Draft EU directive obliging oil, gas, mineral and logging companies to fully disclose payments to governments
One of the stated objectives of the EU draft directive on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (COM/2011/0684) is to encourage the increased transparency on payments made to governments by the extractive industry and loggers of primary forests. EU legislation does not currently require companies to disclose, on a country basis, payments to governments made in countries where they operate. Therefore such payments made to governments in a specific country are normally not disclosed, even though such payments by the extractive industry or loggers of primary forests may represent a significant proportion of a country’s revenues, especially in third countries that are rich in natural resources. In order to make governments accountable for the use of these resources and promote good governance, it is proposed that the disclosure of payments to governments is a requirement at the individual or consolidated level of a company. This requirement applies only to large companies. This proposal is comparable to the US Dodd-Frank Act, which was adopted in July 2010, and requires extractive industry companies (oil, gas and mining companies) registered with the Securities and Exchange Commission (SEC) to publicly report payments to governments on a country and project-specific basis. While the US Dodd-Frank Act reporting obligations apply to companies that are listed on a stock exchange, the EU proposal also targets non-listed companies.
Under the proposed EU directive, the following types of payment to governments would have to be reported: production entitlements; taxes on profits; royalties; dividends; signature, discovery and production bonuses; licence fees, rental fees, entry fees and other considerations for licences and/or concessions; other direct benefits to the government concerned and payments in kind.
On 10 April 2013, the European Parliament and the Council of the European Union agreed during negotiations at committee level that the new rules would apply on a country-by-country and project-by-project basis for any project worth more than 100,000 EUR and that there would be no exemptions even if the host country’s criminal law banned such disclosure. The proposed directive still has to be approved by the European Parliament before entering into force.
European Commission launches public consultation on so-called “conflict minerals”
On 27 March 2013, the European Commission launched a public consultation on so-called “conflict minerals”. The aim of the consultation is to get interested parties’ views on a potential EU initiative for responsible sourcing of minerals originating from conflict-affected and high-risk areas. The European Commission announced in its 2011 Commodity Markets and Raw Materials Communication and its 2012 Trade, Growth and Development Communication its intention to explore ways of improving transparency throughout the supply chain – including aspects of due diligence – in relation to developing countries affected by conflicts often linked to the control of natural resources. Also, in the latter Communication, consistent with the recommendations of the OECD Council on Due Diligence Guidance, the Commission advocated greater support for, and use of the OECD Guidelines for Multinational Enterprises and OECD Due Diligence Guidance – even beyond OECD countries. By way of follow-up to both of the above Communications, the European Commission and the European External Action Service are jointly considering a possible EU initiative on the responsible sourcing of minerals originating from conflict-affected and high-risk areas. The consultation is open until 26 June 2013 and will be managed by the Commission’s Directorate-General for Trade.