Global transparency efforts will affect oil companies in Uganda
By Annie Sturesson
For African countries rich in natural resources, extractive industries are a potential source of funding for development and to fight poverty. But corruption and poor management of oil, gas and minerals have often prevented the poorest people from benefiting.
Several international initiatives aim to address this by creating more transparency in financial dealings between extractive companies and governments. Longest established is the Extractive Industries Transparency Initiative (EITI), a voluntary standard for governments and companies that has been piloted in various countries since 2002.
Further impetus was given to transparency efforts in 2011, when leading world economies (the ‘G8’ group of countries) made a commitment to put laws and regulations in place requiring oil, gas and mining companies to disclose all payments to governments. Since then, both the USA and the European Union have introduced such laws—the Dodd-Frank Act in America, a transparency Directive in Europe.
There is still no global transparency standard but other countries, including Canada, are also developing their own, national transparency initiatives.
With these various initiatives and regulations in place, nearly 90 percent of major extractive industry companies will be required to disclose their payments to governments. Of the 32 largest internationally active oil companies, 29 are registered on the US stock market, and so will be bound by the Dodd Frank Act.
However, many of the large Chinese and Russian companies active in Africa will not be affected by either the EU or the US regulations.
Implications for Uganda
The table below shows how the various transparency initiatives will affect international oil companies working in Uganda.
The EU legislation will apply to Total and Tullow, but the member states of the EU first have to enact the EU Directive into their own national laws. In the case of the UK (where Tullow is listed on the London Stock Exchange), a domestic law is expected by October 2014, and to apply to UK companies from January 2015 onwards. If the same timeline is followed in France (where Total is listed on the Paris Bourse), Tullow and Total will have to make their first reports by April 2016.
The Dodd-Frank Act in the USA will apply to CNOOC and Total, which are both listed on the New York Stock Exchange. (Tullow is also active on the US market, but due to complicated trading arrangements the company will be exempted from the Dodd Frank Act.)
However, a recent court ruling in America has made it uncertain whether the companies’ reports on oil activities in Uganda will be made public. The companies will have to file full reports to the US stock market regulator, but these will not necessarily be made available to the public.
It is possible, therefore, that CNOOC, which is not affected by the EU Directive, will also be exempted under the Dodd-Frank Act from publicly disclosing its payments to the government of Uganda
EITI still relevant
Meanwhile, in view of the optimistic projections regarding Uganda’s oil reserves, a number of new oil companies are expected to enter the oil sector in Uganda.
The newcomers may well include African and Asian companies which would not be bound by either the EU or the US transparency rules.
Joining EITI will therefore remain the only way to guarantee payment disclosure of all companies in Uganda’s oil sector. Once a government starts implementing EITI, all companies operating in the country, regardless of where they are based, have to provide information on payments they make to government. These EITI reports are made public.
Furthermore, the EITI goes beyond the EU and US legislation as the payments disclosed by the extractive industries companies will be compared to the payments declared received by the government. The EITI also provides with a forum of dialogue, the multi-stakeholder group, gathering representatives of industry, government and civil society.
Uganda’s National Oil and Gas Policy, adopted in 2008, signalled the country´s intent to join EITI. In May, 2012 President Museveni said that he had instructed his administration to move forward with EITI membership. In May, 2013, Energy Minister, Irene Muloni, announced that Uganda would be applying to join “soon.” However, the government is yet to take concrete steps putting its commitment to the EITI into practice.
Table 1. Oil companies in Uganda and the application of transparency measures
|EITI||Dodd Frank||EU directive|
|Tullow||Tullow is a corporate supporter of the EITI since 2011||No||Yes, because listed on London Stock Exchange|
|Total||Total has supported the EITI since the launching of the initiative in 2002 and was a member of the Board of EITI between 2009 and 2011.||Yes, because listed on New York Stock Exchange||Yes, because listed on Paris Stock Exchange|
|CNOOC||CNOOC is not a corporate supporter of the EITI as it favors national legislation to international standards||Yes, because listed on New York Stock Exchange||No|
Miss Sturesson is an Economist email@example.com