EU transparency rules tougher than expected

Written by The Financial Times | Updated: Oct 26 2011, 05:34am hrs
By Alex Barker in Brussels

European companies will have to reveal how much they pay governments in individual oil, gas, mining and logging projects under Brussels proposals that go further than expected in strengthening transparency rules.

Michel Barnier, European Union single market commissioner, will unveil plans to make mandatory a breakdown - on a project by project basis - of all outlays to state authorities, dashing industry hopes for a less stringent regime.

The broad thrust of the European Commission reforms - which covers money flows ranging from fees and royalties to tax settlements with governments around the world - broadly fits with similar US measures, introduced under the Dodd-Frank Act.

However, according to officials familiar with the plan, Brussels is going further than Washington by extending the scope of the rules to forestry groups and big unlisted companies, which are currently exempt from US provisions. To come into effect, the Commission proposal need to be endorsed by the European parliament and EU member states.

Advocates argue that shining a light on transactions with governments is an important step towards tackle the "resource curse" in continents such as Africa, where an abundance of natural resources in some countries appears to have set-back good governance and economic development.

However, executives complain that such rules, while well intended, are an overly intrusive burden on business that exposes commercially sensitive information and hurts the competitiveness of European companies against their Chinese competitors.

Many groups in the extractive materials sector already voluntarily disclose details of some payments under the Extractive Industries Transparency Initiative, a global public-private coalition pushing for fuller disclosure of transactions between resource companies and governments.

European officials argue that requiring project level information puts the public in a better position to asses whether the payments related to exploiting a natural resources represents "adequate value" to wider society or the government involved.

But executives argue the mandatory EU rules are rigid and impractical. Peter Voser, chief executive of Shell, warned in March that Dodd-Frank-style disclosure laws could "destroy" the good work of EITI by violating national laws in countries like Qatar, where disclosure of such information is illegal.

Mr Barnier had sought to soothe these concerns earlier this year by signalling that the proposals would be sensitive to issues of competitiveness and only require companies to publish a figure aggregating all projects within a certain country.

But the commissioner has since been convinced that stricter measures will have limited impact on businesses competitiveness and not to a sufficient level of detail that will jeopardise commercial confidentiality.

A review clause is included in the proposal and the reporting applies to projects where companies have already attributed costs, so no extra work is required before disclosure, according to people familiar with the rules.

The cause of transparency has been promoted for several years by the likes of George Soros, the philanthropist and financier, Mo Ibrahim, a telecoms billionaire, and Bono, the rock star and U2 front man.

The Financial Times Limited 2011