News and blog posts

Contracts: What’s the deal in Latin America and the Caribbean?

With the EITI requirement on contract transparency now in effect, we take stock of progress and opportunities in Latin America and the Caribbean.

For years, corruption scandals in Latin America and the Caribbean have made global headlines, from Lava Jato and Odebrecht to Petrofraude. Links to the extractive industries are prevalent, and public calls for transparency and accountability are rife.  

Yet when it comes to the disclosure of extractive agreements, the picture in the region is mixed. While some countries have demonstrated strong commitment to the transparency agenda, others lag behind.

State of play: Oil and gas

Mexico emerged as an early mover. Since 2013, its hydrocarbon regulator, CNH, has delivered on a transparency policy by disclosing not only contracts, but also the procedures and practices that govern the country’s licensing and contracting process. Colombia and Peru’s regulators – ANH and Perúpetro – have followed in Mexico’s footsteps, both publishing oil and gas contracts online.

But there are considerable gaps between policy and practice which can undermine transparency. In Colombia, some economic clauses are redacted, which means they are cut out in public versions of oil and gas contracts. Oil and gas contracts in Argentina, when published, tend to have commercially sensitive clauses omitted. In many countries, such as the Dominican Republic, Honduras, Peru and Trinidad and Tobago, the most important contracts are those which were signed decades ago. With confidentiality enshrined from the outset, these older contracts are still hidden from public view.

State of play: Mining

In the case of mining contracts, many exploration and production activities in the region are governed by laws that stipulate standard terms across all projects. Freedom of information laws are common, which, in theory, should enable citizens to access information that is not deemed confidential. In some countries, such as Suriname, model production sharing contracts are public. Yet in others, important details governing extractive operations are stipulated in the development and operational plans or other instruments that remain unseen by the public. In Argentina, disclosure of mining contracts is patchy, and provincial governments are wary of disclosing their fiscal terms.

Ecuador: A Chinese wall

In 2009, Ecuador struggled to access international financial markets, placing its economy in a dire situation. To secure financing, the government entered into several agreements with Chinese development banks, which granted loans in exchange for access to Ecuador oil’s exports. As was the case with most agreements that China negotiated with developing economies, the terms of these deals remained confidential, preventing comparison, analysis and public scrutiny. 

Consequently, Ecuador’s state-owned oil companies were contractually required to sell a large share of their oil production to Chinese companies. Some analysts estimated that more than 80% of Ecuador’s oil exports were tied to these commitments. But since the contractual terms were not made public, it was impossible to know if oil sales were carried out at competitive prices.

In 2013, Ecuador’s Comptroller General – the chief auditing authority in the country – concluded that the country lost significant revenues as a result of sales below market prices. Five years later, the government clarified that no new contracts were signed and that state-owned companies had secured a higher share of oil sales at competitive prices. Yet most details pertaining to the Chinese oil-backed loans remain unknown. Corruption allegations have been widespread, and public distrust is prevalent. As the EITI’s newest member, Ecuador now has a clear opportunity to shed light on these deals, and to bring greater transparency to past, present and future agreements that govern its natural resource wealth.

Guyana: A big deal

Since 2015, some of the largest oil discoveries in modern history have been made off Guyana’s coast. The discoveries made global headlines, bringing the promise of economic prosperity for the small South American nation. Naturally, the issue of transparency around the licensing and contracting of these vast oil reserves came to the fore. The first big deal was signed with ExxonMobil in 2016, which was later published in response to public demands for transparency. Last year, a similar contract for the Payara field was signed and publicly disclosed.

But there is still ample opportunity to improve the transparency of extractive contracts and oil sales in Guyana. Public interest in these oil deals is high. Guyanese media report extensively on different concerns about these deals, such as on issues of oil sales and ownership of licensed blocks. Guyana EITI has started to address these gaps, working with the EITI International Secretariat and others to strengthen transparency. By leveraging the EITI process, these efforts pave the way for strengthening public oversight and debate on the management of Guyana’s new oil wealth.

The cases of Ecuador and Guyana demonstrate the importance and urgency of transparency. But they are not unique. With the EITI Standard’s requirement on contract transparency now in effect, the time is ripe for countries in the region to address disclosure gaps. The EITI can be used not only as a vehicle for contract publication, but also as a platform to understand, scrutinise and analyse the terms that govern the extraction of natural resources, shedding light on an industry that is the mainstay of economies in the region.  

 

Resources:

Authors: 
Francisco Paris

Francisco Paris

Latin America & the Caribbean Director

Francisco leads the Latin America and Caribbean team to support the EITI’s work on Colombia, Guyana, Mexico, Suriname and Trinidad and Tobago. He also works on environmental reporting,