Canadian energy and mining companies listed on U.S. exchanges will have to start publishing all payments made to governments around the world under regulations adopted Wednesday, rules that critics say will undermine the international competitiveness of North American resource producers.
In a split vote Wednesday, the Washington-based Securities and Exchange Commission adopted the new regulations, which are meant to provide transparency in resource-rich countries where it is often unclear whether revenue is being fully accounted for or citizens are benefiting as they should. The requirements, however, could force companies to abandon operations in countries that have laws prohibiting the disclosure of such information concerning payments.
The regulations – required under the sweeping Dodd-Frank Act which was passed after the 2008 economic meltdown – will have an impact on a host of Canadian resource companies whose shares are listed in the U.S., including mining companies such as Barrick Gold Corp. and Teck Resources Ltd., and energy firms such as Talisman Energy Inc. and Nexen Inc. The rules will require companies to track all royalties, taxes, fees, bonuses and payments for exploration rights to governments, including Canadian governments.
The goal is "to help empower citizens of resource-rich countries to hold their governments accountable for the development of those resources," said SEC commissioner Elisse Walter, who chaired the panel. However, commissioner Daniel Gallagher dissented, saying the regulations would put U.S. companies at a competitive disadvantage against state-owned firms from China, Russia, Venezuela and Iran who don't face such requirements.
Along with several other companies, Exxon Mobil Corp. had asked the commission to provide an exemption for companies operating in countries that have laws barring the disclosure of commercial information, including payments to governments. In a letter filed with the commission, Exxon said those countries include Angola, Cameroon, China and Qatar, where the Texas-based super major is partnering with the state-owned Qatar Petroleum on massive LNG projects.
But such a country exemption would amount to a "tyrant's charter that would have given a very strong perverse incentive for corrupt government officials and dictators to pass laws that restrict disclosure," said Corinna Gilfillan, a founding director of Global Witness, an international human rights organization. Ms. Gilfillan said there is no evidence that the countries named by Exxon do actually have laws that prohibit the reporting of payments. SEC officials also acknowledged that the rules, which go into effect next year, could force companies to either flout local laws or "cease operations" in countries that prohibit the publishing of payments to governments.
An Exxon spokeswoman said the company was still studying the decision and referred all questions to the Washington-based American Petroleum Institute, which slammed the SEC for not providing the asked-for exemption and for requiring companies to report on a project by project basis, rather than at a country level.
"This unilateral approach to revenue disclosure will harm the U.S. economy," API chief economist John Felmy said in a statement.
"The rules will give foreign oil and natural gas companies access to confidential, proprietary information that they could use against U.S. companies when competing for crucial energy resources around the global. State-owned foreign firms could plunder this information to help them determine the strategies and resource levels of their U.S. rivals."
Talisman Energy spokesman Dave Mann said the Calgary-based company already reports all payments made to governments, and that the SEC rule will merely require some additional detail.
"It really reinforces what we already do," Mr. Mann said, though Talisman had asked the SEC to provide an exemption for companies operating in countries with disclosure prohibitions.
A major gas producer in North America, Talisman also has operations around the world, in developing countries like Colombia, Peru, Vietnam and Papua New Guinea. Mr. Mann said the company does a thorough analysis of political risk and human rights issues before entering countries, and would not invest in a jurisdiction that does not allow it to report revenues paid to governments. Talisman ran into controversy a decade ago with its operations in Sudan, and has since stressed its commitment to transparency.
Canadian mining officials were also relatively sanguine about the new rules, saying companies here have embraced the concept of revenue transparency.
Barrick spokesman Andy Lloyd said the company publishes all payments to governments, but will have to study the SEC rules to determine what additional measures it will have to take.
But Canadian companies listed in the U.S. will face significant compliance costs, and other resource companies can expect growing pressure for more robust rules in Canada, said Eden Oliver, a Toronto-based partner with Bennett Jones LLP. However, she added Canadian mining companies already face high standards for disclosure under Canadian securities law, though critics say the industry needs to provide far more detail to be truly transparent.
The SEC also passed regulations requiring mining companies to track "conflict minerals" if they operate in Africa, either in the Democratic Republic of Congo or in another country.