For the past year, a collection of advocacy groups, mining executives and investors have lobbied Ottawa to implement stringent transparency laws for Canada's extractive industry.
And their pressure, it appears, has begun to work.
At the G8 Summit in Northern Ireland in June, Prime Minister Stephen Harper pledged to enforce new financial reporting requirements for the oil and gas, mining and forestry sectors – namely the disclosure of payments such as royalties and taxes Canadian companies make to governments.
Currently, there is no requirement for Canadian firms to report these payments. The E.U., on the other hand, has passed transparency laws. The United States, as part of its 2010 Dodd-Frank financial reform act, has tried to enforce transparency laws but a July court decision tossed out the rule requiring mining companies to disclose payments made to governments (see sidebar).
Campaigners have pressed for such disclosure in the Canadian extractive sector for two reasons: so citizens in Canada and abroad can see whether a government is using the money from resource projects to benefit its residents and so investors can better assess investment risk.
"Many areas – Mongolia, parts of Africa and Latin America – are resource-rich but governance-poor," said Jamie Bonham, Vancouver-based manager of extractives, research and engagement with NEI Investments, a retail mutual fund managing more than $5 billion in assets.
"Hopefully, transparency will lead to better governance and better quality of life. But the business case for this is that growing opposition to resource extraction in many countries could halt or delay projects."
Spearheading the Canadian transparency movement is the Resource Revenue Transparency Working Group (RRTWG), an advocacy group comprised of members from the Mining Association of Canada, the Prospectors and Developers Association of Canada, the Revenue Watch Institute and Publish What You Pay Canada, a non-governmental organization based in Ottawa.
In June, the group published a series of recommendations for a reporting mechanism that Canadian resource companies could use. The recommendations were used in a recent cross-country series of informal roundtable discussions led by Natural Resources Canada aimed at gathering suggestions from investors and resource industry representatives about how to best implement new transparency laws. The Vancouver meeting was held in July.
Joe Ringwald, a director of the anti-corporate-corruption group Transparency International Canada and vice-president of mining with Vancouver's Selwyn Resources (TSX-V:SWN), lauded RRTWG's work and called the adoption of greater transparency regulations in Canada "simply the right thing to do."
Ringwald added that it's also a chance for the extractive industry to boost its reputation.
"The bad kid on the block is always the extractive industry. We seem to draw bad press.
"But ... go find a pension fund or mutual fund without an extractive company in it. You can't. We're all in this together; we just have to understand each other. Revenue transparency is leading to that understanding."
To see the RRTWG's recommendations, go to pwyp.ca. •
Dodd-Frank requirements
The U.S.'s Dodd-Frank reform act initially required resource firms to disclose any payment, or series of payments, aggregating $100,000 or more made to a government "to further the development of oil, natural gas or minerals."
Reportable payments were:
- Taxes
- Royalties
- Fees
- Production entitlements
- Bonuses
- Dividends
- Infrastructure improvements
Non-reportable payments were:
- Marketing expenses
- Transportation costs for
purposes other than export
Payment details that had to be in a company's book:
- Amount and currency
- Recipient(s)
- Business division paying
- When payment was made
- Project(s) and category
Source: PWC report Another side of Dodd-Frank: Understanding Section 1504
