Contributed by CNCA member Claire Woodside of PWYP; published on Engineers without Borders TRACE blog.

When you think about transparency day in and day out, as I do, it is easy to get focused on the nitty gritty – why we need project and country level disclosure of information, what comprises a good definition of ‘project’ and so on and so forth[1] – and forget about the big picture.

But transparency is not some small thing, some side project; it is at the heart of a troubling development problem: the resource curse. Natural resource development is often accompanied by promises of job creation, new opportunities for local businesses, and increased funds for cash strapped government coffers. Unfortunately, in too many cases, these are empty promises.

It is often said that at the heart of this conundrum is the government’s inability to translate mounting resource revenues into development and growth. This may be true, but often the system breaks down before the government even receives the revenue: critical payments go missing, inefficiencies in the tax collection systems allow funds to slip through the cracks, and provincial governments fail to receive their promised share of resource revenues.

Before we can ask how governments are spending natural resource revenues (and whether those revenues benefit citizens), we first need to know how much money governments are (or should be) getting.

So, what can extractive companies do?

Well, as part of their corporate social responsibility (CSR) strategy, they can disclose the payments they make to governments or support the voluntary Extractive Industries Transparency Initiative (EITI). When companies, such as Rio Tinto and BHP, voluntarily make their payments to government transparent, they allow stakeholders – citizens, subnational governments, parliamentarians, and civil society organizations – to scrutinize how these revenues are distributed and spent.

But the thing about voluntary disclosure is that it is ad hoc. Companies might disclose data one year but not the next, they might disclose payments to countries or governments without specifying to which extractive projects those payments are attached (Such as Rio Tinto or BHP), or perhaps disclose only payments to some governments but not to others. The result is a hodgepodge of information that fails to fulfill the needs of citizens and governments.

Mandatory reporting standards are the only way to get the information we need.

Creating a law that requires extractive companies to disclose payments to governments creates a level playing field for companies, while providing citizens with the information they need to hold their governments to account. Most important, it prevents the world’s most corrupt governments, in places where the ‘resource curse’ is most likely to be endemic (such as Equatorial Guinea), from resisting transparency. This type of law can even provide investors with new data to help their analyses.

Recently, the Canadian mining industry decided to get behind this idea and support mandatory transparency. But not all extractive companies are that progressive. In the oil sector, companies are investing millions of dollars to fight mandatory payment transparency standards in the US; all while proclaiming their support for those that are voluntary.

The oil sector’s concerns about disclosing payments to governments exemplifies why mandatory standards are even more important. As Canadians, we don’t want an extractive industry that promises development and actually keeps citizens in the dark. The mining sector gets this. So do the Americans and the Europeans – both jurisdictions have passed laws that require extractive companies listed on stock exchanges in their countries to disclose payments to governments. The Canadian government also gets this, because now they have promised to do the same.[3]

With nearly a third of the world’s oil companies and close to sixty percent of the world mining companies publicly listed in Canada, our country making payment disclosure mandatory is critical to global transparency.

Such a law will help governments in over a 100 countries fulfill the promises they make to their citizens: that those revenues from a mine or an oil field will improve their live. Even more importantly, it will allow citizens to hold governments to account for those same promises!

[1] The form of transparency is very important to make sure the information disclosed is useful to citizens, local governments and investors. For example, if a company does not report payments to government by project, than the citizens and local governments cannot claim their share of those payments (in some cases the central government may be legally required to distribute revenues to impacted regions). In addition, it is important that companies use a standard definition of project, otherwise it difficult to compare reporting across jurisdiction.

[2] Rio Tinto discloses taxes paid by country and level of government, but not by project; BHP discloses taxes and royalties lumped together and provides the information on a country-by-country basis.

[3] The EU also requires that private companies disclose payments to government