Publish What You Pay (PWYP)

1. What are the origins of the Publish What You Pay campaign?
2. How serious a problem is the lack of transparency in resource-rich but poor countries?
3. Why should extractive sector companies heed the call to publish what they pay?
4. What payments should be disclosed and how?
5. How could disclosure be monitored?
6. Why is disclosure on an individual company basis necessary?
7. Why don't companies voluntarily disclose information?
8. Would disclosure be in the interest of shareholders?
9. Why should NGOs sign up the Publish What You Pay campaign?

1. What are the origins of the Publish What You Pay campaign?

   In December 1999 Global Witness published a report called A Crude Awakening, an expose of the apparent complicity of the oil and banking industries in the plundering of state assets during Angola 's 40-year civil war. It became clear that the refusal to release financial information by major multinational oil companies aided and abetted the mismanagement and embezzlement of oil revenues by the elite in the country. The report concluded with a public call on the oil companies operating in Angola to "publish what you pay". However, it was clear that the lack of transparency in the extractive industries was also a significant concern in other resource-rich but poor countries. Therefore, Global Witness along with the other founding members, CAFOD, Open Society Institute, Oxfam GB, Save the Children UK and Transparency International UK, decided to mount a worldwide campaign calling for all natural resource companies to disclose their payments to governments for every country of operation.

   The Publish What You Pay campaign was launched in June 2002 by George Soros, Chairman of the Open Society Institute. The small founding coalition of NGOs was soon joined by others such as Catholic Relief Services, Human Rights Watch, Partnership Africa Canada, Pax Christi Netherlands and Secours Catholique/CARITAS France, along with an increasing number of groups from developing countries. The coalition has grown extensively since the campaign's launch and continues to expand worldwide.

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2. How serious a problem is lack of transparency in resource-rich but poor countries?

   Foreign investment in the oil, gas and mining industries is a significant source of revenue for governments of over 50 developing countries. Approximately 3.5 billion people live in these countries, of which 1.5 billion survive on less than US$2 a day. Furthermore, twelve of the world's 25 most mineral-dependent states and six of the world's most oil-dependent states are classified by the World Bank as "highly indebted poor countries" with some of the world's worst Human Development Indicators.

   Dependency on extractive resources tends to lead to unaccountable state institutions, many of which have inadequate infrastructure and expertise to manage the substantial size of revenues flowing in from this sector. The political structures that accrue around this 'bonanza' economy generally fail to bring about the social and cultural changes that lead to long-term investment in social development because resource-rich governments use low tax rates and patronage to dampen democratic pressures and spend an unusually high fraction of their income on internal security. States that are dependent on oil and mineral wealth also face a much higher chance of civil war and conflict; comparisons show that natural resource dependent states are almost a quarter more likely to have civil conflict.

   In Africa , for example, about three-quarters of the continent's trade relates to the natural resource sector. By 2003, U.S. investment in African oil will exceed US$10 billion per year - some two-thirds to three-quarters of all its total annual investment in the continent. If the revenues from such investments were transparently and accountably managed, they could provide the basis for successful growth and poverty reduction. Currently, despite the resource wealth extracted from the continent, over 300 million Africans live on less than a dollar a day; life expectancy is 48 years and falling; one-third of children are malnourished; and 40 percent of children have no access to education. In the Great Lakes region, five million people were killed in violent conflict in the last decade, most of which is directly or indirectly funded by resource extraction. One-fifth of the world's small arms are circulating in Africa and South Asia - the world's two poorest regions - and both have seen increases in military expenditure driven by unaccountable revenue streams.

   Revenue transparency itself is a fundamental criterion for good governance: you cannot manage what you cannot measure. This point has been emphasised by the International Development Association and the International Monetary Fund's Review of National Poverty Reduction Strategies, which concluded that openness and transparency within countries and international development partnerships are critical for successful poverty reduction efforts.

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3. Why should extractive sector companies heed the call to publish what they pay?

   Natural resources are held in trust by the state for the citizens of a country. Those citizens have a clear right to information about the management of revenues associated with their resources. PWYP calls for multinational oil, mining and gas companies to reveal the same basic information about net payments to a state in the developing world that they already routinely disclose in the developed world. State-owned enterprises must also be financially accountable for payments made to their governments and revenues received. Together this information will help citizens of resource rich but poor countries to call their governments to account over the management of revenues and thereby seek a democratic debate over their use and distribution. Companies can often be perceived to be complicit to corruption and the deterioration of social conditions in the countries where they operate, even though they are providing a valuable source of investment that, when managed transparently and responsibly, should be a source for growth and development that will benefit all citizens of these poor countries.

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4. What payments should be disclosed and how?

   Oil, gas and mining companies make a number of different payments to governments. These include:

   • Royalty payments denominated as a percentage value of production;
   • Bonus payments on signing a contract, on the location of commercial mineral deposits or on reaching certain production levels;
   • Corporate income tax, paid on income after permitted deductions for operating, exploration and interest costs and depreciation of assets;
   • Other taxes including withholding tax on dividend payments, excise tax, customs duties, sales/value-added tax and property tax.

   Publish What You Pay calls for annual net figures of these payments to be disclosed by all extractive companies (both multinational and state-owned) for every country of operation.

   In all countries, disclosure of payments information should be:

   • Easy to understand, reliable and comprehensive;
   • Easy to compare with other companies' figures and with government revenues information;
   • Accessible to civil society;
   • Provided in local languages; and
   • Provided in the local currency.

   The Reporting Guidelines developed under the auspices of the Extractive Industries Transparency Initiative could act as a basis for how company payments and government revenues should be published.

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5. How could disclosure be monitored?

   One possible model is an independent monitoring body for each country comprised of representatives of government, industry, civil society and international financial institutions. It would play an oversight role over the disclosure of payments and revenues information. It would ensure the wide publication and use of this information throughout local civil society and in the media. This body would also provide a basis for debate at the local level with citizens and all other relevant stakeholders on revenue management and expenditure issues.

   A useful example is the Chad-Cameroon Petroleum Revenue Oversight Committee, which is comprised of government, parliament, judiciary and civil society representatives who monitor the spending of revenues from this project. The Committee was created by a law passed by the Chadian parliament. The establishment of the committee was also a condition of the World Bank's support for the pipeline, which highlights that the World Bank recognises that civil society has a key role to play in working with governments to ensure that income from natural resource industries is used to enhance poverty alleviation and social development efforts.

   For more information on the pipeline and oversight committee, go to:

   • Catholic Relief
   • World Bank

   The IMF could also play a role in monitoring company payments and government revenues disclosures. The IMF Code of Good Practice in Fiscal Transparency , is alreadya 'good practice' standard for fiscal transparency and is an important tool with which the IMF can conduct its surveillance of fiscal policy and institutional issues. 46 countries are currently reporting voluntarily against this code.

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6. Why is disclosure on an individual company basis necessary?

   Disclosure by individual companies at national levels is essential so that citizens of resource-rich developing countries are able to track revenue flows from each company in order to hold the government accountable for the management of such income. T he aggregation of all company payments would mask individual revenue flows and therefore deny the right of local citizens to information on the money made from 'their' natural resources. Aggregation would make crosschecking the information with government revenues more complex and unreliable, and would also make monitoring unnecessarily difficult for stakeholders involved in any oversight bodies that oversee the government's handling of resource revenues.

   Moreover, individual company disclosure is the accepted standard in every developed country, so any lesser standard in developing countries would run counter to the philosophy of transparency that many governments and companies have endorsed.

   Disclosure on an individual company basis is in the companies' best interests because it would clearly show their financial contributions to the country, thereby improving its social license to operate and bringing greater pressure on the government to be accountable for how revenues are used.

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7. Why don't companies voluntarily disclose information?
   1. Threat to companies' competitive advantage
      Relying on voluntary transparency is problematic as companies face having their operating licenses revoked and awarded to less scrupulous competitors. Companies are also often prevented from disclosing information because of confidentiality clauses in contracts. As a result, regulation is needed to level the playing field to allow companies greater freedom for responsible action and to overcome any "gagging clauses" in contracts that prohibits necessary information from being published.
      The announcement of BP's intention to "publish what they pay" in Angola in 2001 brought threats from Sonangol, the Angolan state oil company, that their contract would be terminated. BP has not yet disclosed information about tax payments and royalties to the government but it did disclose its signature bonus.
      Publish What You Pay does not seek to endanger companies' business interests in developing countries. Rather the coalition simply calls on companies to reveal the same basic information about payments to the state that they already routinely disclose in developed countries, which will go a long way to ensuring that their investments in the developing countries where they operate contribute effectively to economic development and poverty alleviation.
   2. Incomplete information on total payments received
      The individual disclosure of one or a few companies' net payments to a state would only reveal a fraction of the total revenues received, thereby not giving an accurate basis to hold the government accountable. We are calling upon companies to reveal the same basic information about net payments to the state that they already routinely disclose in the developed world. Companies have often signed confidentiality clauses over payment data in their licensing agreements with host governments. However, these agreements normally have a get-out clause for information that is required to be disclosed by regulation.
      Confidentiality clauses and contract sanctity must continue to be respected, but should not be used by companies or governments as a hindrance to transparency of payments and revenues information. With the growing pressure being placed on companies to commit to financial transparency, there is a very clear case for why they can no longer hide behind these clauses to escape publication and in a disaggregated format - especially with so many millions of people dependent on the proper management of these revenues for their welfare.

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8. Would disclosure be in the interest of shareholders?

   Yes. A market cannot behave effectively if information is not provided. Furthermore, it is in business interest to do so:

   1. Better financial information
      Financial markets, analysts and investment funds would benefit from more information. Investment analysts may need information on company payments to a state so as to calculate the in-country costs of doing business, to evaluate risks better, to work out the profitability of investments and to identify company subsidiaries in particular countries that are under-performing. The higher the level of disclosure, the better investors will be able to safeguard their own interests. The large investment and pension funds have investments in the large oil, gas and mining companies that should provide the impetus for change.
   2. Long-term shareholder value
      We believe it is in the shareholders' long-term interest in terms of creating a more stable investment environment and contributing to sustainable development if extractive sector companies operated more transparently in all countries. Currently, shareholders probably can get information about extractive sector company payments to governments if they ask for it, but the stakeholders in the countries whose resources the government holds in trust are denied such information.
   3. Credit risk
      Direct involvement or indirect complicity with funding conflict or supporting a corrupt regime also carries a number of associated credit risks for investors. These include:
   • Reputational risk: Companies complicit with a corrupt regime and the disempowerment of civil society obviously risk their good name.
   • Investors have highlighted the importance of revenue transparency for companies in a statement signed by North American, European and South African fund managers, who collectively represent some US$6.9trillion in funds and who have significant stakes in many of the large multinational oil companies. The investors state:
   • "Companies that make legitimate, but undisclosed, payments to governments may be accused of contributing to the conditions under which corruption can thrive. This is a significant business risk, making companies vulnerable to accusations of complicity in corrupt behaviour, impairing their local and global "licence to operate", rendering them vulnerable to local conflict and insecurity, and possibly compromising their long-term commercial prospects in these markets."
   • Transparency as direct investment risk: There is a clear recognition amongst the investment community, especially in the light of the previous Enron scandal in the United States , that good corporate governance and the management and accounting systems in place in a responsible company confer a direct benefit on corporate financial performance.

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9. Why should NGOs sign up the Publish What You Pay campaign?

   The Publish What You Pay campaign is of interest to both national and international non-governmental organisations working in the fields of international development, poverty alleviation, human rights, corporate social responsibility and environmental protection. Many such organisations have already joined the coalition due to the insurmountable evidence of the benefits that revenue transparency would provide for millions of people living resource-rich but poor developing countries. The PWYP campaign is consistent with existing international and local efforts to reduce poverty, combat corruption, improve corporate accountability, protect human rights, and strengthen good governance