Turning deals into development

Submitted by Michael Jarvis

Are we moving towards a global standard on contract transparency? At least in the extractive industries, there are signs that this might be the case. The Publish What You Pay coalitions from across Africa just concluded their regional conference in Kinshasa. Contract transparency was a dominant theme – civil society representatives seeing it as critical to their ability to ensure better deals and outcomes from oil, gas and mining investments. Building on their success in pushing for revenue disclosure that translated into the Extractive Industries Transparency Initiative (EITI), contract transparency is now a priority for the Publish What You Pay campaign globally.

The push for disclosure is not limited to NGOs. Globally, the IMF is in favor of contract disclosure.  The IFC’s new disclosure policies, just agreed by the Board, will now phase in contract transparency. That, in turn, may feed into a similar requirement being adopted by other project financiers that are signatories of the Equator Principles. Then there are the increasingly comprehensive disclosures mandated in investor countries, most notably the recent US financial reform package. This has already helped prompt the posting on the Securities Exchange Commission website of Ghanaian oil contracts previously not in the public domain (such as this Kosmos Energy petroleum agreement). Perhaps most importantly, more producer country governments are beginning to mandate disclosure – Ghana the latest to ask for publication of oil contacts.  In Liberia, contract disclosure has long been part of the mandate of their EITI process.

Why the increased attention to transparency of extractives deals? It is reflective of the growing number and size of such agreements. As reported in the Chinese media, China Metallurgical Group Corp. is pumping $4 billion of investment into the copper mine at Aynak in Afghanistan - one of the world's largest unexploited copper reserves. President Karzai calls it “one of the most important economic projects in Afghan history.” As reported in the Financial Times, Rio Tinto just agreed a $700m payment simply to guarantee rights to a multi-billion dollar mining development in Guinea. This should go some ways toward helping Guinea’s cash-strapped budget. Guinea’s gross domestic product for 2010 is estimated at $4.6bn, according to International Monetary Fund estimates. Rio Tinto recorded operating profits of $19.7 billion last year.

In the case of such deals the imperative to ensure good development impact is clear. Transparency is the starting point. This is all the more true in fragile and post-conflict environments. It was interesting to see a discussion on Private Sector Growth and Job Creation in Fragile Environments at the recent IMF/World Bank Spring Meetings soon turn to the issue of contract disclosure. Mo Ibrahim, famed founder of Celtel and now the Mo Ibrahim Foundation, gave an impassioned plea for transparency of oil, gas and mining deals. He sees no justification for “corporate secrecy" over the terms. In response, Rosalind Kainyah of Tullow Oil had no objection in principle, but pointed to the difficulty of disclosing in cases when the other party - the government - resists. Certainly, the number of resource-rich countries that have disclosure enshrined in law is still small, if growing. Where it is not, external pressures for transparency are combining with local demands from non-state actors.

If disclosure is becoming a good practice governance standard, it leads to the “so what?” question that has faced other transparency initiatives. Having access to contracts is clearly just the starting point, not the end goal. The information needs to be used. Contracts need to be translated into formats readily intelligible and accessible to the layman. Awareness of the implications of the deals needs to be raised not just among communities around oil, gas production or mining, but across society as a whole, recognizing all citizens have a stake in the development of national resources. One argument for continued confidentiality of deals has been that disclosure will lead to misinterpretation and sensationalist coverage. This can be counteracted by building capacity across the range of stakeholders to properly understand the investment context, the contractual terms, and how they relate to their interests.

If you understand a deal, how do you then monitor implementation and hold the parties to account? An April dialogue linking civil society practitioners across the continent demonstrated the variety of organizations playing important watchdog roles in the sector, often in combination with government and industry. For example, the World Bank Africa Region and World Bank Institute are supporting coalitions for improved monitoring in a number of countries, including Ghana, Liberia, Nigeria and Sierra Leone (see extractive industries monitoring video). Ideally, these extend to the level of individual citizen engagement. World Bank President Zoellick’s recent speech at the Petersen Institute referenced such “contract watch” coalitions as part of a broader call for civic participation and a new social contract founded on transparency and accountability. In this context, an emerging standard for contract transparency is but part of a greater shift in global norms. Hopefully, it is one that can help ensure that agreements really do translate into greater development for resource-rich countries. That is the real ambition of the Publish What You Pay coalitions that gathered in Kinshasa, not least our hosts from DRC. Mineral resources represent great wealth but the governance challenges remain daunting.