Will Contract Transparency Be Beneficial For T&T?

By Sherwin Long, Head, TTEITI Secretariat

The terms and conditions of a contract between the State and oil, gas or mining companies can tell a gripping and compelling story. These terms and conditions outline the both parties’ revenue expectations, their obligations in case of an environmental disaster and can help reinforce the State’s policy on local content development or skills training. The details in contracts can provide granular insight into a country’s budgeted revenue projections, its attentiveness to environmental management, or whether revenue from a particular agreement is spent to improve the living conditions of citizens living in fenceline communities where these resources are developed. With contracts, the stakes are high. Given the recent Petrotrin oil spill, BP’s decision to build the Angelin platform in Mexico and the thrust for local companies to provide services to Guyana and Suriname, their importance cannot be understated and speaks volumes about our policies and regulatory oversight.

Globally, lifting the veil of secrecy and allowing full or partial disclosure of oil, gas and mineral contracts is quickly becoming an accepted practice. And, in scores of countries, citizens can now answer questions on whether these deals bring the maximum value both financially and environmentally or whether they align with State policy. Your next question probably is; can citizens of Trinidad and Tobago view the contracts which govern our oil, gas or mining projects? Despite the global shift in thinking, the answer is no. Contract transparency is not a standardized practice locally.

This is not to say that there is no information in the public domain related to oil and gas contracts. In fact, due to Trinidad and Tobago’s participation in the Extractive Industries Transparency Initiative (EITI), the public has unrestricted access to data on extractive company payments to Government. A citizen can also access an online beneficial ownership registry which reveals the person who directly or indirectly owns or controls the companies that explore for and produce hydrocarbons or minerals. Even with these important developments in resource revenue transparency, a citizen still cannot view the terms of an actual contract between Government and an extractive company.

In the latest EITI Report, the Government’s highlights its views on contract transparency, citing specific laws. According to section 4.5.3 of the report, “Ministry of Energy and Energy Industries (MEEI) legal opinion regarding the issue of disclosure of contracts and licences is that the E&P licences and PSCs are confidential documents by virtue of section 35 of the Petroleum Act, Chap. 62:01. Further, they are exempt documents under Section 31 (1) (a) of the Freedom of Information Act, Chap. 22:02 and may not be disclosed.” Apart from this legal opinion, some companies operating in this country may have justified reservations for not wishing to disclose details of contracts.

As a county with an integrated energy value chain that is currently coping with declining oil and gas production and lower commodity prices, there will be diverse implications stemming from contract disclosure.  Depending on which link of the value chain you sit, this may be an awkward issue. In fact, if we use the National Gas Company of Trinidad and Tobago (NGC) as an example the complexity of contract transparency comes to the fore.

The NGC, a State-owned Enterprise, whose shareholders are this country’s citizens, currently acts as a middleman/aggregator. It buys gas from the upstream producers, transports it via pipeline and then sells this gas to petrochemical and other downstream users. NGC constantly negotiates with both the upstream and downstream operators. If there was disclosure of upstream contracts would it weaken the NGC’s hand in negotiating a gas price with the downstream producers? Would having sight of the terms and conditions of an upstream contract allow downstream operators to get a greater understanding of what the NGC pays for its gas? Will contract disclosure impact future revenue with the NGC poised to renegotiate contracts with upstream and downstream operators over the next decade? These questions are all hypothetical. But they demonstrate the breadth of discussion required on contract transparency among stakeholders in Trinidad and Tobago to reach agreement on the way forward.

Fortunately, the EITI provides a platform for this conversation and gives insight into how other countries are making disclosure a reality. A recent study on contract transparency by the Natural Resource Governance Institute’s Rob Pitman notes that 50 percent of EITI implementing countries have disclosed some of their licenses or contracts while close to two-thirds of these countries have either fully disclosed or passed a law requiring disclosure.  The study also highlights how other countries have integrated contract disclosure into their laws and regulations. These legal and regulatory requirements vary by country. For instance, in the Philippines, the country’s constitution requires disclosure while in Ghana and Azerbaijan contracts must be approved by and disclosed in Parliament. In Colombia, the freedom of information laws contain disclosure provisions while in Tanzania and Liberia disclosure provisions are included in specific industry transparency laws. The report recommends contract transparency to be linked to “durable legal instruments” such as the national constitution, sector specific legislation and freedom of information laws rather than decrees, regulations or executive orders.

Interestingly, the study also highlights that companies operating in Trinidad and Tobago such as Shell and BP disclose their contracts with the Governments of the Philippines and Azerbaijan. Anyone with an interest in reviewing these and other contracts can visit the Open Oil or Resource Contract websites and sift through the terms and conditions of thousands of contracts. Using these resources and drawing on the experience of other countries can help smoothen Trinidad and Tobago’s pathway to contract disclosure. But we must appreciate our local context will be different.

Participating in the EITI gives the Government, companies and civil society a clear mandate to discuss these issues. There will be trade-offs on what specific clauses will be disclosed, but through dialogue stakeholders will determine where protecting commercially sensitive information and the public’s right to know converges.  By starting this discussion, hopefully, in the future citizens could be assured that the country is getting the best possible deal from our resources and that contracts are coherently linked to national policy and sustainable natural resource management.