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How to facilitate the disclosure of local procurement payments in mining

20 November 2018

The EITI requires mining companies in implementing countries to report taxes and revenue payments made to the government in a standardised format. However, companies’ payments for the procurement of goods and services – in most cases the single largest in-country payment type by a mine site – are not systematically disclosed.

As a member of the Publish What You Pay Canada coalition, the Mining Shared Value initiative of Engineers Without Borders has long campaigned for transparency in natural resource management due to the benefits it creates for governance. Procurement spending by a single mine site is often in the hundreds of millions of dollars each year and yet to date, there has been no commonly accepted way of reporting on the issue.

We believe increased transparency around procurement payments can improve the ability of host governments and other stakeholders to harness such spending for economic and social development.

Therefore, we launched the Mining Local Procurement Reporting Mechanism (LPRM) just over a year ago in partnership with GIZ, supported by the German Federal Ministry for Economic Cooperation and Development (BMZ).

The Mining LPRM is a set of standardised disclosures that mine sites can use to provide information on their policies, programmes and results of local procurement. Structured similarly to the Global Reporting Initiative (GRI), a given mine site is “in accordance” with the LPRM if it provides public information on all the required disclosures of the framework.

Our goals with the LPRM are to both increase the information on procurement so that host country suppliers, governments, and other institutions can better target supply opportunities, and to increase transparency on procurement policies and processes.

As detailed in the OECD’s Corruption in the Extractive Value Chain: Typology of Risks, Mitigation Measures and Incentives, procurement is one of many potential avenues for corruption in the extractive industries, such as the misuse of local content regulations that require purchasing from local suppliers of goods and services.

An example of this is the recent high-profile Petrobras scandal, where political appointees within the Brazilian state-owned oil company gave overpriced contracts to engineering firms in return for illicit party funding and bribes. In our work, we also regularly speak with mining companies who feel pressure to purchase from suppliers with connections to political elites.

As shown in the EITI’s brief released in March 2018, at least 24 implementing countries currently collect some information on local content in their reporting.

One of our goals with the Mining LPRM is to prevent stakeholders from having to “reinvent the wheel” when setting up their own measuring and reporting systems for local procurement. Rather than each EITI country collecting local procurement information in their own way, the Mining LPRM offers a standardisation tool. We recently released a brief discussing how EITI countries can use the Mining LPRM to collect data on mine site local procurement practices and results .

While the Mining LPRM was created in consultation with the mining industry, the set of standardised disclosures could easily be adapted to the oil and gas sector.

Local content is an issue in extractive industry governance that will continue to grow in prominence. We hope the Mining LPRM can help EITI countries collect the information they need to better target procurement opportunities and deter corruption related to this.

Procurement spending by most mine sites amounts to more than the mine pays in taxes, salaries and investments in the community combined. The more information we can make available to host countries on such a massive spend, the better.

Jeff Geipel is the founder and managing director of the Mining Shared Value initiative of Engineers Without Borders Canada, a Canadian non-profit that focuses on helping the mining sector and related stakeholders maximise local procurement of goods and services.