Trust in Disclosure

Trust in Disclosure

Tullow Oil on the business (and development) case for transparency
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© Tullow Oil

Stephen Heintz

Chairman,
Tullow Oil
Tullow is Africa’s leading independent oil company. It is currently active in 22 countries globally, including 13 in Africa. Over the past eight years it has discovered four new oil basins in Africa: in Uganda (2006), Ghana (2007 and 2010) and, most recently, in Kenya (2012). These discoveries offer significant business and development opportunities, which can only be unlocked through transparent and open partnerships with stakeholders.
Tullow oil’s new oil basins in Africa

Value beyond compliance

In 2012, in the context of the increasing international debate about the management of resource revenues, we took the decision to voluntarily publish the payments that we make to governments. In 2013, we expanded our disclosure to show payments on a project-by-project basis, in accordance with our understanding at that time of the proposed EU Accounting and Transparency Directives. While we were not the first company in the extractive industry to disclose payments, Tullow was first major private sector oil company to voluntarily disclose this level of detail. Our corporate responsibility report, Creating Shared Prosperity, also goes beyond the requirements of the EU Directives by reporting other payments to government, such as VAT and payroll taxes.

Why did we take these steps? Firstly, because of our core values as a responsible business, but also because it makes business sense. We are proud of the economic contribution that we make across Africa and it is clear that disclosure builds trust—with central and local government and also in the communities where we work. Transparency also builds investor confidence, which is vital if Africa is to compete successfully with the oil shale industry in the USA.

Partnering for development

The development of projects in frontier regions like Africa demands the creation of a network of partnerships and working relationships—with government, regulators, civil society, and communities—to manage the often complex social, cultural, environmental, and economic impacts of the industry. Such partnerships will only succeed if they are built on mutual understanding and respect. Transparency on the economic contribution of oil helps demystify the industry, build trust among stakeholders and creates a strong foundation for shared prosperity.

Oil is not a renewable resource, but it can be an extraordinary source of wealth creation. Transparency is a vital first step in helping countries use the window of opportunity created by the discovery of oil to use the wealth it generates to drive inclusive and sustainable economic growth. However, this is just the first step. The real challenge is to enable citizens to track how resource revenues are being converted into investments that make a difference.

Our experience in Ghana

Like many emerging countries, Ghana faces numerous challenges. However, its approach to revenue transparency since Tullow produced first oil in 2010 has been exemplary. Ghana applied to join the Extractive Industries Transparency Initiative (EITI) in 2003 and became fully compliant in 2010. With the government’s approval, Tullow published details of its Production Agreements in 2009 and an independently-appointed Public Interest & Accountability Committee reports twice yearly on how petroleum revenues are being managed. Ghana also provides comprehensive reporting to the EITI. While the EITI is not a panacea, it does provide a consistent set of rules and a mechanism for checking payments declared against receipts, as well as being a forum where government, business and civil society can build mutual understanding and resolve differences.

Jonas Moberg“Tullow has provided industry leadership by walking the talk on transparency. This is critically important in frontier markets.”

Jonas Moberg
Head of EITI

About Tullow Oil and IFC:
Tullow has been an IFC client since 2009 when IFC helped anchor the company's funding for its landmark Jubilee project in Ghana with a $115 million investment. IFC subsequently increased its financing to $165 million and is working with Tullow to support a number of its projects across Africa, including major developments in Uganda and Kenya.

EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATVE (EITI)

A Trillion-Dollar Coalition for Openness

For just over a decade, a global partnership of governments, companies, and civil society has been working together to improve openness and accountability in the management of natural resource revenues. The EITI partnership began as a set of principles, that have since evolved into THE global benchmark in natural resource revenue transparency.

The EITI crucially established a standard for transparency in the governance of a country’s oil, gas, and mining resources. The standard covers issues such as contracts, licenses, and the tax regime governing the sector. It requires separate reporting from governments on revenues received and from companies on the payments made.

National implementation is key. An independent administrator—usually an accounting firm—reconciles these figures under the guidance of a multi-stakeholder committee with representatives from government, industry, and civil society. Information on the sector and its impact on the economy are widely published. In addition, the World Bank is advising countries on how to comply with the transparency standard. “Ensuring countries implement EITI is critical for embedding openness in an often opaque industry,” says Paulo de Sa, World Bank Group Practice Manager, Energy and Extractives

The footprint of EITI is considerable. The 48-member countries have collectively reported over $1.3 trillion in payments by oil, gas, and mining companies. The EITI is supported by 90 of the world’s largest oil gas, and mining companies and by institutional investors with more than $19 trillion of funds under management.

IFC

Requiring Transparency

Recognizing the critical importance of transparency in natural resource projects, as well as our capacity to influence company and government behavior, we have strict disclosure requirements for our investments in extractives. Under the IFC Sustainability Framework, clients must publicly disclose their material project payments to the host government (such as royalties, taxes, and profit sharing).We also require that the principal contract with government, which sets out the key terms and conditions under which a resource will be exploited, be made public. In lieu of contract disclosure, IFC may accept the publication by the client of a summary of the key terms and conditions under which the resource is being developed (including the life of the contract; any material payments due to government made under it; other material fiscal terms and conditions; and a summary of any significant stabilization clauses).

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