In late March, Oil & Gas Journal editor Bob Tippee spoke to a gathering of the Gas Processors Association (GPA) on the necessity of renewing a once-vibrant corporate conversation on the concept of the extractive industry's "license to operate." In an eloquent call to action, Tippee noted the important role that the Revenue Watch Institute has played in maintaining an emphasis on transparency in extractive industry contracting. Praising the insights of recent RWI report Contracts Confidential, Tippee exhorted GPA members to open their contracts up for public oversight, and transform them from objects of secrecy into vehicles for building trust.
Since the globalization of the energy industry, many international petroleum corporations have acknowledged that extractive deals are more complex than the contracts that govern them—and that public opinion regarding the fairness of those relationships is as important as legal determinations. As the oil and gas industry began to court developing nations rich in natural resources, Tippee explains, an awareness grew of the so-called "the resource curse": the paradox by which natural resource wealth doesn't always bring increased development, but often translates to increased poverty, conflict and corruption. Subsequent to economists' discussion of this concept, as well as increased efforts to fight international corruption, a handful of companies began to consider what a holistic "license to operate" could mean.
However, in recent years, a number of factors have dampened this conversation, from the increased competitiveness of developing nations' national oil companies, to setbacks in the anticorruption and transparency movements, to the lesser role of antiglobalization activism that prompted many international corporations to defend their operations.
But, "If anything," Tippee notes, in a climate of increasingly complex international energy deals, "the topic is more important than ever." Key to reviving the discussion on the license to operate will be a new benchmark that places the good of a host country's entire population as the measure of success, and a new commitment to transparency.
Chief among resources for an industry commitment to transparency, Tippee recommended Revenue Watch's 2009 report, Contracts Confidential: Ending Secret Deals in the Extractive Industries, co-written by Susan Maples and Peter Rosenblum. This "balanced and reasonable" study of the effects of contract confidentiality clauses convinced Tippee that companies can and should "refine international contracts to allow more light inside."
Tippee writes:
The Revenue Watch Institute study, for example, looked at confidentiality clauses and concluded that much of what these clauses cover in extractive-industry contracts doesn't have to be confidential.
...
Of course there are competitive reasons peculiar to oil, gas, and mining for companies and governments to want to keep some contract terms, and certainly proprietary data and technical information, under wraps.
But blanket confidentiality imposed by boilerplate contract language sounds like secrecy for the sake of secrecy. To people not privy to contract negotiations—including host-country populations, antiglobalization activists craving a cause, or jurors deciding whether money transfers are legitimate facilitation payments or bribes—secrecy looks darkly suspicious.
Refinement of international contacts might, therefore, represent a solid step the energy industry can take in the direction of transparency—and therefore toward solidification of its license to operate.
Tippee went on to make the bold suggestion that "the energy industry seek ways to make contracts more sophisticated, to make them documents to promote rather than hide behind."
"What I'm really advocating, of course," he continued, "is a search for places in which to build windows into contracts as a way to foster trust and develop relationships with everyone affected by the activity."
Report co-author and Revenue Watch legal fellow Susan Maples calls Tippee's industry-wide call to action "truly monumental."
"Contracts Confidential sought, at the very least, to promote serious dialogue with industry about the topic," says Maples. "Tippee's response not only strongly recommends dialogue, it goes a step farther and encourages actual changes in contracts as well. His historical analysis leads to this inarguable conclusion: in the extractive industries, open and balanced contracts will be the only way to build trust and prosperous development for companies and people."
LEARN MORE
- COMMENT: It's Time For a Fresh Look at the License to Operate (Oil & Gas Journal, subscription required)
- Contracts Confidential: Ending Secret Deals in the Extractive Industries
- Gas Processors Association
