Conference on Contracts Reveals New Goal for Transparency Movement

By Kathryn Joyce, Revenue Watch Web Producer

	Prof. Jacqueline Weaver, Curtis Frasier and Susan Maples discuss contracts transparency Photo: Oxfam America

On September 23, as a bipartisan group of U.S. senators introduced legislation to broaden disclosure of international extractive industry payments, more than 200 activists, policymakers, industry representatives and government officials gathered for a conference that may herald a new stage in the global movement for natural resource transparency and accountability. The event marked the release of Revenue Watch's report Contracts Confidential: Ending Secret Deals in the Extractive Industries, which challenges most of the common objections to openness in extractive industry contracts.

The International Conference on Extractive Industries Contracts was jointly sponsored by the Revenue Watch Institute, Oxfam America, Publish What You Pay-US, and several other NGOs active in the movement to facilitate openness, good governance and sound revenue management in the extractive sector. With an ambitious scope and a diverse audience, the day-long discussion brought a range of diverse actors into the fight for extractive industry justice, all seeking to understand the influence of natural resource contracts on their fields of action.

Contracts transparency is a new horizon for transparency activists and many attendees said that the meeting offered a glimpse of the movement's future. Despite steady progress on extractive industry governance, disclosure and revenue management, many advocates have considered more contract disclosure an unreachable goal. For years, companies and governments have resisted sharing extractive contracts on the grounds of commercial sensitivity and trade secrets. However, this secrecy—which RWI's report concludes is usually unwarranted—has enabled sophisticated forms of corruption and poorly-negotiated deals to continue outside public scrutiny. Creating a standard of contract transparency could both prevent bribery and corruption and allow indispensable civil society oversight on the use of natural resources, helping governments secure the most advantageous contract terms for their countries and ensuring that extractive revenues are used for development.

"These natural resources are finite and belong to the people," said Sarah Pray, coordinator of Publish What You Pay-US. "If a government is selling natural resources, they should be doing so in the best interests of the people. We don't know if that is the case in a lot of countries, because we don't have access to the contracts."

Several recent developments made the conference a timely call to action. This year two countries took strides towards greater disclosure, with Ghana announcing its decision to publicly disclose all present and future oil industry contracts, and Liberia passing a transparency act that includes a pioneering requirement that companies release their contracts for public review.

Revenue Watch published two reports on contracts in 2009: Getting a Better Deal from the Extractive Sector: Concessions Negotiation in Liberia, 2006-2008, a study of Liberia's successful renegotiation of flawed mining and rubber contracts, and this fall's Contracts Confidential: Ending Secret Deals in the Extractive Industries, by RWI Legal Fellow Susan Maples and Columbia Law School Professor Peter Rosenblum. The new report examines government and private sector objections to contract disclosure and finds that, despite claims about competition and trade secrets, there are few legitimate reasons to conceal contract details.

Karin Lissakers, Director of the Revenue Watch Institute said, "What our study reveals is that, while companies or self-interested governments may find it easier to profit under the cloak of a secret deal, public suspicion has its own high costs, for investors and elected officials. Contract transparency gives governments the tools to learn more about getting a better deal, and gives citizens the information they need to ask the right questions."

Broad Civil Society Participation

The civil society groups attending the conference represented a wide array of backgrounds, including social justice advocates focused on issues from the environment to gender, and a number of civil society and government staffers from several African nations and Cambodia.

Report co-author Susan Maples said that the diversity of participating groups indicated a critical mass of interest. "One of the things that this conference proves," Maples said, "is that the NGO community now sees these technical issues as urgent human rights issues, and are no longer afraid of those complex deal structures or the fiscal regimes."

"This conference will kick off a new generation of advocacy on this issue," said Sarah Pray. For years, she explained, civil society has considered the issue of contract access to be out of reach, limiting its demands to information companies were more willing to disclose, such as revenues. But with civil society demands for transparency on the rise, Pray sees the emergence of a more holistic movement that will focus on accountability from the point of discovery and contracting all the way to expenditures and budgeting for development.

Samuel Nguiffo, Secretary General of Cameroon's Center for Environment and Development, said contracts transparency is critical for Cameroon, which currently has more than 100 active extractive contracts. "If you talk about corruption, if you talk about the resource curse, the roots of that structure [are] contracts," said Nguiffo. "The discussion is very often secret. Nobody knows when it happens; nobody knows the content of the contracts. But what is written in the contracts will be binding for the states for 25 or 30 years."

Ian Gary, Senior Policy Advisor at Oxfam America, said that while the day's discussions outlined a broad agenda, the Contracts Confidential report is particularly important for rebutting the most common arguments for confidentiality. "If we can design advocacy strategies to get more contracts out in the public domain, in country cases and even changing standards at international financial institutions, then I think we can get past the habit of being secretive," Gary said. "And once you create more disclosure, people see that the sky doesn't fall and business continues."

Industry "Paranoia?"

However, in mapping the way towards broader contract access, the conference revealed many questions and tensions, over issues such as whether and when a country's legal framework should outweigh specific contracts; the role of stabilization clauses in developing nations; the boundaries of what information can legitimately be kept confidential; whether companies and countries can simplify contracts; and the roles of low government capacity and of habit in maintaining contract secrecy. 

Opening the conference, Gary noted that the first oil contract signed in the United States was one paragraph long. The brevity and simplicity of older contracts is a marked difference from today's 100-page, highly complicated deals. Activists such as Corrina Gilfillan, Director of Global Witness's Washington, D.C. office, have called for a return to agreements that are more comprehensible to a non-expert public.

"It seems to us that big oil companies like complicated contracts because they're very good at negotiating," Gilfillan said during a panel discussion on pre-contract activities such as bidding, licensing and negotiation. Gilfillan imagined a new industry standard in which simpler contracts are enforced by international monetary organizations and accepted by companies as a cost of doing business. "Corrupt payments can be hidden in the nooks and crannies" of a contract, Gilfillan said. "Fewer moving parts gives less reason for grease."

Curtis Frasier, General Counsel for Shell's Upstream Americas, disagreed with Gilfillan's assessment. Frasier, speaking on a panel about confidentiality clauses, defended the need for contracts' complexities. "We're kind of complicated companies. We're citizens of 100 different jurisdictions," Frasier said. "There's a perception that international oil companies are these Western companies that parachute into developing countries and steal all their oil and sneak out in the middle of the night and enrich themselves and leave [the countries] impoverished. It's just too simplistic."

Several other representatives from the extractive industry were present at the conference, including staff from Uganda's Tullow Oil, Exxon, and DeBeers, Inc. Like Frasier, most of these participants sought to highlight the transparency practices that industry does support, such as the Extractive Industries Transparency Initiative, while remaining circumspect on contract transparency. Some argued that contract negotiations often entail more complicated provisions than citizens and NGOs can appreciate, including the costs of research and development or safety measures that can mitigate lower immediate payouts.

At the end of the day, Frasier said, many international oil companies are wary of being the first to voluntarily divulge their contracts out of fear that doing so will lessen their competitive advantage. "We're all a bunch of paranoids in the oil industry," Frasier joked. "That's why we tend to want to do things all together. It's hard to sustain the approach that if you do better, people will follow."

Habits of Secrecy

Several civil society participants suggested that the comments from industry reflected an outdated approach, and that company representatives did little to address the sector's demonstrated resistance to contract disclosure on the grounds of confidentiality clauses: the subject of Contracts Confidential.

Report co-author Peter Rosenblum said that, for many extractive industry companies, resistance to disclosures is largely a matter of habit. Citing the contracts reviewed for Contracts Confidential, he said that most agreements include very few matters of genuine commercial sensitivity that justify secrecy.

Susan Maples added that it's important to consider the origin of such habits. "I believe you have to ask where that habit came from and why it persists," she said. "I think it's undeniable that at some point contract confidentiality was economically beneficial to companies and corrupt governments, but broad interest in this conference indicates is that the balance is starting to tip. As the pressure increases, all parties will find it's more costly to keep contracts secret. Once people see that hiding information is the expensive option, I imagine they'll find a way to break the habit."

Confidentiality itself may ultimately be relative in this field. Houston Law Center professor Jacqueline Weaver described how she analyzed financial disclosures that were already public to deduce the terms of oil contracts in Uganda, despite the government's refusal to provide them. Likewise, it's not uncommon for contracts to be available to outside parties, particularly rival companies who may obtain competitors' contracts through lawyers, online reference sites or informal requests. Harvard Business Professor Lou Wells said companies coming into a country almost always know the terms of that country's previous deals.

Governments, conversely, rarely have the benefit of information on companies' prior contracts, which leaves a great imbalance between negotiating parties. As for the people inside a country, Peter Rosenblum said, "they're typically the last to know. The gaps in who has access, who knows, who has competence, is so tremendous it can't be overestimated." 

A Question of Government Capacity

In some cases, governments are more wary of disclosure than companies, as was apparently the case in Uganda's recent contract with Tullow Oil, a major player in the country's emerging oil sector. Rosalind Kainyah, Tullow's Vice-President of External Affairs and Corporate Social Responsibility, said that she was surprised by Uganda's secrecy about the contract, since its terms are highly beneficial to the nation, and the government would likely benefit by disclosure.

While corruption and bribery have certainly been problems in many areas of the extractive industry, other speakers suggested that resource contracts often suffer more pedestrian problems, such as officials' lack of capacity to work through contract specifics, or bureaucrats' wariness of disclosing contracts the public has a right to see. Several participants suggested that often governments are simply too embarrassed by the poor contracts they have negotiated to willingly share them with the public.

Humberto Campodonico, a veteran transparency advocate, said that contract transparency has long been a topic of discussion in Peru, which has an admirable record of contract disclosure, but that the practice is only now being embraced on a global level. However, said Campodonico, greater disclosure is just a first step towards good resource governance. "You can have a contract that's transparent, that is published, that everybody knows what it is," he said, "but is very bad for the country, because the oil profits are 5% for the country, and 95% for the oil company."

"Governments can't compete," said Raja Kaul of the United Nations Development Fund during a panel on pre-contract negotiations. "They're overextended: running the government and the country and then asked to compete against 'blackbelts.' Ministers are generalists, not specialists, whereas companies have experts in each issue."

Such was the case in negotiations around Liberia's disastrous 2005 ArcelorMittal steel contract, according to Liberian Senator Franklin Siakor. The contract, which was found to contain significant flaws, exemplifies countries' inability to defend public interests against better-trained counterparts. "The legislators are inadequately trained," Siakor said, "because they don't have enough money for professionals, and they make use of law students instead. With that level of staff, you can't argue much about what professionals  put before you." In some cases, other panelists suggested, governments also fail to make use of the legal expertise within their country's own private sector.

However, Rosenblum cautioned, training alone is not a full solution, since the individuals who get trained often leave government for the private sector and a secretive status quo gives governments little incentive to improve negotiation capacity. The specter of public disclosure, on the other hand, might compel governments to work harder and obtain the help they need to secure a good deal. The most important step in building capacity, he said, may be the threat of disclosure: "that your work is going to be publicly available and citizens can see it."

Forging a New Link in the Value Chain

Panelists from countries that are embracing contract transparency, such as Peru, Liberia and Ghana, provided valuable insights for activists in countries still working to gain access to contracts, including a warning from Camponico. While access is a boon to the public, said the economist, it does not automatically translate into better civil society representation at the negotiation stage.

Senate staffer Nilmini Rubin gave an encouraging update from Capitol Hill, where new transparency legislation was introduced that day in the Senate Committee on Foreign Relations. The Energy Security Through Transparency Act would require all foreign and domestic companies listed by the Securities and Exchange Commission to disclose their extractive industry payments to governments. Rubin said that with bipartisan backing already in place, the ESTT Act stands a good chance of becoming law. "The resource curse is a problem with a solution" she said. "We just have to implement it."

This renewed congressional action reinforced the underlying message throughout the conference: The movement has grown in size and scope and civil society has grown in sophistication in explaining the long-term development costs and benefits associated with extractive contracts. Looking ahead, Peter Rosenblum said that, ideally, contracts may someday "mean very little...they'll become like Peru, where there will be highly scrutinized model contracts with little variation."

Commonplace transparency for contracts would be a great leap towards broader natural resource justice, where an empowered public is able to oversee and protect its own best interests through decision-making about mineral wealth. With the increasing acceptance of the need for contract transparency, this influential stage in extractive sector management is becoming a permanent part of the value chain, demanding consideration and scrutiny alongside all other stages of the extractives process.

"All of us were heartened by the depth of participants' interest, and particularly by the range of industry, government, legal and civil society professionals who came to this conference," said Revenue Watch director Karin Lissakers. "It's a good sign that members of all of these sectors wanted to come—or felt they had to. Contract transparency will come only if all these groups work together."

LEARN MORE

• AUDIO & AGENDA: International Conference on Extractive Industries Contracts (Oxfam America)
• REPORT: Contracts Confidential: Ending Secret Deals in the Extractive Industries