Guidance note on contract transparency

1. Summary

Contracts, licenses and associated agreements establish many of the commitments between government and companies in the extractive industries (the terms ‘contract’ and ‘license’ are used here as defined in requirement 3.12 c. and 3.12 d. set out below). In some cases, the terms of these contracts and licences may be standard and complemented by taxation regimes. In other cases, these contracts, licenses and agreements include detailed terms for how resource owners and companies agree to share risk and reward over the life of long-term resource extraction projects. Fiscal terms will address how costs and profits are shared between the parties and how taxes, royalties and other extraction related fees are to be calculated and paid.

EITI Principle 6 recognises that achievement of greater transparency must be set in the context of respect for contracts and laws. The EITI Standard requires that the EITI Report documents the government’s policy on disclosure of contracts and licenses that govern the exploration and exploitation of oil, gas and minerals (requirement 3.12b). The EITI Standard also encourages implementing countries to disclose contracts and agreements that establish the terms for the exploitation of oil, gas and minerals (requirement 3.12a). The EITI Requirements are set out in full below.

This guidance note sets forth issues the MSG should consider to help it meet its requirements of documenting the government’s disclosure policy and practices. The guidance note also outlines some possible options for how the MSG could structure a contract disclosure system should the MSG decide to address contract transparency.

Some EITI implementing countries (Niger, Sao Tome and Principe, and Sierra Leone) have passed legislation that requires publication of contracts. Others (Afghanistan, Azerbaijan, the Democratic Republic of Congo, Liberia, Guinea, Peru, Republic of Congo, and Timor Leste) have published all or some of their extractive industry contracts. In some implementing countries contracts are stated to be confidential and are therefore not disclosed. For those countries that do publish, the contracts are typically available on a government website. Some companies have also proactively sought to make their contractual terms available for scrutiny.

As contract transparency is a relatively new area within the EITI, this note will likely be revised reflecting emerging practice. Given that disclosure of contracts can be commercially sensitive, the International Secretariat encourages implementing countries that wish to address this issue to consult widely with all stakeholders, including stakeholders outside the MSG, and strive towards consensus regarding any decisions related to contract transparency.

Requirement 3.12

3.12 Contracts

1. Implementing countries are encouraged to publicly disclose any contracts and licenses that provide the terms attached to the exploitation of oil, gas and minerals.
2. It is a requirement that the EITI Report documents the government’s policy on disclosure of contracts and licenses that govern the exploration and exploitation of oil, gas and minerals. This should include relevant legal provisions, actual disclosure practices and any reforms that are planned or underway. Where applicable, the EITI Report should provide an overview of the contracts and licenses that are publicly available, and include a reference or link to the location where these are published.
3. The term contract in 3.12(a) means:
   1. i. the full text of any contract, concession, production-sharing agreement or other agreement granted by, or entered into by, the government which provides the terms attached to the exploitation of oil gas and mineral resources;
   2. the full text of any annex, addendum or rider which establishes details relevant to the exploitation rights described in 3.12(c)(i) or the execution thereof; and
   3. the full text of any alteration or amendment to the documents described in 3.12(c)(i) and 3.12(c)(ii).
4. d. The term license in 3.12(a) means:
1. the full text of any license, lease, title or permit by which a government confers on a company(ies) or individual(s) rights to exploit oil, gas and/or mineral resources;
2. the full text of any annex, addendum or rider that establishes details relevant to the exploitation rights described in in 3.12(d)(i) or the execution thereof; and
3. the full text of any alteration or amendment to the documents described in 3.12(d)(i) and 3.12(d)(ii).

2. Guidance

The EITI International Secretariat recommends the following step-by-step approach to MSGs for addressing the encouragement of contract transparency:

1. In order to ensure that the EITI Report documents the government’s policy on contract disclosure (as required in 3.12.b), the multi-stakeholder group is advised to identify relevant laws, regulations and financial systems that govern the extractive sector and determine whether or not they contain disclosure provisions and what these say about disclosure.

   Questions to help document the government’s policy on contract disclosure:

   • What are the relevant national and subnational laws and regulations? Note that Requirement 3.2 states that “The EITI Report must describe the legal framework and fiscal regime governing the extractives industries.”
   • Which terms applicable to oil, gas and mining contracts are stipulated in legislation and regulations? Are these laws and regulations publicly accessible?
   • Is there a tax/royalty system (licenses and concessions) or a contract system (PSA, service contract, etc.)?
   • Can the agency(ies) responsible for allocating licenses or negotiating and signing oil, gas and mining contracts be identified?
   • Can the agency(ies) monitoring implementation of oil, gas and mining contracts be identified?
   • Can any legal impediments to or restrictions on the disclosure of contracts be identified?
   • Does the government have a model contract for oil, gas and mining exploration and exploitation? Is this model followed for all contracts ?
   • Are there any reforms underway that may affect public access to contracts?

2. In some cases, laws and regulations may provide for contract disclosure, but this may not be reflected in actual disclosure practice. In other cases, contracts may be disclosed in practice, even if laws and regulations do not provide for it. In some cases, contracts may be stated to be confidential and disclosure prohibited. Other laws and contracts may be silent on this issue. In accordance with requirement 3.12.b, the EITI report should document actual disclosure practice. In addressing this requirement, the multi-stakeholder group may find it helpful to assess whether:

   • all contracts are disclosed, regardless of the type
   • the contracts are disclosed in full, including any addendums
   • the contracts are disclosed in a timely manner
   • the contracts are made available in an easily accessible manner
   • the key terms or a summary of such contracts are disclosed
   • the contacts are disclosed, except for the redaction of  sensitive commercial or technical information
   • contracts completed after some specified and consistent date are disclosed

3. In accordance with requirement 1.4.f, the multi-stakeholder group should consider addressing issues such as contract disclosure when reviewing the EITI workplan.  Implementing countries are encouraged to publicly disclose any contracts and licenses that provide the terms attached to the exploitation of oil, gas and minerals (requirement 3.12(a). Where the government’s policy does not explicitly address contract disclosure, but this is something the multi-stakeholder group wishes to address, the following methods for a contract disclosure system might be considered, bearing in mind the rights of the contracting parties and the interests of the public:

   • Disclosure of contracts that contribute or are expected to contribute more than a certain percentage of total government revenues or exceed a given investment or production volume threshold.
   • Disclosure of certain terms within a contract that are of particular interest to stakeholders, i.e. financial terms or social and environmental obligations,
   • Disclosure of any future contracts (i.e., contracts signed after a fixed date).
   • Disclosure of a summary of the key terms and conditions under which the resource is being developed. This summary could for example include the life of the contract; any material payments due to government made under it; other material fiscal terms and conditions; and a summary of any significant stabilization clauses.
   • Possibilities for redacting commercially sensitive information
   • Full contract disclosure.

4. After considering the issues outlined above, the multi-stakeholder group needs to  agree what specific information it will  include  about contract transparency in the EITI Report, and the format for providing that information  At a minimum, the report should include the following (requirement 3.12.b):

   • A short summary of the government’s policy on contract disclosure in the EITI Report, including commentary on relevant legal provisions, actual disclosure practices and any reforms that are planned or underway. The multi-stakeholder group may also wish to add an overview of any contracts issued in the period covered by the EITI Report that are likely to generate significant revenues.
   • Where contracts are disclosed, an overview of the contracts and license s that are publicly available, and a reference or link to where these can be accessed.
   • Where contracts are disclosed, but are not easily accessible, the multi-stakeholder group could consider posting them on the EITI website. The multi-stakeholder group may wish to consider opportunities for linking this information to revenue and other data in the EITI Report.

5. In order to be useful and contribute to public debate, the EITI Report must be comprehensible (Requirement 6.1.c). Where contracts are published, the multi-stakeholder group may wish to review capacity building activities necessary to ensure effective common understanding of the contracts within the multi-stakeholder group and among other key stakeholders with a view to ensuring effective and sound use of the disclosed contract information.

3. Examples

For further information, please see:

• http://www.resourcecontracts.org/
• https://strikingpoverty.worldbank.org/c121031
• http://www.contractroadmap.org/
• http://openoil.net/contracts-booksprint
• http://www.revenuewatch.org/publications/contracts-confidential-ending-secret-deals-extractive-industries
• www.open-contracting.org
• http://www.eisourcebook.org/642_5PolicyLegalandContractualFramework.html