The coronavirus pandemic has led to delays in reporting extractives payments to governments and will likely continue to impact the flow of timely and granular data for the foreseeable future.
Payment transparency disruptions come at a time of unprecedented operational challenges and economic pressure for both companies and regulators, posing new governance risks.
Informed public debate on government economic policies and spending priorities requires transparency of extractive company payments already made to governments and clear information about shifts that may impact the size of future payments.
The coronavirus pandemic and historically low oil prices pose new challenges for anticorruption actors, watchdogs and transparency advocates in the natural resource governance field. In a recent NRGI blog post my colleague Alexandra Gillies noted that while some governance and corruption risks within the oil sector will potentially diminish under lower oil prices, new risks will arise and require monitoring. Governments and companies are scrambling to respond to the new oil price reality and its impact on current and long-term extractive revenues. In this context—more than ever—citizens in resource-rich countries need access to timely and accurate payment data. Yet the pandemic has disrupted reporting on extractive companies’ payments to governments, and payment transparency faces potential challenges as governments move to revive economies.
In this post I explore the risks the crisis poses to extractives payment transparency, why this matters, and what civil society organizations (CSO), governments and companies must do to protect timely and granular access to payment data.
Assessing the impact of the pandemic on payment transparency in the extractives sector
The coronavirus pandemic has led to delays in payment reporting and will likely continue to impact the flow of timely and granular data for the foreseeable future. While these delays are understandable given the extraordinary operational challenges companies and regulators face, it is important to monitor these impacts to ensure strong payment transparency standards are restored as countries begin to reopen their economies.
Natural Resources Canada (NRCAN), the Canadian ministry responsible for extractive company payment-to-governments reporting, has stated that due to operational challenges created by the pandemic, the government will continue to accept reports under the Extractive Sector Transparency Measures Act (ESTMA) from companies for up to 120 days past their deadline. Canada is the country with the most companies covered by payments-to-governments regulations, with over 500 companies reporting under ESTMA last year on over $25 billion in payments made to governments in 98 countries in 2018.
Similarly, Luxembourg recently passed a law that extends the deadline for filing annual accounts and related reports, including reports on payments to governments, by three months. (Companies including ArcelorMittal and ExxonMobil Luxembourg are both required to disclose their payments to governments in Luxembourg.)
In the U.S., the Securities and Exchange Commission (SEC) cited the pandemic as the reason for allowing comments for an additional one and a half months on its proposed rule for implementing the country’s payments-to-governments law, Dodd-Frank Act Section 1504.
In April, the Extractive Industries Transparency Initiative (EITI), which includes payment disclosure requirements, indicated that it expects the global pandemic to impact implementation in the majority of its 52 implementing countries. More recently EITI expressed concern around the potential that some governments or companies could use the pandemic and the oil price crash to shirk transparency obligations.
Risks posed to payment transparency by the pandemic and the oil price crash
Payment transparency reporting disruptions come at a time of unprecedented operational challenges and economic pressure for both companies and regulators, posing new governance risks. Companies facing a dramatic reduction in revenues may seek to cut costs from non-revenue generating activities, including ensuring accurate reporting of their payments to governments. At the same time, regulators facing several competing demands and severe disruptions to their operational activities may be limited in their ability to ensure companies are complying with their payment transparency requirements.
Citizens in resource-rich countries can use this payment data to hold their governments accountable for how they manage revenues. The release of inaccurate or incomplete payment data can reduce citizens’ trust that companies and governments are managing a country’s natural resource endowment effectively.
As both governments and oil companies move to recover from economic shock, there is a risk that industry players may attempt to influence government strategies to boost economies by pushing them to deprioritize transparency regulations. In the U.S., for example, President Trump recently signed an executive order that gives government agencies the power to cut regulations that they see as impeding the U.S. economic recovery from the pandemic.
Payment transparency is more important than ever
Three consequences of the pandemic have underscored the importance of timely access to data on government resource revenues:
The need to divert huge sums of government revenue to public health expenditures coupled with the unprecedented disruption to economies will place considerable pressure on government revenues, now and for some time to come.
For oil-dependent countries, the biggest single negative oil price shock in modern history will significantly restrict the revenues generated from natural resource endowments.
Under lockdown, opportunities for civic participation and engagement have been significantly limited, with clear evidence in several countries that leaders are exploiting the public health emergency to shut down civic space.
Protecting timely and granular access to payment data
In its pandemic response, “Open Response, Open Recovery”, the Open Government Partnership (OGP) calls upon governments to “[r]estore citizens’ freedom of speech, assembly and association, and access to information.” Nowhere will this call to action be more salient than in oil-producing countries that will have to overcome the effects of the coronavirus, recession and reduced government revenues as a result of the oil price crash.
Civil society organizations and other oversight actors in resource-rich countries must remain vigilant to ensure that accurate and timely extractives sector payment transparency is restored as countries begin to revive their economies. Citizens groups can use tools such as resourceprojects.org, NRGI’s open data repository of payments-to-governments reports, to analyze disclosures and check whether companies continue to provide timely and granular payment data, as well as to demand that governments manage the resulting resource revenues effectively.
Resource Benefits, a community platform developed by Nigerian CSO Paradigm Leadership Support Initiative, is using oil company payments-to-governments data to seek accountability for why oil revenues generated in the years before the pandemic have not benefited citizens in the Niger Delta. The group also uses the data to demand that the government includes the development priorities of these communities in the use of future oil revenues.
Publish What You Pay is collating resources to support resource governance activists to document and report instances of civic space threats during the pandemic.
While transparency of the payments that companies have already made is important given the considerable demands on government revenues, companies and governments should also be open about any near-term shifts, including suspension, postponement or cancelling of oil projects that will significantly impact future revenues. The EITI is an important venue for open dialogue between governments, companies and civil society actors on the impacts the coronavirus will have on a country’s extractive operations and resulting government revenue. Such dialogue can help mitigate the risk that governments will heavily depend on oil revenues on the basis of overly optimistic economic recovery scenarios.
In non-EITI countries, company annual financial reports and payments-to-governments reports provide important opportunities for companies to be clear on the likely impact of the pandemic on the economic contributions in their countries of operation.
Honest and transparent approaches to resource payments and projections will help to inform crucial public debate on governments’ economic policies and spending priorities as countries begin to recover.
Alexander Malden is a governance officer at the Natural Resource Governance Institute (NRGI).