Industry commitment to transparency in the spotlight
The United States this week published its first EITI Report, covering the fiscal year 2013.
“The Report provides new insights into the governance and taxation of the extractive industries in the world largest oil producer”, said EITI Chair Clare Short. “The accompanying data portal has set a standard that many other EITI implementing countries might wish to emulate”.
“Providing data in an open and accessible format will empower citizens, inform public discussions, and expand the scope of future revenue reporting to ensure the American people receive a fair return for the extraction of oil, gas, minerals and renewable energy on public lands and waters,” said U.S. Secretary of the Interior Sally Jewell.
The EITI has seen, for the first time, the publication of comprehensive data on production and tax revenues from federal lands. In 2013, the federal government collected over $12 billion in rent, royalties and other payments. In addition, the extractive industries paid an estimated 11.8 in corporate income tax. The report notes that these industries account for 2.6 percent of GDP, and employs over 800,000 people.
Source: 2013 EITI Report, Executive Summary page 8
The focus on federals lands is a logical starting point for the EITI, but does not provide a full picture. As the report notes, in 2013 only 40.3% of coal, 23.1% of crude oil and lease condensate, 15.9% of natural gas, and 11.7% of natural gas liquids extraction in the United States took place on federal lands. Whereas in many countries natural resources belong chiefly to the national government, in the United States, individuals and corporations—in addition to federal, state, local, and tribal governments—own substantial natural resource wealth. The United States has 50 states, more than 3,000 counties, and more than 560 tribes. All of these different jurisdictions have their own governments that develop their own legal and fiscal frameworks to govern extractive industries.
The online EITI Report includes links to publicly available information about state revenue collection in the 18 states that, in 2013, led the country in oil, gas, coal, and non-energy mineral production. The US EITI MSG has developed a strategy to encourage more states and tribes to participate in the second EITI Report.
Company participation in focus
The publication of the report is not without controversy. Preparations were over-shadowed by the long-running debate regarding section 1504 of the Dodd Frank Act. The legislation, signed into law in July 2010, requires companies to disclose payments to foreign governments and the US Federal Government for the purpose of the commercial development of oil, natural gas, or minerals. The law has not yet come into force, and has been the subject of a series of legal challenges.
With the Dodd Frank requirements still in doubt, a number of companies refused the invitation to participate in the EITI process. Forty-five companies were asked to report. Thirty-one out of the 45 reported their payment to the Department of the Interior (DOI). Only twelve out of a maximum of 41 applicable companies reported federal corporate income taxes. Thus while there is full disclosure by the DOI, and an estimate of corporate income tax payments from the Internal Revenue Service (IRS), the coverage of the reconciliation is limited. The data on corporate income tax payments is highly aggregated, with only limited company-by-company disclosure.
This issue was raised at a recent meeting of the EITI Board in Kiev, Ukraine. “It is disappointing that so few companies agreed to fully participate in the reporting process”, said EITI Chair Clare Short. “While we recognise that the uncertainty about Dodd Frank section 1504 has created difficulties, companies that support the EITI Internationally and that have played a key role in developing the EITI Standard should comply with EITI rules”.
With the SEC having now published a draft rule on 11 December, there is an opportunity to harmonise the SEC and EITI reporting requirements. The draft SEC rule makes extensive reference to the EITI, and the draft rule would allow issuers to use reports prepared for other regulatory purposes to fulfil their requirements under the SEC rules as long as the requirements are “substantially similar”.
“It has long been our view that these two approaches are complementary. Transparency is always important but EITI brings the numbers home to the public in each of our member countries” said Clare Short. “The US-EITI provides a platform for government, industry and civil society organisation to share information and analysis. With the recent fluctuations in commodity process, and the uncertain outlook for investment, employment and government revenues, transparency in the extractive industries is more important than ever”.