Resource Revenue Transparency Advisory Group
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The Government of Canada has tabled the Extractive Sector Transparency Measures Act to increase transparency of payments from extractive companies to governments. This follows recommendations from the Resource Revenue Transparency Working Group for mandatory reporting. Key differences from the recommendations include applying also to oil and gas, some private companies, and transitional provisions for payments to Aboriginal groups. The industry advisory group will provide input on clarifying payment categories, thresholds, and ensuring consistent reporting across jurisdictions.
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Resource Revenue Transparency Advisory Group
- 1. Resource Revenue Transparency Industry Advisory Group Participant Briefing November 13, 2014
- 2. What is resource revenue transparency? Mandatory public reporting of all payments made to governments by extractive companies Why? Quantify the economic benefits of natural resource development • Help provide citizens and communities with the information necessary to hold their governments accountable • Deter corruption and bribery • Assist investors to properly analyze the financial and political risks of an investment • Help companies achieve a social license to operate
- 3. Context Reporting requirements emerging in key international jurisdictions; pressure on Canada to follow suit • Dodd-Frank Act, Section 1504 –Passed in July 2010, US Securities and Exchange Commission issued rules in 2012 –Will require extractive sector companies listed in the US to report payments –Lawsuit from the American Petroleum Institute pending • EU Transparency Directive –Legislation signed in June 2013 –Members states to transpose rules in to national legislation by 2015 • Extractive Industries Transparency Initiative –Voluntary for companies and countries –Canada is a supporting participant
- 4. Resource Revenue Transparency Working Group •Dec 2011: PWYP-Canada and RWI approach MAC and PDAC, propose a collaboration regarding revenue transparency •June 2012: MOU signed following Board approval •Sept 2012: Official launch of RRTWG –Begin consultation with industry, civil society, academia and government –Regular engagement with NRCAN, support for industry consultations (April) •Jan 2014: RRTWG releases its recommendations on mandatory reporting
- 5. RRTWG Recommendations Key Components • Venue: Securities regulation with strong equivalency provision • Scope: All payments related to the commercial development of mineral deposits made to Canadian and foreign governments, including payments made to national and sub-national authorities • Payment Categories – Profit Taxes (including profit, income and production taxes) – Royalties (including royalties-in-kind) – Fees (including license fees, rental fees and concession fees) – Bonuses (including signature, discovery and production bonuses) – Infrastructure payments as required by law or contract (e.g., building a road or railway) – Fines/penalties paid to government • Threshold: The Working Group proposed two separate thresholds - $100,000 for companies listed on the TSX and $10,000 for companies listed on the TSX-V • Level and Format: Public reporting of payments in separate form, disaggregated to project level
- 6. Government of Canada Process •June 2013: Prime Minister Harper announces Canada will be establishing mandatory reporting requirements within two years •June 2013: NRCAN consultation process launched, supported by MAC and PDAC •October 2014: Legislation tabled; NRCan establishes advisory group to assist in development of reporting template and guidance document •November 2014: Anticipated first meeting of industry advisory group •June 2015: Anticipated conclusion of advisory process
- 7. GOC’s Extractive Sector Transparency Measures Act Tabled October 23, 2014 Based on the RRTWG recommendations but with some differences: Minor Differences: •Objective: “An Act to implement Canada’s international commitments to participate in the fight against corruption through the imposition of measures applicable to the extractive sector.” •Additional detail on definitions of payee (employee, public office holder) and payment (in kind, made by third party) •Controlling entity required to report on behalf of subsidiaries, as opposed to proportional reporting •Report required within 150 days of the end of the fiscal year
- 8. GOC’s Extractive Sector Transparency Measures Act Major Differences: •Applies to oil and gas, as well as exploration and mining •Applies to public and private companies in some circumstances: 8.(1) Subject to subsection (2), section 9 to 3 apply to: • Entity listed on a stock exchange in Canada • Entity that has a place of business in Canada, does business in Canada, or has assets in Canada and meets at least two of the following condition for at least one of its two most recent financial years: –It has at least $20 million in assets –It has generated at least $40 million in revenue –It employs an average of at least 250 employees • And any other prescribed entity
- 9. GOC’s Extractive Sector Transparency Measures Act Differences Requiring Attention: Thresholds and Payment Categories 9.(2) Subject to any regulations made under paragraph 23(1)(d), an entity must disclose any payments within a category of payment that are made to the same payee, if the total amount of all those payments during the financial year is at least: (a) the amount prescribed by regulation for the category of payment; or (b) if no amount is prescribed for the category, $100,000 PDAC objectives •Clarify payment categories •Clarify thresholds for each category •Advocate for reporting template and guidance document to promote voluntary reporting of amounts greater than $10,000
- 10. GOC’s Extractive Sector Transparency Measures Act Differences Requiring Attention: Format 9. (5) The Minister may specify, in writing, the way in which payments are to be organized or broken down in the report – including on a project basis – and the form and manner in which a report is to be provided. 12.(2) The report and information must be made available to the public (a) in the manner specified by the Minister; and (b) for the period prescribed by regulation or, if no period is prescribed, for a period of five years. PDAC objectives • Project-level reporting via a consistent electronic form • Gathering forms in a central data-base (accessible and searchable)
- 11. GOC’s Extractive Sector Transparency Measures Act Differences Requiring Attention: Venue 20. The Minister may enter into an agreement or arrangement with the government of another jurisdiction relating to the administration or enforcement of this Act or that jurisdiction’s reporting requirements. PDAC objectives Ensure provincial equivalency supports: • Consistency of information gathered (e.g. use of same reporting form) • Accessibility of data (e.g. inclusion of information in central database)
- 12. GOC’s Extractive Sector Transparency Measures Act Differences Requiring Attention: Penalties 24. (1) Every person or entity that fails to comply with section 9, 12 or 13, an order made under section 14, subsection 16(4) or an order made under section 19, or that contravenes section 18 or the regulations, is guilty of an offence punishable on summary conviction and liable to a fine of not more than $250,000. 26.(b) “…no person or entity is found to be guilty of the offence if they establish that they exercised due diligence to prevent its commission.” PDAC objectives • Ensure penalties are consistent with current penalties related to securities disclosure rules • Clarify what is meant by “due diligence”
- 13. GOC’s Extractive Sector Transparency Measures Act Differences Requiring Attention: Payments to Aboriginal Groups TRANSITIONAL PROVISIONS 29. The provisions of this Act do not apply to any payment made by an entity to the following payees during the two-year period that begins on the day on which section 2 comes into force: (a) an Aboriginal government in Canada; (b) a body established by two or more Aboriginal governments in Canada; and (c) any trust, board, commission, corporation or body or authority that is established to exercise or perform, or that exercises or performs, a power, duty or function of government for a government referred to in paragraph (a) or a body referred to in paragraph (b).
- 14. GOC’s Extractive Sector Transparency Measures Act Differences Requiring Attention: Payments to Aboriginal Groups •Are there any challenges that industry may face by inclusion, in the scope of the legislation of the types of entities outlined in Section 29? •Will the “payment categories” be the same for Aboriginal entities, or will they be different? What about infrastructure investments, social payments or investments (e.g. lunch programs in schools), or training/employment supports? •How will existing and future IBAs / Agreements factor in, given confidentiality clauses? •Will Aboriginal businesses be included, particularly if they are set up as community (i.e. government) owned entities?
Editor's Notes
- WG and PDAC see value of transparency as much broader than reducing corruption. WG’s scope of reporting identified only national and sub-national authorities. WG recommended proportional reporting by subsidiaries and controlling entities. Guidance document will need to explain further, for example, what if the controlling entity is listed in the EU and reporting under the EU regulations, but the subsidiary (which is also making payments to governments) is listed in Canada. How does the Canadian company reconcile the requirement to report within 150 days (Section 9. (1)) with the EU requirement to report within 11 months? Section 11.(b) suggests that a company should advise the Minister that another entity will be providing the information. Does the Canadian subsidiary have to either advise NRCan that it will be included in an overseas entity’s annual report, or does the Canadian entity have to apply for permission from NRCan to confirm that a report under another jurisdiction’s rules will be acceptable (Section 10.(1))? WG recommended requirements be implemented “expeditiously while giving companies time to adjust their reporting systems.”
- WG recommended a $100,000 threshold to ensure equivalency with other jurisdictions, but also a voluntary threshold of $10,000 to ensure that payments made by exploration companies will also be reflected. Will need clarification on 9.(2)(a): the amount prescribed by regulation for the category of payment Will there be different thresholds for different payment types? Which categories are they considering? What is the goal? Will varying thresholds create a reporting burden for companies? What are the ‘regulations’ referred to in 9.(2)(a)? When are they expected?
- The WG recommended disaggregated reporting at the project-level, in an electronic format, as a separate form through an annual securities filing. These stipulations were to ensure the information is organized, consistent/comparable, and can easily be accessed. Project-level reporting was a point of contention with oil and gas. Their reasons were primarily about privacy and competitiveness. Our reasons for supporting project-level reporting were to ensure that the data collected is sufficiently disaggregated in order for the information to be useful. The WG spent a lot of time of defining ‘project’; it has not been defined in the Act. This will be crucial going forward. The public nature of the reports is also critical, but until the format of reporting is determined, it is impossible to know how accessible the data will actually be for the public. NRCAN has suggested companies will be required to post their payments on their website and send the link to the responsible government body. Likely problems with this approach will be broken links, inconsistent formatting (meaning data can’t easily be compared), and accessibility (will there be a central database available to the public?).
- VENUE The WG recommended the venue for reporting by the provincial securities regulators, given their expertise in managing these types of disclosures. The benefit of a federal venue is that there won’t be any discrepancies in reporting and publication of the information between provinces. Section 20 allows the provinces to adopt their own regulations above and beyond the federal venue (Quebec has already announced it will do this). It is unclear how this will work and it will be important that the provincial mechanisms are consistent so data can be compared and used by investors, civil society, etc. The provincial mechanisms also should not impose any additional reporting burdens on companies. PENALTIES WG recommendation was for penalty to be consistent with the current enforcement regime of provincial securities disclosure requirements, and that such penalties are proportionate to the violation and its impact. Risk with $250,000 penalty is that in some cases is may make business sense not to comply. Will need clarification on definition of ‘due diligence’.
- PENALTIES WG recommendation was for penalty to be consistent with the current enforcement regime of provincial securities disclosure requirements, and that such penalties are proportionate to the violation and its impact. Risk with $250,000 penalty is that in some cases is may make business sense not to comply. Will need clarification on definition of ‘due diligence’.
- Background on the Aboriginal payments piece: June 2013, the GOC indicated that its transparency framework would include disclosure of payments made by Canadian extractive companies to Aboriginal groups in Canada The Working Group did not include this element of disclosure in its framework The PDAC and MAC advocated for a phased approach to the issue of payments to Aboriginal groups – to allow government time to consult with Aboriginal people and industry The GOC announced it intended to delay the application of the transparency legislation to Aboriginal payees for 2 years, as outlined in the “Transitional Provisions” section of the legislation shown here
- While supportive of transparency, concerns were raised in relation to the inclusion of disclosing payments made to Aboriginal groups: Impact on agreement terms by either (a) pushing the bar higher or (b) hope that transparency might assist in “managing expectations” by levelling the playing field Risk of industry (and PDAC ) getting caught in the middle between government and communities Industry needs to have an opinion on some important questions that the Government will be developing answers to over the next six months; there will not be another, separate process (in the future) for working out these issues (it’s now or never).