February 2015


Canada joins global transparency movement with new legislation

By Pierre Gratton

Canada recently stepped up its game in the fight against corruption in resource-rich countries that produce minerals but may not share the resulting wealth with their citizens.

In late October, the federal government introduced the Extractive Sector Transparency Measures Act, which brings Canada in line with other jurisdictions like the United States and the European Union. As host to the largest number of publicly traded mining companies, Canada has a role to play in assuring mining activity creates positive economic outcomes for the citizens of host countries where the industry operates. This is why the Canadian mining industry pushed for such a measure and was pleased to see the legislation come to fruition.

For the past two years, Canada’s largest mining associations – the Mining Association of Canada and the Prospectors and Developers Association of Canada – have worked with Publish What You Pay-Canada and the Natural Resources Governance Institute as part of the Resource Revenue Transparency Working Group (RRTWG). They jointly developed recommendations for Canada to adopt such legislation. The majority of the bill aligns well with RRTWG recommendations, but there are some concerns with certain aspects of the act. The most prominent concern for industry relates to equivalency: the practice of allowing companies to submit a report to a Canadian regulator that was prepared and filed in another jurisdiction, such as in the United States, so long as they are deemed equivalent.

When it comes to curbing corruption, knowledge is power. Through the legislation, mining companies will be required to disclose payments made to host governments, resulting in a credible source of data that citizens can use to hold their governments accountable. The goal is to ensure local communities are fully benefitting from the extractive activities taking place in their region. The legislation will fall short of its aims, however, if the data is not easy to understand.

As currently written, the act does not provide enough assurance that equivalency will be incorporated. The RRTWG felt strongly that equivalency must be a core principal of Canada’s transparency regime. It would not only help ease the reporting burden for mining companies, but it would also ensure that reporting is consistent across various countries. This would be a direct benefit for those consuming the data, including citizens, investors and other stakeholders, as it would make it easy for them to compare information from companies that are required to report in multiple jurisdictions. Similar to the concern over equivalency, the act also fails to provide enough assurance that reporting will be required at the project level. This is problematic as project-level reporting would provide the degree of detail necessary to enable communities to use the data most effectively.

Canada’s commitment to transparency is timely. The past decade has witnessed a dramatic increase in resource development, particularly in the developing world. In Africa, Canadian mining investment grew to $31.6 billion in 2011 from $6 billion in 2005. Turning mounting resource revenues into solid development outcomes is not just important, it is essential.

For governments worldwide, mining investment holds a significant promise of change. It provides much-needed revenue to fund infrastructure and social investments, creates opportunities to establish broad-based economic growth, and generates jobs. There is immense opportunity for mining investment to achieve these goals when you consider that revenues from natural resources account for at least 20 per cent of total government revenues in 41 countries globally, including 21 low- and lower-middle income countries, according to the International Monetary Fund. Yet in many cases, the economic potential of natural resource abundance is being squandered by government mismanagement.

Although not a silver bullet in ending all instances of corruption, the transparency legislation is an important step towards it. Corruption can exist when citizens, elected officials, and municipal and state governments are in the dark about the natural resource revenues received by their national governments from mining activity. This environment breeds corruption, mismanagement and sometimes conflict.

The Canadian mining industry has committed to transparency not only because it is the right thing to do, but because companies have recognized that it is an integral part of upholding the industry’s reputation as a responsible actor. Moreover, companies will benefit by clearly demonstrating the economic contributions of their projects and from the stability that is generated when citizens are truly benefitting from their natural resource wealth.

But Canada needs to get the new act right in order for it to work for all parties involved, especially companies filing their reports and the citizens using that information to hold their governments accountable for the management of revenues from the mining sector.

The global nature of the mining industry demands a global effort. As such, equivalency and project-level reporting will play an important role in integrating individual countries’ efforts as well as providing a consistent view of results for those who will benefit most from the information.

Pierre Gratton is president and CEO of the Mining Association of Canada (MAC).

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