European leaders must take this golden opportunity to tackle corruption

Bishop Munga speaking at the European Parliament

By Bishop Stephen Munga

I came to the European Parliament in March this year as part of Tearfund’s Unearth the Truth campaign to ask MEPs to pass strong transparency legislation.

Today they sent a very clear message in the vote on the Accounting and Transparency Directives. The Legal Affairs Committee, under leadership of MEPs Klaus-Heiner Lehne and Arlene McCarthy, has insisted that project level reporting by extractive industry companies is the only way to produce meaningful information. Their proposed payment threshold of 80,000 euros is also welcome, as is the removal of all possible exemptions. This means that Europe is matching the US and we are moving towards a global standard. We are entering a new season as the benefits of transparency are now recognised at a global level.

Now the only stumbling block to effective legislation being passed in Europe is resistance by the Council and the Commission – under pressure from businesses who still want to keep certain payments hidden from us. This must not be allowed to happen. Commission and Council proposals still exclude project level payments and have payment thresholds at 500,000 euros that would produce meaningless information. Incredibly, they still entertain the idea of exemptions, allowing corruption in through the back door. Over the next few months as they come to a final position, they have the chance to change this and show they are serious about leading the way on transparency.

The information that is produced by extractive companies reporting their payments at project level will enable the communities I work with to know what money is being paid for the resources extracted from their land, and to be able to hold the district and national governments accountable for their use.

In the rural areas, Tanzanian citizens already have experience of monitoring government expenditure on issues such as health and education and we have seen a reduction in funds that have been diverted, and even some stolen funds that have been recovered. This means that more resources are available for vital development projects.

I call on European leaders to pass legislation that will support our efforts to empower citizens and not to miss this golden opportunity to work with us to combat corruption.

TrustLaw interviewed Bishop Munga in March about his campaign to increase resource transparency in Tanzania and the rest of the world. Click here for the full interview.

Bishop Stephen Munga is a member of the working group of the Tanzania Extractive Industries Transparency Initiative and chair of the Interfaith Standing Committee of Tanzania. He travelled to the EU with Tearfund as part of the Unearth the Truth campaign.

Originally posted on Reuters Trust Law, http://www.trust.org/trustlaw/blogs/anti-corruption-views/european-leaders-must-take-this-golden-opportunity-to-tackle-corruption

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A bright day in the fight against corruption

New transparency rules published by the US Securities and Exchange Commission (SEC) yesterday are a significant step forward in the fight against corruption and will benefit many communities where Tearfund works. We welcome this move, although we all need more time to plough through the 232 page document.

The Dodd Frank Act (Section 1504) will mean that communities will have information in their hands about payments by companies to their governments for oil, gas and minerals that have been taken out of their ground. This will help them to seek greater accountability and to make sure that it is used for the most pressing needs such as education and health services.

In Tanzania, where vast reserves of gas have recently been discovered, and could potentially bring in billions of pounds of government revenue, these rules will enable ordinary citizens to know how much US-listed companies are paying to their government. Furthermore, with similar legislation proposed by the EU and pressure for countries such as Canada and Australia to follow suit, most extractive industry companies in Tanzania will soon need to provide such information.

On the ground, work by Tearfund partner CCT has shown that when villagers have the right information about projects that directly impact on their lives, they will mobilise and make sure the money ends up where it should. This is positive both for greater citizen participation and strengthening of democracy as well as for combating corruption and using vital resources for development.

Big step forward, but what’s in a project?

Although delayed by two years, these rules are a historic move towards greater transparency in both industry and government.

They require companies to report on payments on a country-by-country and project-by-project basis and include a wide range of payments such as taxes, royalties, production entitlements and bonuses. They also require companies to report on all payments above $100,000 and have resisted company pressure to include any exemptions (p162). This will make a significant difference.

Although we are concerned by the lack of clear definition of ‘project’ – something that could cause confusion at the time of reporting – the rules nevertheless provide clear guidance that equates ‘project’ with contracts, arguing that “contract generally defines the basis for determining the payments… that would be associated with a particular ‘project’” (p86). This point should not be overlooked, especially as in its reasoning the SEC flatly rejects company arguments that projects are defined as countries, geographical basins or simply internal reporting units.

The EU must match the US and go further

The EU has the chance to match the US regulations and to go further, particularly by defining project more clearly and by providing a lower level of materiality that will provide more meaningful information to communities.

EU Transparency and Accounting Directives are on track to be agreed by the end of the year and could pave the way for a global transparency standard and show EU leadership and commitment to development and responsible business.

The priority is for the EU legislation to define project as based on lease, licence, agreement or other form of contract that gives rise to payments to governments. This will show where the money has come from and where it has gone to.

There should be no exemptions (as there currently are in the Commission proposal) and the EU should consider a materiality threshold of £10,000, so that all relevant payments are reported.

The UK government has taken a lead in Europe and must continue to do so. MEPs are on the whole in favour of strong legislation, but there has been pressure from companies and from some other governments to water it down. This must not be allowed to happen or communities will continue to see increased natural resource extraction with few benefits.

Can Tanzania break their deadlock on Olympic gold?

Tanzanian runner Samson Ramadhani is aiming for gold in the men’s marathon on Sunday, but the 2006 Commonwealth Champion is up against stiff competition in a discipline that East Africans have dominated since Abebe Bikila of Ethiopia won barefoot in 1960 – then repeated the feat (with shoes) four years later. Kenya are current champions when Samuel Wansiru smashed the Olympic record in Beijing.

Samson Ramadhani, Commonwealth Champion 2006

However (tenuous link from Olympics to mining), it may be better for Tanzania that they don’t bring gold home as the promised benefits have not always come to bear from this precious metal.

Gold mining has been intensive since the start of the 1980s and global companies such as African Barrick Gold (Canada), Ashanti Gold (South Africa) and Resolute mining (Australia’s third largest gold producer) own or have significant shares in the mines. According to the latest EITI report, gold accounts for almost two thirds of mineral production and exports earned these companies $1.076 bullion in 2009.

But in the same year Tanzania only earned $57 million from mining royalties.

What can be done?

This is something that is currently being addressed and there are some encouraging developments.

A new Mining Act was passed in 2010, which increases gold royalties from 3-4% and calculates payments based on gross as opposed to net revenues. This could double annual royalties to the Tanzanian government. However (in what is known as a grandfathering clause), the royalties only apply to new contacts, so the challenge is to get companies with existing contracts to move to this new regime. This is not just a pipe dream as one company has already done so. Others must now follow suit.

Secondly, the latest EITI report from May this year (pp20-21) includes vital information such as production volumes, which will enable the Tanzanian Revenue Authority to verify that companies are paying the right amount of royalties on the amount of minerals extracted. The report also includes details of direct payments to local governments as well as payments according to specific projects, which will allow local communities to track payments and ensure that the money ends up where it should and contributes towards development.

Many challenges still remain, as Bishop Munga, member of the EITI Multistakeholder Group told me:

“We still need increased transparency in contracts and licences, information broken down according to all projects and the material presented in a way that local communities can understand and engage with.”

These will need to be addressed in subsequent reports and should be covered in a new EITI law that is planned for next autumn. Tearfund, as part of the Publish What You Pay Coalition, is calling for proposed changes to EU Transparency legislation to address these issues and make sure that the information about payments is relevant and useful to local communities.

However, by far the biggest challenge – and opportunity – comes from elsewhere.

Gas boom

Vast reserves of off-shore gas have recently been discovered, with estimates at 28.7 trillion cubic feet of gas reserves, which, according to the UK government, is more than known UK reserves.

This is predicted to lead to a rapid growth in this sector over the next ten years, potentially bringing in revenues of billions of dollars.

Various licences have already been granted for gas and oil exploration, including to the UK’s BG Group, Ophir Energy, Royal Dutch Shell, Irish exploration firm Aminex Plc and Brazil’s Petrobras.

One government official I spoke to sounded a warning bell about the future:

“Everybody understands that we made a mistake when we entered into agreements with the mining companies in that we provided incentives that were too generous. For oil and gas we need to negotiate a better deal for Tanzania.”

There is the chance to get a better deal for Tanzania, but the window of opportunity is small – maybe only a few weeks.

Tanzania has no current gas laws in place. There are plans to produce a new framework policy in September this year. At the same time the government is also keen to press ahead as quickly as possible with exploration and exploitation, as next month they also plan to launch a new licensing round in Houston, Texas.

Energy and Minerals Minister Sospeter Muhongo has gone on record to say that the new law would increase royalties on gas production from 12.5 percent to an unspecified level and the new signing fee would be introduced. These developments are to be welcomed, but are not enough.

Civil society groups that I met on my trip last month highlighted key issues such as the need for contract transparency on all new licences, including a debate in parliament before approval. In this way ordinary Tanzanians can see if they are getting a good deal for the oil and gas that is extracted.

There also needs to be more attention paid to how the oil, gas and mining industries can bring greater economic benefits to local communities – not only though the direct revenue payments but through supporting Tanzanian businesses as service providers – local economic linkages.

Tanzania may not be bringing any gold medals home, but they still have a chance to win a medal for their gas industry. Will they do it? In four years time at the Olympic Games in Rio, we will have an answer, but the hard work needs to start now.