equivalent US requirement, the Cardin-Lugar provision, having been vacated as one of President Trump’s first actions.

Australia announced its intention to join the Extractives Industries Transparency Initiative (EITI) in May 2016. EITI is a leading global initiative that aims to increase transparency in the extractives sector through a voluntary domestic reporting system. 51 countries are currently implementing the EITI. EITI is a great step to towards transparency for Australia, and an overdue one for a country that has long been one of the initiative’s largest financial supporters.  But for a country with the global presence as large as Australia, it’s not enough. EITI complements mandatory disclosure, but cannot replace it, a position that is supported by the EITI Secretariat. Nor can supporting the development of countries’ natural resources sector be achieved solely through our aid programme. It demands policy intervention and leadership from the Australian Government, and it needs the support of the Australian extractives industry. We cannot continue to claim we are world leaders in mining if we refuse to meet the emerging global standards and do nothing to address our role in the lack of fiscal transparency in the global extractives sector.

As Australia moves towards increasing openness through EITI and by joining the Open Government Partnership, the time is right to discuss a mandatory disclosure reporting regime. Australia has largely benefited enormously from its natural resources, and we have done so in a transparent environment fundamentally free of corruption; we owe it to other countries to allow them the same opportunity.
​
Jessie Cato is the National Coordinator for Publish What You Pay Australia.