Contract transparency

Contracts, licenses and associated agreements are crucial parts of the legal framework which establish the rights, terms and obligations governing the exploration and production of oil, gas and minerals.

As contracts are legal documents that governments enter into on behalf its people, a case can be made that citizens have the right to know the terms and conditions of these contracts, just like any terms and conditions that are set out in law.

The EITI encourages implementing countries to publish contracts and license agreements governing oil, gas and mining operations.

What the EITI requires of its member countries

Requirement 2.4 (link) of the EITI Standard (2016) (link) specifies what countries are encouraged to do in disclosing contracts:

Countries are also encouraged to disclose the full-text of any agreement to exploit oil, gas and/or mineral resources, as well as any annexes or amendments. Requirement 2.4 of the EITI Standard thus requires that countries document the government’s policy on disclosure of contracts and licenses that govern the exploration and exploitation of oil, gas and minerals. Documentation of government’s policy should include: relevant legal provisions, actual disclosure practices and any reforms that are planned or underway. Where applicable, countries should provide an overview of the contracts and licenses that are publicly available, and include a reference or link to the location where these are published.

What is a contract?

Generally, the word ‘contract’ is used to refer to agreements that include detailed project-specific terms over a number of issues while the word ‘license’ is used to describe agreements that contain very fewer project-specific details and rely more on general laws for detail. Nevertheless, the way that these words are actually used in different country contexts can deviate from this norm. Licenses in many countries can be much like contracts, being long and detailed documents with project-specific terms, while contracts can be short standardized documents more akin licenses.

Figure 1: contracts position in the legal system.

Three examples of contracting

1. License/concession agreements

-Licensee has right to all petroleum produced. Assumes all risks, costs and profits.

-Tax + royalty

-License agreement gives legal right to produce within a specific area, but terms and conditions mostly in legislation.

2. Production Sharing Contract

-Contractor has rights to a share of the petroleum produced. Assumes all risks and costs, but typically compensated for cost.

-Production share + (royalties) + bonuses + taxes.

-Terms and conditions both in PSC and legislation. Stabilisation clauses.

3. Risk Service Contract

-State retains right to all petroleum produced.

-State contracts company to produce the oil on behalf of the state. Company charges a pre-negotiated fee for this service.

-Contractor carries risk and costs, reimbursed for cost.

-Reimbursement and fees negotiated in the RSC, not in legislation.

Benefits of contract transparency

The call for such transparency is particularly pressing in countries where most of the terms and conditions are negotiated. It has also been argued that contract transparency can help reduce information asymmetry and create the level playing field as all actors know the terms that apply, improve inter-agency collaboration and prompt enforcement of contractual obligations, and increase the perceived legitimacy of contracts which could ensure more stability of investments and reduce calls for revisions of terms.

Although there continues to be some concern that contract transparency could harm the commercial competitiveness, experience with contract publication has shown that commercially sensitive data (e.g. seismic data, samples, well logs, geological structure maps, use of certain technologies etc.) do not tend to appear in the contract itself but rather stem from the implementation of the contract. It is common for petroleum contracts to be signed by consortiums of companies and for the companies within those consortiums to change overtime. This may mean that competing companies will have access to contracts. In such circumstances, it is unlikely that any company would risk writing trade secrets into any contract. Further, it appears that where there are justifiable concerns that commercially sensitive data is contained in a contract, this could be resolved through redaction or delayed publication of the contract.

Contract transparency could enable better monitoring of the implementation of contractual obligation and ensure consistency between contractual obligations and the overall legal framework. According to EITI stakeholders, contract transparency affects the work of governmental auditing institutions in terms of monitoring government activities.
Where multiple government agencies are involved in collecting taxes and administering the fiscal regime, contract disclosure can strengthen inter-agency collaboration as access to the contract would no longer be confined to one ministry, and is essential for other ministries to levy and collect the right taxes for example. This could also have benefits for industry actors who have an interest in prompt enforcement of the terms.
Some governments, in particular where there is weak institutional capacity, might face challenges in navigating of sector specific and general legislations and regulations that together make up the total legal framework for the extractive industry in a country. It has therefore been argued that contract transparency could help ensure proper government monitoring and enforcement of terms that are specific to individual contracts. Fiscal modelling may also be useful to development partners and civil society actors within the country.
Contracts often contain terms and obligations that could be relevant for the local communities where the extractive activities take place. Civil society has found access to contracts helpful in monitoring such impacts.

EITI’s role in evolving contract transparency practices

Five years after the EITI began encouraging contract disclosure, multi-stakeholder groups (MSG) around the world have considered or taken up the encouragement to publish contracts. The EITI began encouraging contract transparency in 2013. According to research undertaken by NRGI in 2017, contract disclosure has now become the norm among EITI member countries (link). This research found that 29 EITI implementing governments—well over half—have disclosed at least some of these agreements, and several more were taking concrete steps to join their ranks. A recent Oxfam survey of contract disclosure policy among leading extractives companies, out of 29 EITI supporting companies in their sample, 16 supported contract transparency in some form (link).

Given that the EITI encourages contract disclosure, many countries have adopted the practice of disclosing contracts because of the global and national debates facilitated by EITI. By providing a space where citizens, companies and governments can share experiences and lessons learned across stakeholder groups and national boundaries, EITI has helped these actors share concerns and potential benefits, and discuss possible approaches and ways of achieving contract transparency.

Country examples

In Peru, contract transparency is provided through the Law on Transparency and Access to Public Information (link). This law requires that public entities disclose contract information. Peru’s 2014 EITI Report includes a list of hydrocarbon contracts with the links to where full text of the contracts are publicly accessible. It also provides an overview of the mining projects that have signed ‘Contracts of Guarantees and Investments Promotion’ also known as Mining Stability Contracts. These contracts aim to reduce uncertainty concerning tax policy for investors and were signed at a time when Peru required private capital to recover from the 1980s crisis and sought to attract foreign direct investment.

In the Philippines, the 2014 EITI Report includes in-depth discussion of the government’s policy on contract transparency. The full text of standard contracts is included in Annex L-N of the PH-EITI Report. In 2015 PH-EITI launched an open database where the contracts of most companies participating in the EITI reporting process are disclosed. Using the open source ResourceContracts platform, the Philippines and NRGI worked together to assign unique IDs, which followed the Open Contracting Data Standard (OCDS). The OCDS enables data to be disclosed in a way that in interoperable at all stages of the contracting process and was created to increase contracting transparency, and allow deeper analysis of contracting data by a wide range of users. It involves step-by-step disclosure, creation of summary records for an overall contracting process and common open data publication patterns.

Examples of legal requirements with regards to contract and licence disclosure

Burkina Faso (mining): Article 15: Mining titles and authorizations as well as contracts or agreements mines are published in the Official Journal of Burkina Faso. http://extwprlegs1.fao.org/docs/pdf/bkf154955.pdf
Cote d’Ivoire (oil and gas): Article 82 new 2012 Petroleum Code modification. Contracts for the exploration and exploitation of petroleum resources as well as the revenues paid by the oil companies to the State are fully published in the Official Journal of the Republic of Ivory Coasthttp://droit-afrique.com/upload/doc/cote-divoire/RCI-Ordonnance-2012-369-modification-Code-petrolier.pdf
Honduras: Law of Official Secrets and Declassification of Public Information passed on 14 January 2014 (link)
Liberia: As per the 2009 LEITI Act, all contracts in Liberia are public and posted on the LEITI website.
Republic of the Congo: Loi de la transparence (March 2017), article 14.

Public sources of contracts

Global Contract Repositories ResourceContracts.org and the Open Oil Repository contain hundreds of full-text contracts and other associated document that are in the public realm. It is possible to browse by country to see a list of contracts that the repositories contain for different countries.

Company Websites. Some companies publish their contracts on their company websites, for example Turquoise Hill Resources in Mongolia, Tullow Oil in Ghana, and Kosmos Energy Worldwide. Check project pages, investment brochures and presentation packages, and transparency portals if available.

Stock Exchange Filings. Many companies include contracts in stock exchange filings, particularly those filing with the United States Securities and Exchange Commission or the Canadian Securities Administrators. Both these sites include search capabilities. Alternatively, Open Oil’s Aleph Search Engineallows you to search public domain documents filed by oil & gas and mining companies to financial regulators around the world. Over 2 million documents are currently indexed and are searchable and more are added on a daily basis.

IFC and EBRD-financed projects. The International Finance Corporation (IFC) require all IFC-financed exploitation projects since 2013 to disclose their primary contract outlining the terms of extraction. The European Bank for Reconstruction and Development have a similar policy for hydrocarbon projects since 2014. It is important to check whether IFC or EBRD financed projects have released contracts.

EITI supporting more effective contract disclosure frameworks:

EITI Reports will seek to more clearly describe the types of contracts and agreements used in the oil, gas and mining sector and distinguish between the contract transparency policy and practice in the two sectors.
EITI Reports will seek to increase public understanding of what terms and conditions are negotiated in the contract/agreement, and which terms and conditions are set out in law.
Where contract transparency is a legal requirement, there may be a discrepancy between the government policy and practices. EITI and its partners can help governments bridge gaps in between policy and practice.
EITI countries could consider provisions enabling contract transparency when reforming oil, gas and mining legislation.
EITI and its supporters will help countries establish more accessible disclosure frameworks, helping countries to achieve contract transparency in a timely manner with data available in open data formats.