Civil Society Hails New US Oil and Mining Transparency Standards

Published by MAC on 2010-07-24
Source: IPS, Reuters, statements and others

US financial reform bill may have significant impact on Congo minerals trade

Chris Kelly

Reuters

16 July 2010

NEW YORK - Buried inside the U.S. financial reform bill passed on Thursday by the U.S. Senate is a little noticed amendment aimed at regulating a market far from Wall Street -- international trade in rare earth minerals like tantalum from the Democratic Republic of Congo.

The provision could affect stock market favorites like Hewlett-Packard, Apple Inc  and Research in Motion Ltd, which rely on these metals to make their highly popular electronic gadgets and laptops.

So-called conflict minerals from DRC, still torn by a 1998-2003 war and battling rebels across its territory, are used in nearly every device in the modern household.

The amendment requires companies that engage in the trade and use these minerals to file an annual report with the Securities and Exchange Commission to declare if they are sourcing their supply chain from the DRC, or an adjoining country.

This leaves the high-tech companies that manufacture these products in a bind. While they support efforts to regulate the trade in these conflict minerals, they have few alternative sources at the moment, other than Congo.

"From an investment perspective, we have been highlighting this issue as a critical risk-management issue for companies. Traceability in the supply chain has gone from a nice to have, to a must have," said Lauren Compere, managing director of Boston Common Asset Management.

Limited Coltan, Endless War

Tantalum, or coltan, as it is commonly referred to in Africa, is precious to the global electronics industry due to its unique ability to store and release an electrical charge -- essential for the power-storing processes of iPods and iPads, BlackBerry smart phones and laptop computers.

Stopping the use of these metals mainly sourced from the DRC is becoming the focus of a worldwide effort to end one of the deadliest conflicts of the past half century.

As consumer demand around the world for these products increases, so, too, does the violence and human suffering.

"As of today, it is very difficult to certify our supply chain is 100 percent free of conflict minerals, but the efforts that we and our industry are taking are driving us toward that certainty," said Zoe McMahon, manager of supply chain social and environmental responsibility at Hewlett-Packard.

Hewlett-Packard, Apple and Research in Motion all told Reuters that they supported regulation in an effort to stimulate demand for supply chains free of conflict minerals.

Since 1998, Congo's war has killed nearly 6 million people -- the highest war-related death toll since World War Two. The trade in these conflict minerals has only amplified the human suffering and bloodshed.

With its vast deposits of gold, tin, tantalum and tungsten, the country's mining industry has become a weapon of war for a number of armed groups, which use sexual brutality and killing to exploit the mineral wealth.

The war minerals issue is reminiscent of the "blood diamond" conflict of the 1990s, when illicit trade in diamonds helped finance devastating civil wars in Angola, Liberia and Sierra Leone.

The outcry against blood diamonds led to the creation in 2003 of the Kimberley Process Certification Scheme -- a method designed to certify and track diamonds to ensure they come from conflict-free zones.

The Congo clause is one of the more unique provisions included in the 2,300-page financial regulation bill.

The amendment, introduced by U.S. Senator Sam Brownback of Kansas, is the first official step taken by the U.S. government to stop the flow of minerals contributing to the violence and human suffering in the Congo.

"The legislation is not a panacea, but it is the first step in a process that will eventually cut off the flow of gasoline on Congo's smoldering fire," said John Prendergast, co-founder of the Enough Project, a nongovernmental organization aimed at ending genocide and crimes against humanity.

Impossible to Track

In the aftermath of the global economic downturn in 2008, many companies were forced to suspend production, as consumer demand dried up and supplies mounted and prices fell nearly 25 percent.

But European spot prices of tantalite TANT-LON, which is used to make tantalum metal, recovered by mid 2010 and jumped more than 25 percent in June alone to a 9-year high at $60/$70 a lb.

Australia's Talison Tantalum, which once provided about a third of the world's tantalum supply, shut its Wodgina mine in late 2008, but is now considering a restart as early as next year amid expectations of a strong demand recovery.

Another alternative source was Commerce Resource Corp's Blue River Project in British Colombia, which is looking to produce up to a million pounds of tantalum per year by late 2012.

But, for now, conflict minerals appear likely to continue to flow freely, and largely unnoticed.

"Unless there is a fundamental change in the supply base, conflict tantalum will probably still get into the global market for the foreseeable future," said Patrick Stratton, North American manager at Roskill Information Services Ltd.

"I doubt that any retailer would sell electronic goods in the full knowledge that they contain conflict minerals. But they don't know and, at present, cannot know," he said. (Editing by Alden Bentley)

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Civil Society Hails New Oil and Mining Transparency Standards

By Jim Lobe

IPS

15 July 2010

WASHINGTON - National and international civil society groups Thursday hailed the U.S. Senate's passage of a major financial reform act that includes a key anti-corruption provision requiring energy and mining companies to publicly disclose payments they make to governments around the world.

"This historic measure gives citizens in resource-rich countries information they need to combat corruption in the oil and mineral sector and to demand government accountability for responsible resource use," said Isabel Munilla, director of the U.S. chapter of Publish What You Pay (PWYP), a coalition of some 600 faith, human rights and development groups active in 55 countries.

"This legislation sheds light on billions (of dollars) in payments from oil and mineral companies to governments. Citizens now have a powerful tool they can use to scrutinise the levels of public spending on economic development, environmental protection, and health and human services," she added.

A second, so-called "conflict minerals" provision in the bill will require companies whose products contain cassiterite, coltan, wolframite or gold to disclose whether the minerals originated in the Democratic Republic of Congo (DRC) or its neighbours and, if so, what measures were taken to ensure that they were not obtained from armed groups active in the region.

Based on legislation introduced by bipartisan group of senators earlier this year, the resource transparency provision was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was approved by the Senate Thursday by a 60-39 vote margin.

The Democrat-led reform package, which gained a filibuster- proof majority with the help of three moderate Republicans from the northeastern part of the country, marked a reversal of the more than three decades of de-regulation of the country's financial sector.

Passed last month by the House of Representatives, the Dodd-Frank bill is expected to be signed into law by President Barack Obama next week.

Opposed by virtually all Republican lawmakers, the entire package will give the government agencies greater authority to detect and prevent future threats to the financial markets, regulate and even shut down financial institutions, including hedge funds and private-equity firms, and provide new protections for consumers.

The resource transparency provision, which was co-sponsored by Democratic Sen. Benjamin Cardin and Republican Sen. Richard Lugar, will require companies registered with the Securities and Exchange Commission (SEC), the regulatory agency that oversees U.S. capital markets, to publicly report how much they pay the U.S. and foreign governments for access to their oil, gas, and minerals.

Twenty-nine of the world's largest internationally operating oil and gas companies and eight of the world's 10 largest mining companies are currently registered with the SEC, according to the PWYP coalition, which includes such groups as ActionAid, Amnesty International, Earthrights International, Global Witness, the Open Society Policy Center, and Oxfam America.

"Transparency empowers citizens, investors, regulators, and other watchdogs and is a necessary ingredient of good governance for countries and companies alike," said Lugar, the leading Republican on the Senate Foreign Relations Committee.

"It empowers investors to have a more complete view of the value of their holdings. It brings more information to global commodity markets, which would benefit price stability," he said during the floor debate over the measure. "Most importantly, it helps empower citizens to hold their governments to account for the decisions made by their governments in the management of valuable oil, gas, and mineral resources and revenues."

Billions of dollars paid by energy and mining companies to local, regional, and national governments are lost to corruption or gross mismanagement each year, resulting too often in astonishingly high rates of poverty in resource- rich countries, of which Nigeria, the DRC, and Equatorial Guinea, among others, are often cited as prime examples.

By requiring the public reporting of those payments, the PWYP members hope that local and international groups will find it easier to assess how governments are using - or misusing - them.

Some companies - including U.S.-based Newmont Mining, Canada-based Talisman Energy, and Norway's Statoil - have been providing that information under the Oslo-based Extractive Industries Transparency Initiative (EITI), a voluntary public-private group created in 2003. The new law is consistent with the EITI's best practice.

But Revenue Watch Institute (RWI), which, along with the Open Society Center, is part of financier George Soros's civil society support network, stressed that other industrialised countries should now follow the Washington's lead by making the reporting mandatory.

"Other important capital centres like the U.K., Germany, Canada and Australia should live up to their commitment to promote transparency in extractive industries by adopting similar listing rules," said Karin Lissakers, RWI's director and a former U.S. representative at the International Monetary Fund (IMF), who also noted that the Hong Kong Stock Exchange had enacted a similar reporting standard earlier this year.

"The logical next step is for the International Accounting Standards Board (IASB) to universalise the standard adopted by the U.S." pursuant to the call at last month's G20 Summit in Canada for "a single set of high-quality improved global accounting standards." The London-based IASB sets standards for 110 member-countries in addition to the U.S.

Good-governance groups were not alone in praising the new legislation, as environmental organisations and even some socially responsible investment funds joined the chorus.

"A new international standard for transparency in the oil, mining, and gas industries has been set today, empowering people and communities around the world and here at home by giving them direct access to critical information they need to defend their land from the environmental risks posed by irresponsible extraction of natural resources," said Margrete Strand Rangnes, director of the Sierra Club's Responsible Trade Program.

Calvert Investments, a Maryland-based investment company that played a leading role in both promoting the legislation and persuading Newmont to publicly disclose its payments, also welcomed its passage. In a recent report, it argued that the increasingly remote areas where oil and gas companies were operating posed reputational and other risks that current SEC reporting rules did not adequately address.

Global Witness, whose pioneering work in the early 1990s focused global media attention on what is now often called the "resource curse", also claimed victory.

"As well as helping the people of resource-rich-but-poor countries, these provisions will serve U.S. governmental and commercial interests around the world by promoting stability and responsible corporate investment," said Corinna Gilfillan on behalf of the group.

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Landmark Extractive Industry Transparency Law Passed in United States Congress

Amendment in Financial Reform legislation sets new global standard for corporate transparency

Earthrights

15 July 2010

Communities living in resource-rich countries won a historic victory today when the U.S. Congress passed landmark transparency legislation as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Once signed into law in the coming days by President Obama, the provision will require oil, gas, and mining companies registered with the US Securities and Exchange Commission (SEC) publically disclose their payments to governments for the extraction of natural resources on an annual basis.

This legislation sets a new standard for transparency in the extractive industry while encouraging other countries to pass similar measures. Once the provision takes effect - likely beginning in 2012 - payments to governments will be publically available to citizens in resource-rich countries, providing crucial information to hold governments accountable for the spending of this revenue. Senator Cardin (D-MD), one of the transparency provision's lead supporters added, "This provision is a critical part of the increased transparency and corporate responsibility that we are striving to achieve in the financial industry. Given the catastrophic events in the Gulf of Mexico, oil companies, in particular, should well understand that secrecy fosters instability, corruption and greater risk. We now have the tools to help people in resource-rich countries hold their leaders accountable for the money made from their oil, gas and minerals."

The SEC will now commence with rulemaking and a public comment period before the requirements take effect; a process that will take up to a year before completion. Once SEC disclosure rules are in place, covered companies would begin disclosures in their annual reports on an ongoing basis.

The extractive provisions in the Dodd-Frank bill sets new international standards for transparency in the extractive industry, making government revenues generated from the commercial development of oil, natural gas, and minerals public. "Creating a reporting requirement with the SEC can capture a larger portion of the international extractive corporations than any other single mechanism - thereby setting a global standard for transparency and promoting a level playing field," wrote Senators Cardin and Lugar in an article in Politico.

The provision covers 90% of the major internationally operating oil and gas companies. Of the 50 largest oil and gas companies by reserves (2007), eighteen are national oil companies that generally do not operate internationally. These companies are not registered with the SEC or any other exchange and their operations are usually limited to their home country, where their operations are often not subject to open market competition. In these circumstances, they do not compete with American companies.

Of the remaining 32 internationally operating companies, 29 are covered by the provision. This includes Canadian, European, Russian, Chinese, Brazilian and other international companies. The three companies not covered are Gazprom (London); Petronas (Kuala Lumpur) and the Romanian National oil company (Bucharest).

The provision covers the majority of the top 15 international oil and gas companies ranked by Fortune magazine according to total revenues. Most of these are not American-based firms. Of these 15 top companies with international operations, ranked according to their total revenues in 2007, all but three of them are listed with the SEC. Only three of these are American companies. Together, these listed companies together accounted for over $2.2 trillion dollars in revenues and close to $200 billion in profits.

Of the ten most successful mining companies, as ranked in the 2010 Forbes Global 2000, eight are listed with the SEC. Only two of those are American companies. Together, these eight companies accounted for nearly $270 billion in sales and $26 billion in profits in 2007.

Publish What You Pay US, a coalition of over 30 human rights, environmental, socially responsible investment, religious, and anti-corruption and good governance groups, including ERI, advocated for the passage of this provision. "This is a game changer," said Isabel Munilla, Director of Publish What You Pay United States. "This legislation sheds light on billions in payments between oil and mineral companies and governments. Citizens now have a powerful tool they can use to scrutinize the levels of public spending on economic development, environmental protection and health and human services." This provision will ensure that taxpayers and shareholders will no longer unknowingly fund dictators or fuel conflict, and will be privy to how their investments are being spent. According to Senator Patrick Leahy (D-VT), "Transparency is good for U.S. taxpayers, it encourages more accountable government, and a better business environment for foreign investors."

ERI has been an active member of the Publish What You Pay Coalition since 2008, lobbying Congress while providing public education, letter writing, advocacy and training to other organizations in support of the transparency legislation. Discussing EarthRights International's reason for supporting the bill, Paul Donowitz, ERI's Campaign Director stated, "For years, companies like Chevron and Total have paid governments hundreds of millions of dollars related to resource extraction in countries like Burma. The transparency provision of the financial reform bill provides residents of resource-rich countries like Burma information they need to hold their governments accountable."

Revenues paid to governments by companies in the extractive industries are often used to fuel conflict, and empower undemocratic regimes like Burma's to retain power and oppress their own people. Increasing evidence demonstrates that revenues generated from the extraction industry contribute to the "resource curse" in developing economies. Instead of benefiting from the vast revenues created by extraction projects, energy and mineral-rich countries are too often plagued by instability, poverty, conflict, and corruption. In Burma, a lack of transparency has contributed to authoritarianism and gross human rights violations, directly linked to the natural gas industry.

According to ERI's new report, "Energy Insecurity: How Total, Chevron, and PTTEP Contribute to Human Rights Violations, Financial Secrecy, and Nuclear Proliferation in Burma (Myanmar)," the Burmese regime receives over 62 percent of the net revenue from the Yadana pipeline, operated by Chevron and Total, which, in addition to contributing to human rights abuses in the project area, may be fueling the junta's nuclear ambitions. Data from a leaked 2008 IMF report indicates that 70 percent of Burma's foreign exchange reserves are from gas exports and that gas-related payments from corporations, amounting to billions of dollars, contributed only one percent of total budget revenue. Had these revenues entered the state budget, they would have accounted for 57 percent of the total budget. The majority of the gas revenues are held in offshore banks (never entering Burma's state budget), with potentially hundreds of millions channeled into personal account of individuals closely associated with the ruling military junta in two offshore banks in Singapore.

ERI calculates that from 1998 to 2009, the Yadana gas pipeline generated US $9.031 billion. The Burmese regime's share, after costs, was approximately US $4.599 billion, of which US $915 million was taken in-kind for domestic gas use, while the rest was taken in cash. The companies, including Chevron and Total, which profit from the Yadana gas pipeline, have refused calls to disclose payments made to the military. Meanwhile, forced labor, murder, and other human rights abuses continue along the pipeline. Clearly, today's legislation will shine much-needed light on the billions of dollars in revenue the Burmese junta receives from the sale of natural gas.

EarthRights International's Executive Director, Ka Hsaw Wa, commenting on the impact of the payment transparency provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act for Burma, stated, "Once implemented, the people of Burma will begin to know how much the junta receives from our natural wealth, and pressure will build on the authorities to spend these resources on critical needs, like health care and education." Ka Hsaw Wa continued, "No longer can the generals transfer millions dollars of Burma's money to offshore accounts and regime cronies with impunity. There is still more work to be done on many areas in Burma, but today's legislation makes it that much harder for the generals to misuse our resource wealth."

Unsurprisingly, members of the oil and gas industry lobbied against the transparency legislation. The American Petroleum Institute (API), a national trade association representing about 400 corporate members, including major oil and gas companies, made several misleading claims in a letter to members of the Senate. "API feels that requiring only U.S-listed extractive companies to disclose revenues creates a competitive disadvantage for these companies in the global energy marketplace," the letter claimed. Senator Lugar responded to the argument, contending in a letter to the Financial Times that the legislation would apply to foreign companies as well. In an article in The Hill, Senator Cardin called the argument a "red herring."

Originally a stand-alone bill known as the Energy Security Through transparency Act (ESTT) (introduced by Senators Benjamin Cardin (D-MD) and Richard Lugar (R-IN) in September, 2009), the extractive industry transparency section in the Dodd-Frank Wall Street Reform and Consumer Protection Act contains the substantive provisions of the ESTT.

Critical support for the provision came from Senators Tim Johnson (D-ND), Russell Feingold (D-WI), Charles Schumer (D-NY) and Richard Durbin (D-IL). Both the Senate Banking Committee Chairman Christopher Dodd (D-CT) and the House Financial Services Committee Chairman Barney Frank (D-MA) supported the Senate amendment during conference negotiations.

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US shines a light

Financial Times (editorial)

19 July 2010

No laws are passed in the US Congress without the unseemly addition of unrelated scraps of legislation. But in the case of the Dodd-Frank financial reform bill, the political sausage-making introduced one highly desirable additive: a new disclosure requirement for oil, gas and mining companies.

The rule, sponsored by senators Benjamin Cardin and Richard Lugar, obliges US-listed companies engaged in oil, gas or minerals extraction anywhere in the world to report how much they pay to governments in their annual filing to the Securities and Exchange Commission. To be able to access the US capital market, companies – US and foreign – must publicly disclose all royalties, taxes, and other payments, project by project and country by country.