Home > Company Accounting > Transparency increases, but there is still a long way to go

Transparency increases, but there is still a long way to go


Recent scandals over oil, gas and mining payments suggest a degree of transparency by a government firmly under suspicion100514_8a

DURING an otherwise routine presentation on the Cambodian economy on March 17, Ministry of Economy and Finance Director General Hang Chuon Naron chose the very last slide to offer a rare, detailed glimpse of Cambodia’s expanding oil and gas revenues.

The decision has since proven to be both a milestone in Cambodian transparency, and a millstone around the government’s neck.

On one hand, Hang Chuon Naron’s disclosure that the government received US$800,000 in December and $26 million in January for energy “signature bonuses” and a “social fund” represented a new level of state transparency for extractive industry payments in the Kingdom.

Subsequently, however, Prime Minister Hun Sen’s government has faced increasingly difficult questions on where the money came from, how it is being spent and to what degree payments derived from the extractives industry will be opened up for public scrutiny.

The missing $500,000 reportedly paid to the government by the world’s largest iron ore producer BHP Billiton – now the subject of a US securities and exchange commission enquiry – looks to be just the start of a period in which the government has increasingly been asked the question: Where has all this money gone?

For the first time, the Cambodian government has published state revenues publicly that detail payments foreign energy and mining companies have made to operate in the Kingdom. A TOFE (state financial operations notice) partly issued on the Finance Ministry website and fully presented at last month’s Oxfam America extractive industries conference in the capital showed the state received some 9.323 billion riels, or $2.25 million, from the sector in 2009. Of this total, 6.003 billion riels ($1.45 million) came from mining companies, with the remaining $800,000 derived from the oil and gas sector, according to official government figures.

But with Australian mining companies OZ Minerals and Southern Gold looking at imminent gold production in Cambodia, and US energy firm Chevron under pressure from the government to begin oil production as soon as 2012, the political opposition, civil society and the UN – among others – are pushing the government to go further on what they say is still limited disclosure.

“I think [this is] the first step, the first step that the government has [made] … to disclose this information to the public,” said Mam Sambath, chairman and executive director of the NGO Cambodians for Resource Revenue Transparency (CRRT).

“But they should improve how to disclose information by having more detailed information,” he added.

SEEKING FULL DISCLOSURE
COMPLIANCE with the Extractive Industries Transparency Initiative requires a high level of disclosure and numerous steps that begins with a government commitment and ends with an external validation process. To sign up as an EITI candidate country, achieved by 29 nations thus far, a government must commit to working with stakeholders – including the private sector and civil society – before appointing an implementation leader and then publishing fully costed work plan. Once a candidate, the first step is then to establish a multi-stakeholder working group.
In this regard, Cambodia has again shown some willingness although NGOs have only been permitted to be observers in discussions on financial reform. Importantly, the government – led by the Ministry of Economy and Finance – has blocked a request for civil society to become a full partner of the financial reform process that began at the beginning of last year. Were Cambodia to reach this stage of the EITI process, the government would have to allow full access. Another major step would be to engage companies, something the government has shown a greater tolerance for in the past by allowing the likes of Chevron to help draw up petroleum legislation. Under the EITI, preparation phase, the government would then be required to agree reporting templates and an independent EITI administrator while ensuring state and company accounts are properly audited.
The next stage – disclosure – then requires full openness with an administrator on private sector payments as part of a process in which these two sets of accounts would be reconciled to account for differences. This is the key area in which Cambodia is currently well short of the required standard in that neither the state or private sector is disclosing payments fully, in accordance with binding, negotiated contracts that bar the release of related data. Once a country completes such a report it is then required to publish it. An examination of companies’ implementation support is then followed by a review. Following external evaluation, the country would then become EITI compliant.

EITI compliant countries:
Azerbaijan
Liberia

EITI Candidate countries:
Afghanistan
Albania
Burkina Faso
Cameroon
Central African Republic
Chad
DR Congo
Republic of Congo
Ivory Coast
Gabon
Ghana
Guinea
Iraq
Kazakhstan
Mali
Mauritania
Madagascar
Mongolia
Mozambique
Niger
Nigeria
Norway
Peru
Sierra Leone
Tanzania
Timor-Leste
Yemen
Zambia

100514_8b Limited transparency
Indeed, the government appears to be undecided on the extent to which it is prepared to reveal the money it has made from oil, gas and mining companies.

Titled “EITI disclosure”, the information presented in March by Hang Chuon Naron represented what appeared to be the first efforts by the government to comply with the Extractives Industry Transparency Initiative, a global coalition of governments, private companies and civil society groups that seeks to eradicate the kinds of secret payments that have reportedly plagued the sector in Cambodia.

Sam Bartlett, EITI’s regional director for Asia, says the government has met with EITI representatives over the past few years and is considering the merits of implementing policies such as “double disclosure”, which would require both the state and private companies to provide financial information for independent scrutiny.

“Stakeholders in Cambodia have different views as to whether the EITI is the right model, and there is an ongoing discussion about the costs and benefits of the EITI for Cambodia,” he said Wednesday.

In the meantime, evidence of multi-million-dollar payments by the likes of BHP, French energy firm Total and other oil, gas and mining companies operating in the Kingdom have trickled into the public domain, creating more questions than answers.

On May 7, Sam Rainsy Party lawmaker Son Chhay submitted a detailed series of questions to the government – accepted by Prime Minister Hun Sen – that requires Deputy Prime Minister Sok An to give detailed answers on the now infamous alleged payments by BHP, and those by Total. Those answers were due by today, according to Cambodian parliamentary protocol, but Son Chhay says that precedent suggests a timely and full response is unlikely.

“The issue of payment from companies has become a real issue,” he said Wednesday, accusing the government of fabricating financial documents to cover up past corruption in the name of transparency, “just to respond to all this pressure”.

Son Chhay adds that he has seen evidence a foreign company made an unofficial payment of $1 million in 1999 to a government official following a concession agreement.

Should Sok An issue a detailed response to the SRP, again, it would be the first time the government will have made an extractive industries disclosure on payments in response to a parliamentary question.

Both Sok An and Men Den, the director of the Cambodia National Petroleum Authority’s (CNPA) Exploration and Production Division, did not respond this week to written requests for further information on the issue.

Binding confidentiality
Much of the lack of openness appears to relate directly to the negotiated contracts that remain a feature of the sector in Cambodia. If the government has increased transparency recently – albeit from a low base – then contracts with the extractives industry have become more rigid in regards to permitted public disclosure.

An example Cambodian petroleum contract from 1991 published last year by EITI states that data relating to the anonymous deal in question “shall be confidential during the term of the agreement”. Later examples in 2002, 2004 and as recently as last year require non-disclosure to extend two years after the end of the agreement period, according to EITI.

When the Post asked Chevron – which will likely become the first company to produce oil in the Kingdom – to reveal its signature bonuses and social fund payments, regional spokesman Gareth Johnstone replied Thursday: “Our contractual arrangements with the Royal Government of Cambodia do not permit disclosure of payments or other commercially confidential information.”

As the EITI’s Bartlett points out, the onus is largely on governments when it comes to full transparency. Ultimately, EITI is “a country-led initiative”.
In Cambodia’s case, such recent revelations have remained sporadic and off-the-cuff, often resulting in greater confusion.

Hun Sen stated publicly last month that Total had paid $20 million in signature bonuses and $8 million in social fund payments as part of the October agreement for the contested offshore Area III concession, but it remains unclear what the money would be spent on and when it was paid.

Total spokeswoman Phenelope Semavoine said Tuesday by email from Paris that these payments related to Hang Chuon Naron’s EITI disclosure for January, which lists a social fund payment for just $6 million, not $8 million.

“The following [social fund] payment [for the additional $2 million] will be made at a later date,” she said, adding that Total and the government would co-manage the social fund, which would be spent on education and health in the Kingdom.

She denied any discrepancy in the figures. “Each country is sovereign, unless a country opens up its books, there is only a certain amount a private company can do.”

Both Chevron and Total are listed as EITI supporting companies.

Australian firm Southern Gold, which operates mining concessions in the Kingdom, does “not pay those types of payments or fees”, Cambodian representative Grant Thomas said Wednesday by email.

OZ Minerals, which also mines for minerals in Cambodia, did not respond to questions on payments by press time Thursday, although Mam Sambath of CRRT said representatives of the company had previously told him it too had not paid the government as part of its concession agreements.

It therefore remains unclear which mining firms paid the government a total $1.45 million last year to operate in the Kingdom, according to the government’s own TOFE records.

Government efforts towards transparency on pending legislation to regulate the oil and gas sector, as well as civil party access to government discussions on extractive industry revenues – a prerequisite for EITI compliance – also remain mixed.

Limited civil participation
Mam Sambath says that although the CRRT and other NGOs have been offered observer status on the Financial Management Reform Working Group established early last year – run by the Finance Ministry, Petroleum Authority, Ministry of Industry, Mines and Energy and Ministry of Environment, they were denied the opportunity to join as dialogue partners.

Similarly, social organisations have complained that they have not been included in the drafting process for two key pieces of legislation that will regulate the energy industry once production begins, perhaps as soon as 2012 – the petroleum law, and legislation on the taxation of revenue for oil, gas and mining.

Johnstone confirmed Thursday that Chevron continues to assist the government in this drafting process, but neither party has released detailed information on what is included in the legislation, which is currently under assessment at the Council of Ministers, according to council spokesman Phay Siphan.

In addition, the UN has questioned the extent of powers assigned to the CNPA, a body set up by the government in 1998 to regulate the industry.

In a 2006 discussion paper, the UN Development Programme warned that the CNPA – directly overseen by Sok An – had been given the authority to issue licences to crude oil traders and importers of refined petroleum products.

“If a Cambodian financial services company, or a Cambodian trading company, or an international oil company with offices in Cambodia should want to purchase and sell crude oil on the markets of Singapore, it is not clear why they should be required to seek a licence from the CNPA,” it says.

The SRP’s Son Chhay accuses the government of using licences as a vehicle for extracting unofficial payments from private companies, particularly in the mobile-phone sector.

If the government is seek the level of transparency demanded as part of EITI compliance, it still has to make the first of a number of steps that starts with a statement of intent, as issued by ASEAN member Indonesia just two weeks ago. Although 29 countries have achieved candidate status, just two countries – Azerbaijan and Liberia – are fully compliant, according to an EITI fact sheet released Monday.

“If the government is willing to promote transparency and accountability, signing up to EITI is the best choice for Cambodian society,” says Mam Sambath.

For its part, the EITI says it welcomes the chance to work closely with the government. Whether or not the government is willing to reciprocate, however, will be the true test for the future of transparency in Cambodia’s oil, gas and mining sector.

Source: Phnom Penh Post http://www.phnompenhpost.com/index.php/2010051439090/Business/transparency-increases-but-there-is-still-a-long-way-to-go.html

  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: