What more can be done for contract disclosure
During the launch of the Oxfam Briefing Paper of May 2018 entitled "Contract Disclosure Survey 2018", key insights were shared on contract disclosure best practice by companies and governments. A focus on policy, law and corporate policies shows three broad categories of ‘enablers’ allowing for contracts disclosure. First, companies can have corporate policies that promote disclosure as a means of accountability to stakeholders including shareholders, host government’s citizens and project affected local communities. This is laudable practice as the argument often put forward against contracts disclosure is that it may prejudice the commercial interests of companies. However, self-regulation around contract disclosure may not be enough as contracts include two main parties- the government and the extractive company. Without consent from host governments with respect to disclosure- corporate policies are vacuous.
The second important enabler is national legislation. Where national legislation allows for disclosure, there is often no impediment to contracts being made public. Companies have no option but to comply with the law even where there may not have existent policies on contracts disclosure. Legally mandating disclosure should be advocated for in all resource-rich countries as it ensures sustainability of the practice of disclosure and ownership both from the companies’ perspective as well as from the government which enters the contract on behalf of its citizens.
The third enabler is the requirement for disclosure by financiers as a precondition for investment or loan finance. Contract disclosure is a means of managing risk by investors as leaked contracts or opacity around the terms under which a resource is exploited can result in conflict. Disclosure obligated by international financial institutions such as the International Finance Corporation (IFC). The aforementioned conditions, however, do not offer a panacea to contract disclosure but merely an entry point. A multi-pronged approach to contract disclosure is one that leverages key pieces of legislation and on-going reforms in domestic legislation as a key turning point for contract disclosure.
In Kenya, while there is currently no principle Petroleum Bill, there are key pieces of legislation to support disclosure of contracts by companies through industry standards, statutory requirements and adherence to constitutional principles. Furthermore, opportunities for legislative reform do exist where specific provisions for contract disclosure can be engrained within the law to prescribe the requisite procedure as well as bolster the regulation within the operating environment. Contract disclosure should not only be looked at as affixed to mining and petroleum legislation. When looked at broadly, it may be that looking at disclosure beyond extractives legislation ensures that the conversation is not tied to a politically charged issue such as petroleum or mining governance. This provides a neutral and or more acceptable entry points for the demand for information. In addition, the calls for contracts disclosure should be linked to broader issues around taxation, beneficial ownership and access to information. These should not necessarily be looked at disparately as they are all aimed at ensuring that governments and citizens get a fair share of their resources. Some of the issues that should form part of the conversation on contracts are detailed below;
The first is the Access to Information Act 2016 which came into force in 2017. Under the Object and Aim of the Act, the provision seeks to "promote routine and systematic information disclosure by public entities and private bodies on constitutional principles relating to accountability, transparency and public participation and access to information". The Commission on Administrative Justice has already developed a form that can be used to request for information. civil society organisations can employ this tool to both try its effectiveness and the rigors of the law. There is still an opportunity to contribute to judicial precedence on using the Access to Information Act to access extractive contracts in Kenya.
Secondly, Companies (Amendment) Act No. 28 of 2017 explicitly demands for Beneficial Ownership Information in Section 93(1). Civil society can strongly advocate for a public registry on Beneficial Ownership, which can reduce the barriers to information access through request. By identifying beneficial ownership, it becomes easier to establish the faces behind the companies. In Kenya, the initial ownership of petroleum rights holding companies was not well known. In 2016, according to an Oxfam Report dubbed “The Use of Tax Havens in the Ownership of Kenyan Petroleum Rights” detailed that all but five companies that held petroleum exploration rights have at least one subsidiary listed in a tax haven or low tax jurisdiction as part of their corporate structures. These low tax jurisdictions and tax havens are typically associated with secrecy laws which make access to vital information difficult. Beneficial ownership provisions in Kenya can, therefore, build on access to information by contributing to an open and transparent regulatory environment in which corporate entities operate.
Thirdly, the Income Tax Act Review 2017 speaks to the capacity for domestic resource mobilisation which ultimately affects revenue generation and allocation. The opportunities therein can leverage on international best practice pertaining to terms of contracts say for instance in regard to tax exemptions which often lead to opacity in access to contracts. The review in essence can prescribe processes and thresholds which build on compliance and mitigate against long-term deals that undermine value from the extractives sector and are often prejudicial to communities. In other words, the extractive tax regime should be codified in the law as opposed to being negotiated in individual project contracts. Where calls for contracts disclosure are made, they can be predicated on citizens’ rights to know if there has been a deviation from the codified tax regime.
Fourthly, although proceeds from the extractives industry are considered National, proposals in the County Own Source Revenue Bill and Policy, as well as the Petroleum (Exploration, Development and Production) Bill 2015 have an impact on sub-national revenue. Counties can use both pieces of legislation to demand disclosure to ensure that the discussions on revenue sharing actually reflect real value rather than ascribed values released by the company and the national government. Discussions on revenue sharing when not anchored on full disclosure of contracts are not fully informed.
Perhaps a final musing would be with continued reforms within Capital Markets Authority, Kenya can borrow a leaf and prescribe contract disclosure as a mandatory for all locally listed companies. The big discussion on proprietary commercial information has not stood in the way of disclosure in some of the major capital markets as the report clearly states, the government is a conduit in between its citizens and companies and therefore only holds the contract on behalf of the citizens who should gain access whenever they want to.