1. Contracts, Licensing and Beneficial Ownership
Rob Pitman
Edna Osei
Thanks for the introduction Ines.
This session will join together the issues of contracts, licensing and beneficial ownership. In doing so I hope to be able to show you ways that you can make an impact in these areas as part of your EITI implementation.
The structure is as follows:
-- First I'll frame the issues
-- Then I'll talk through the relevant EITI requirements in turn.
-- Finally, We'll move toward group work, which will be lead by Edna.

2. Looking at the start of the EITI value chain
This work is critical because it is the first step of the

3. Open contracting
Licensing, beneficial ownership and contracts are all brought together under the idea of open contracting.
Open contracting is about publishing and using open, accessible and timely information on government contracting to engage citizens and businesses in identifying problems, fixing them and improving results.
It's about doing this across the whole contracting chain

5. Savings of c. $1bn+
1000s of new suppliers
Corruption perception decrease (54% to 29%)
CSO feedback: 133K users

6. What open contracting isn’t!
… “so-called “contract transparency” or “open contracting,” under which oil and gas contracts would be negotiated in a kind of public-utility framework whereby groups other than the parties themselves would have seats at the table and pass judgment on contract terms”.
… “so-called “contract transparency” or “open contracting,” under which oil and gas contracts would be negotiated in a kind of public-utility framework whereby groups other than the parties themselves would have seats at the table and pass judgment on contract terms”.

7. & what it is Multi-stakeholder collaboration Constructive engagement
Disclosure tools and feedback mechanisms
Making sure the best company is allocated resource rights, under a deal which is fair and fully enforced

8. Open contracting in EITI
Requirement 2.2 License Allocations
Requirement 2.3 Register of licenses
Requirement 2.4 Contract disclosure
Requirement 2.5 Beneficial ownership

9. License Allocation

10. Two concerns: Are we selecting the best companies?
Technical and financial capacity to do the job
Good neighbor
Are we minimizing potential mismanagement through corruption or conflicts of interest?

11. How EITI reporting can help..
Requirement 2.2 License Allocations. For all awards or transfer of licenses:
Description of the process
Technical and financial criteria used
Information about recipients
Any non-trivial-deviations from applicable legal and regulatory framework.

12. Describing the Licensing process
Competitive vs first-come-first-served?
Timeline / rules of the game?
Where competitive process (2.2c):
Bid criteria
List of applicants
Bid report

13. NSW - Common Ground

14. Mexico hydrocarbons – Advanced Award Website
Publishes agendas of meetings in which award decisions are made
Webcasts award through stable connections
Two minute videos explain all decisions made

15. Any non-trivial-deviations
Starting point is to check the overall rules for license allocation processes, including technical and financial criteria.
Are you able to access these rules?
Were these followed?
If not, what were the reasons for the deviations
But these might not be the only applicable criteria to consider.

16. Deviations may exist regarding anti-corruption provisions too
More than 50% of oil/mining laws in a recent NRGI review contained prohibitions on government officials/close associates (aka PEPs) holding interests in companies applying for extractives licenses
But none required regulators to actually check whether or not such PEP interests existed as part of screening license applications.
Risks of these relationships:
Real or perceived conflict of interest that can undermine the legitimate public goals or performance of the award process and diminish public trust.
License gives the PEP a longer-term vehicle for siphoning off funds that should benefit the public.

17. Sample anticorruption provision
Article 10. …No public servant or public servant employed in the Public Administration, no agent of State-owned enterprises and no agent of a majority public financial holding company may hold a direct or indirect interest in a mining activity, a mining title or beneficiary of an authorization.
Article 11. Members of the Government, officials of the Mines Administration, and all officials and agents of the State having a role in the management of the mining sector may not take direct or indirect financial interests in mining enterprises and their direct or indirect subcontractors, within five (5) years after the termination of their duties.
– Côte d’Ivoire 2014 Mining Code

18. Beneficial ownership & PEP disclosures
Requirement 2.5 Beneficial ownership and PEP information for corporate entities that:
Apply for, or
Hold a participating interest in
extractive assets.

19. Using BO/PEP information to evaluate licensing processes
Does BO/PEP information reveal any violations of prohibitions on PEP ownership or other anti-corruption provisions in law?
Does BO disclosure suggest that the company has engaged in collusive or anti-competitive behavior? (E.g., multiple companies with the same beneficial owner apply for the same license or contract.)

20. Way forward Using BO/PEP information in licensing screening:
Set rules to limit certain BO/PEP linkages that create clear corruption risks
Collect BO/PEP information in license application process
Screen out license applications where BO/PEP disclosures reveal manifest accuracy or corruption problems
Use BO/PEP information as part of broader licensing monitoring, including evaluating non-trivial deviations from licensing rules

21. Contracts and licenses

22. Basic information
Requirement 2.3 Register of licenses. maintain a publicly available register or cadastre system(s) with the following timely and comprehensive information:
License holder
Coordinates of license area
Date of application, date of award and duration of the license
Commodity being produced (production licenses)

23. Cadaster mapping system
Best systems present open data:
Openly licensed
Machine readable
Well organized

24. More advanced – disclose contracts
Requirement 2.4 Contracts
Encourages public disclosure of contracts
Requires reporting on
government’s policy on contract transparency
information about contracts in the public domain
information on planned reforms.
Where applicable, an overview of the contracts/ licenses that are publicly available, and include a reference/link to the location

25. Some EITI requirements cannot be met without contracts
Requirement 4.3: Infrastructure provisions and barter arrangements.
“the multi-stakeholder group and the Independent Administrator need to gain a full understanding of: the terms of the relevant agreements and contracts, the parties involved, the resources which have been pledged by the state, the value of the balancing benefit stream (e.g. infrastructure works), and the materiality of these agreements relative to conventional contracts”
Same applies for requirement 6.1: Social expenditures by extractive companies.

26. What contracts are we talking about?
Make it clear that we’re mostly interested in state-investor contracts – in yellow

27. Scope of contractual information varies by country
Everything in
contracts
Everything in
law
Most countries are
somewhere in-between
Contract-Law continuum

28. Benefits 1: A fully transparent legal framework
Often secret
Project level-agreements
contracts / licenses / permits
Regulations
Almost always public
Legislation
Constitution

29. Benefits 2: Making sure the rules in contracts are followed
Company rights to natural resources
Operational and production commitments
Fiscal terms, including taxes and royalties
Worker health and safety
Social obligations, including infrastructure, local content and consultation
Stabilization clauses
Environmental obligations

30. Benefits 3: Better deals
Adds ex post accountability
Changes psychology resulting in more durable terms
Helps balance informational asymmetries between companies and governments

31. Emergence of the norm
2007
2009
2010
2011
2012
2013

32. EITI Review of 23 countries: December 2014
Based on aggregated results for mining and petroleum sectors

33. NRGI Review of 52 jurisdictions: December 2016

34. Over half of EITI countries disclose
29 disclose at least
some contracts
or licenses
51 countries
+1 subnational government
23 do not
disclose contracts
or licenses

35. # of countries with laws requiring disclosure over time

36. How to help? 1. Do the required reporting
Common problems included:
failure to report reforms
failure to provide an overview of contracts or licenses in the public domain, or provide links/references

37. 2. Forum for debate
Standard allows space for multi-stakeholder discussion
Mongolia EITI WG removed confidentiality clauses from model PSA
Myanmar discussions led to key recommendation in EITI report

38. 3. Facilitating disclosures
EITI processes play an instrumental part in making disclosure happen
Philippines: establishment of a working group to review content of contracts
Colombia: Civil society requests answered by government

39. 4. Disseminate contracts
National EITI websites host disclosed contracts:
Chad
Republic of Congo
DRC
Liberia
Philippines
Senegal

40. Joining up information

41. Mexico as a leader Environmental documents Not Beneficial Ownership
Local content & procurement
Ambitious program by Mexico’s National Hydrocarbons Commission (CNH):
Joins up information on contract pages
Civil society monitoring group
Competition was high & 45 new oil companies working in Mexico (despite low oil price)!
Full Text
Contract
Download

42. Resourcecontracts.org
‘Free’ resource supported by NRGI, CCSI and the World Bank, so no excuses for not adopting it!
Full texts of contracts etc with searchable metadata, tags & annotations
Country specific portals now in Sierra Leone, Guinea, Philippines, DRC, Mongolia

43. 5. Supporting legislative change
Ghana: Petroleum Act and regulations
Liberia: Sector transparency laws

44. 6. Advancing understanding
For public contracts to contribute to strengthened governance they must be used
Liberia EITI has prepared a simplified matrix for 30 contracts
Republic of Congo: Capacity building workshops

45. Browse the report

46. Group Work

47. In your groups discuss the following questions
Licensing:
Are stakeholders in your country concerned about any potential non-trivial deviations in licensing processes? How could EITI disclosures help monitor these?
Are there legal restrictions on government officials/associates holding extractives rights in your country? How could EITI disclosures help monitor these?
Contracts and licenses?
Is your cadastre system open? How could EITI disclosures help increase transparency?
Are contracts public? If so how are you using them? If not what is the barrier to publication? How could EITI disclosures help increase transparency?

48. rpitman@resourcegovernance.org eosei@resourcegovernance.org
Thanks!