Analysis: Oil majors, miners divided on U.S. corruption rules

JOHANNESBURG Tue Mar 29, 2011 12:21pm BST

Quotes

   

JOHANNESBURG (Reuters) - Oil and mining companies are divided in their views toward looming U.S. anti-corruption reporting requirements that will force them to disclose payments to foreign governments.

If the American Petroleum Institute, an influential industry lobby, and companies such as Exxon Mobil have their way with U.S. regulators, the law's effectiveness in increasing transparency may be watered down where it is most needed.

Part of last year's Wall Street reform act, the law is aimed at breaking what is known as the "resource curse" that prevents less-developed countries from translating mineral or oil wealth into broad prosperity.

One key area of conflict: What happens when an oil company listed in the United States has a project in, say, an oil-rich autocratic African country whose laws prevent disclosure of information about payments to the government?

The U.S. Securities and Exchange Commission (SEC), which is finalizing rule-making on the matter, asked for public comment in December on whether exceptions should be made in the case that a foreign state's law forbids such disclosure.

Pointedly, it also asked for specific examples of where national anti-disclosure laws would conflict with the provisions, putting the ball into the industry's court.

Submissions to the SEC reveal that oil majors have different takes on this crucial issue.

Brazil's Petrobras, which will fall under the new U.S. rules because of a secondary listing on the New York stock exchange, said that as far as it was aware, no countries had curbs on official disclosure.

"Brazil's oil and gas regulations do not prohibit the disclosure of payments by resource extraction companies to the Brazilian government or to any government outside of Brazil," it said in a submission.

"We are active in 29 countries outside of Brazil, and we are not aware of such a prohibition in any of those countries."

Included in those countries is Angola, Africa's number two oil producer behind Nigeria and fast becoming an important strategic source for U.S. oil supplies.

ANGOLA AND OTHERS

Angola is often held up as a prime example of why such disclosures are necessary, because its highly secretive governing elite has long been accused of graft on a grand scale and of squandering much of the country's vast petroleum wealth.

Exxon Mobil, the world's largest publicly-traded oil major, painted a different picture from Petrobras.

"We understand that several commentators have expressed doubt as to whether, in fact, there are currently in effect any non-U.S. laws against disclosure of resource extraction payments," it said.

"ExxonMobil has direct experience with non-disclosure laws in Qatar and Angola," it said.

In the submission it included an English translation of a directive which it said, "broadly prohibits disclosure of any information related to petroleum activities in Angola without authorization from the Ministry of Petroleum."

Some analysts say it is not so cut and dried.

"Companies are allowed to disclose information if they get approval from the ministry," said Paul Bugala, a sustainability analyst at U.S.-based Calvert Asset Management Company, which manages over $14.5 billion in assets.

"The SEC shouldn't be granting an exemption based on this ministry rule, as the ministry appears either not to enforce it or to grant exemptions all the time. For example, Statoil has reported its payments to the government of Angola for years," he said, referring to the Norwegian oil major.

Statoil's annual sustainability report, published on Friday, says it paid about 3.3 billion Norwegian crowns ($590 million) in direct taxes in 2010 to Angola.

The American Petroleum Institute said in one of its submissions to the SEC: "API member companies can confirm to the Commission that disclosure of revenue payments made to foreign governments or companies owned by foreign governments are prohibited for the following countries: Cameroon, China, Qatar and Angola.

"If the Commission does not provide an exemption from disclosure when prohibited by foreign law, the Commission will force these companies to either withdraw from these projects or violate foreign law," it added.

TEXAS-SIZED LOOPHOLE?

Commentators say if exemptions were made, it would open the flood gates and that corrupt resource-rich governments might rush to pass legislation to evade the increased scrutiny -- effectively gutting the law's original intent.

"Our concern is that if you have broad exemptions, you are just inviting governments that don't want to be transparent to pass blocking legislation," said Diarmid O'Sullivan, a campaigner with Global Witness, an extractive industry watchdog.

"We don't think that the scope of this law should be determined by the least transparent governments."

Divisions have also emerged in other areas, with the oil industry apparently more resistant than miners to the new rules.

Executives speaking at the Reuters Mining and Steel Summit said last week they had few issues with the legislation and that enhanced transparency could help clean up the image of an industry with a dirty reputation..

The rules will apply to miners and energy companies listed with the SEC, including even London or Johannesburg-based firms that have secondary listings in the United States.

(Editing by Jane Baird)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.