Compliance in Canada, EU Response
The original EITI (Extractive Industries Transparency Initiative) model called for a company to report on a project by project, company by company basis, with no exemptions. The rationale was that this would help civil societies talk directly with local government about local projects and will allow such oversight actors to carry out more accurate analyses of revenue flows and track payments into the national accounts.
This EITI model is viewed as a must by various NGOs such as Publish What You Pay (PWYP), Global Witness and Oxfam. The project model generally works for mining companies, since it is easy to draw a line around a mine and call it one big project. Given this, it is not surprising that two large mining associations in Canada support these granular rules, and worked with the Canadian PWYP group to come up with a project by project, company by company method of disclosure. The model called for each company to file this information on the SEDAR system used to hold public company information. In contrast, the oil and gas industry has expressed concern about the project by project model, since its’ operations often consists of many different leases in many different areas, with often differing ownership in individual leases.
The EU has moved to implement on a project by project, company by company basis. Their rules also include forestry companies. The EU passed the Accounting and Transparency Directives, which obliges EU extractive companies to publish all payments of €100,000 and above, for each project they invest in and all countries they operate in. These rules apply to public and private companies. The United Kingdom is furthest along, in that it passed its legislation in October of 2014. Other EU members are also moving towards passage of legislation.
Specifics of How and Where to Disclose
The Canadian government has indicated it will develop the mechanics of reporting and publishing by June 2015, followed by formal proclamation into force around that date.
The federal government had originally hoped that provincial securities commissions would receive and make company reports available on SEDAR. All except the Quebec Securities Commission have indicated little or no interest in performing this function. As a result, the legislation requires companies (all public and private ones above a certain threshold level in size) to submit annual resource payment information in a report to the federal government not later than 150 days after the end of its financial year. As stated above, the assumption is that the legislation will be passed in 2015 and proclaimed to come into force at a later date. Realistically, this means that for companies with fiscal years ending December 31, they will have to file such reports by the end of May, 2017 for the 2016 fiscal year.
The draft legislation states that after such a report is filed with the federal government, the company must make the report available to the public in a manner specified by the minister. Discussions have indicated that this means that such report will be put onto the company’s website. It is not clear what will happen if a company does not have a website.
The federal government has indicated that it would create a central federal government website listing all companies that have submitted reports, and would contain links to the report on each company website. It would not, however, provide a central depository of such reports.
The legislation leaves the definition of project to be determined by the minister. The challenge for what is reported is that some payments do not lend themselves easily to allocation to projects. Income taxes, for example, are paid by corporate entities that may own several projects. Allocations to separate projects would have to be done using assumptions that may be quite arbitrary. NGOs have commented that they want to see the Canadian rules use the project by project model.
The legislation contemplates that companies may file their report with another agency that is an acceptable substitute to the federal minister. The Quebec government is prepared to permit Quebec companies to use the SEDAR system as a means of filing their reports. This is acceptable under the legislation, provided that a copy of such report is given to the federal government. It remains to be seen if a filing by a Canadian company with the SEC will meet the requirements of the draft legislation for an acceptable substitute.
The federal government has indicated that it will be consulting with industry and others as to the mechanics of compliance and reporting. The fly in the ointment may be the potential impasse with the SEC rules. More on that in the next blog.