Contracts Licensing and Beneficial Ownership Rob Pitman Edna

Contracts, Licensing and Beneficial Ownership Rob Pitman Edna Osei

Looking at the start of the EITI value chain

Open contracting

• • Savings of c. $1 bn+ 1000 s of new suppliers Corruption perception decrease (54% to 29%) CSO feedback: 133 K users

What open contracting isn’t! … “contract “so-called “contract or transparency” or “open … “so-called transparency” “open contracting, ” under which oil and contracting, ” under which oilof and gas contracts would be negotiated in a kind public-utility framework whereby bethan negotiated inthemselves a kind of would public-utility framework groups other the parties have seats at the table and whereby groupsterms”. other than the parties themselves pass judgment on contract would have seats at the table and pass judgment on contract terms”.

& what it is Multi-stakeholder collaboration Constructive engagement Disclosure tools and feedback mechanisms Making sure the best company is allocated resource rights, under a deal which is fair and fully enforced

Open contracting in EITI Requirement 2. 2 2. 3 2. 4 2. 5 License Allocations Register of licenses Contract disclosure Beneficial ownership

LICENSE ALLOCATION

Two concerns: • Are we selecting the best companies? – Technical and financial capacity to do the job – Good neighbor • Are we minimizing potential mismanagement through corruption or conflicts of interest?

How EITI reporting can help. . Requirement 2. 2 License Allocations. For all awards or transfer of licenses: • Description of the process • Technical and financial criteria used • Information about recipients • Any non-trivial-deviations from applicable legal and regulatory framework.

Describing the Licensing process • Competitive vs first-come-first-served? • Timeline / rules of the game? • Where competitive process (2. 2 c): – Bid criteria – List of applicants • Bid report

NSW - Common Ground

Mexico hydrocarbons – Advanced Award Website • Publishes agendas of meetings in which award decisions are made • Webcasts award through stable connections • Two minute videos explain all decisions made

Any non-trivial-deviations • Starting point is to check the overall rules for license allocation processes, including technical and financial criteria. – Are you able to access these rules? – Were these followed? – If not, what were the reasons for the deviations • But these might not be the only applicable criteria to consider.

Deviations may exist regarding anti-corruption provisions too • More than 50% of oil/mining laws in a recent NRGI review contained prohibitions on government officials/close associates (aka PEPs) holding interests in companies applying for extractives licenses • But none required regulators to actually check whether or not such PEP interests existed as part of screening license applications. • Risks of these relationships: 1. 2. Real or perceived conflict of interest that can undermine the legitimate public goals or performance of the award process and diminish public trust. License gives the PEP a longer-term vehicle for siphoning off funds that should benefit the public.

Sample anticorruption provision • Article 10. …No public servant or public servant employed in the Public Administration, no agent of State-owned enterprises and no agent of a majority public financial holding company may hold a direct or indirect interest in a mining activity, a mining title or beneficiary of an authorization. • Article 11. Members of the Government, officials of the Mines Administration, and all officials and agents of the State having a role in the management of the mining sector may not take direct or indirect financial interests in mining enterprises and their direct or indirect subcontractors, within five (5) years after the termination of their duties. – Côte d’Ivoire 2014 Mining Code

Beneficial ownership & PEP disclosures • Requirement 2. 5 Beneficial ownership and PEP information for corporate entities that: – Apply for, or – Hold a participating interest in extractive assets.

Using BO/PEP information to evaluate licensing processes • Does BO/PEP information reveal any violations of prohibitions on PEP ownership or other anti-corruption provisions in law? • Does BO disclosure suggest that the company has engaged in collusive or anti-competitive behavior? (E. g. , multiple companies with the same beneficial owner apply for the same license or contract. )

Way forward • Using BO/PEP information in licensing screening: – Set rules to limit certain BO/PEP linkages that create clear corruption risks – Collect BO/PEP information in license application process – Screen out license applications where BO/PEP disclosures reveal manifest accuracy or corruption problems – Use BO/PEP information as part of broader licensing monitoring, including evaluating non-trivial deviations from licensing rules

CONTRACTS AND LICENSES

Basic information • Requirement 2. 3 Register of licenses. maintain a publicly available register or cadastre system(s) with the following timely and comprehensive information: – License holder – Coordinates of license area – Date of application, date of award and duration of the license – Commodity being produced (production licenses)

Cadaster mapping system Best systems present open data: • Openly licensed • Machine readable • Well organized

More advanced – disclose contracts Requirement 2. 4 Contracts • Encourages public disclosure of contracts • Requires reporting on – government’s policy on contract transparency – information about contracts in the public domain – information on planned reforms. • Where applicable, an overview of the contracts/ licenses that are publicly available, and include a reference/link to the location

Some EITI requirements cannot be met without contracts Requirement 4. 3: Infrastructure provisions and barter arrangements. “the multi-stakeholder group and the Independent Administrator need to gain a full understanding of: the terms of the relevant agreements and contracts, the parties involved, the resources which have been pledged by the state, the value of the balancing benefit stream (e. g. infrastructure works), and the materiality of these agreements relative to conventional contracts” Same applies for requirement 6. 1: Social expenditures by extractive companies.

What contracts are we talking about?

Scope of contractual information varies by country Everything in law Everything in contracts Most countries are somewhere in-between Contract-Law continuum

Benefits 1: A fully transparent legal framework Often secret Project level-agreements contracts / licenses / permits Regulations Almost always public Legislation Constitution

Benefits 2: Making sure the rules in contracts are followed Company rights to natural resources Operational and production commitments Fiscal terms, including taxes and royalties Worker health and safety Social obligations, including infrastructure, local content and consultation Stabilization clauses Environmental obligations

Benefits 3: Better deals • Adds ex post accountability • Changes psychology resulting in more durable terms • Helps balance informational asymmetries between companies and governments

Emergence of the norm 2007 2009 2010 2011 2012 2013

EITI Review of 23 countries: December 2014 Based on aggregated results for mining and petroleum sectors

NRGI Review of 52 jurisdictions: December 2016

Over half of EITI countries disclose 51 countries +1 subnational government 29 disclose at least some contracts or licenses 23 do not disclose contracts or licenses

5/ 1 6/ 905 6/ 1 1 6/ 905 2: 00 7/ 1 1 : 0 6/ 905 2: 00 0 A 8/ M 1 1 : 0 6/ 905 2: 00 0 A 9/ : M 6/ 190 12: 0 00 10 5 0: AM / 6/ 190 12: 0 00 11 5 0: AM / 6/ 190 12: 0 00 12 5 0: AM / 6/ 190 12: 0 00 13 5 0: AM / 6/ 190 12: 0 00 14 5 0: AM / 6/ 190 12: 0 00 15 5 0: AM / 6/ 190 12: 0 00 16 5 0: AM / 6/ 190 12: 0 00 17 5 0: AM / 6/ 190 12: 0 00 18 5 0: AM / 6/ 190 12: 0 00 19 5 0: AM / 6/ 190 12: 0 00 20 5 0: AM / 6/ 190 12: 0 00 21 5 0: AM / 6/ 190 12: 0 00 22 5 0: AM / 6/ 190 12: 0 00 23 5 0: AM / 6/ 190 12: 0 00 24 5 0: AM / 6/ 190 12: 0 00 25 5 0: AM / 6/ 190 12: 0 00 26 5 0: AM / 6/ 190 12: 0 00 27 5 0: AM / 6/ 190 12: 0 00 28 5 0: AM / 6/ 190 12: 0 00 29 5 0: AM / 6/ 190 12: 0 00 A 30 5 /1 12 0: 00 M 9 7/ 05 : 00 A 1/ M 1 1 : 0 7/ 905 2: 00 0 A 2/ M 1 1 : 0 7/ 905 2: 00 0 A 3/ M 1 1 : 0 7/ 905 2: 00 0 A 4/ M 1 1 : 0 7/ 905 2: 00 0 A 5/ M 1 1 : 0 7/ 905 2: 00 0 A 6/ M 1 1 : 0 7/ 905 2: 00 0 A 7/ M 1 1 : 0 7/ 905 2: 00 0 A 8/ M 19 12 : 00 05 : 00 A 12 : 00 M : 0 0: AM 00 AM 6/ 3 1 1 1 1 1 3 3 3 4 3 3 3 5 EITI encourages 1 st mention at EITI board IMF recommends Baku-Tbilisi-Ceyhan pipeline advocacy # of countries with laws requiring disclosure over time 22 20 16 13 14 12 8 9 4 5 3 1

How to help? 1. Do the required reporting • Common problems included: – failure to report reforms – failure to provide an overview of contracts or licenses in the public domain, or provide links/references

2. Forum for debate • Standard allows space for multi-stakeholder discussion • Mongolia EITI WG removed confidentiality clauses from model PSA • Myanmar discussions led to key recommendation in EITI report

3. Facilitating disclosures • EITI processes play an instrumental part in making disclosure happen • Philippines: establishment of a working group to review content of contracts • Colombia: Civil society requests answered by government

4. Disseminate contracts • National EITI websites host disclosed contracts: – – – Chad Republic of Congo DRC Liberia Philippines Senegal

Joining up information

Mexico as a leader Not Beneficial Ownership Full Text Contract Download Environmental documents Local content & procurement

Resourcecontracts. org ‘Free’ resource supported by NRGI, CCSI and the World Bank, so no excuses for not adopting it! Full texts of contracts etc with searchable metadata, tags & annotations Country specific portals now in Sierra Leone, Guinea, Philippines, DRC, Mongolia

5. Supporting legislative change • Ghana: Petroleum Act and regulations • Liberia: Sector transparency laws

6. Advancing understanding • For public contracts to contribute to strengthened governance they must be used • Liberia EITI has prepared a simplified matrix for 30 contracts • Republic of Congo: Capacity building workshops

Browse the report

GROUP WORK

In your groups discuss the following questions • Licensing: – Are stakeholders in your country concerned about any potential non-trivial deviations in licensing processes? How could EITI disclosures help monitor these? – Are there legal restrictions on government officials/associates holding extractives rights in your country? How could EITI disclosures help monitor these? • Contracts and licenses? – Is your cadastre system open? How could EITI disclosures help increase transparency? – Are contracts public? If so how are you using them? If not what is the barrier to publication? How could EITI disclosures help increase transparency?

Thanks! rpitman@resourcegovernance. org eosei@resourcegovernance. org