US Delay Means Burmese Must Wait on Oil Payment Disclosures

Published on Apr 19 2011 // Featured Analysis

New US rules outlining requirements for oil, gas and mining companies to disclose payments made to foreign governments, including Burma, have been postponed until August at the earliest.

Section 1504 of the Dodd-Frank Wall St. Reform Act, passed in 2010, requires publicly traded companies listed on US stock exchanges to disclose how much they pay foreign governments to acquire drilling and mining rights in the given countries. The US Securities and Exchange Commission (SEC) was scheduled to publish rules governing Section 1504 on April 15, but has now delayed their release.

The SEC rules will cover some of the estimated 27 companies invested in Burma’s natural resource sector, such as Chevron, China National Offshore Oil Company, Daewoo, PTTEP (Thailand), Total and others. Unlike the Burmese government, Total and Chevron are both signed-up supporters of the EITI, which is seen as a precursor to Section 1504.

After the SEC postponement, Burmese will have to wait some time before finding out what payments the various companies have made to the Burmese military junta. If the Section 1504 rules are published in Aug. 2011, then companies will have until Aug. 2012 to report on payments made.

The Thailand-based Human Rights Foundation of Monland (HURFOM) participated in the public debate on Section 1504 as permitted by the SEC. The group welcomed the proposed Section 1504, which it said would help people displaced along the Kanbauk to Myaing Kalay pipeline better understand the value of material losses they have incurred due to the opaque investment procedures surrounding the project. Kanbauk-Myaing Kalay transports gas from the offshore Yadana field to the Burmese domestic market, with the rest of the Yadana gas exported to Thailand via a separate pipeline.

Overall, assessing exactly how much money the Burmese government has earned in oil and gas revenues over the years is difficult. Billions of dollars are already banked—possibly in Singapore—with the actual amount blurred by the Burmese government’s fiddling of the kyat-dollar exchange rate.

And energy revenues are set to rise. New fields and pipelines will come on-stream in the near future, and the Shwe Gas Movement estimates the windfall to Burma’s government from the Shwe Gas field and pipelines being built into China to be a minimum of US $29 billion over 30 years. China National Petroleum Corporation and Daewoo are the majority shareholders in the Shwe project.

Some estimates suggest that the Burmese government spends 60 percent of its energy income on the military. The latest budget, announced in Jan. 2011 before the new Parliament went into session, allocates 25 percent of budgetary spending on the army—with only four percent for education and 1.3 percent for health spending.

The spending imbalance comes despite the growing gas, oil and gemstones revenues adding unknown billions to the state coffers, while ordinary Burmese are among the poorest people in Asia, living on average of less than $500 per year.

According to the SEC website, “Section 1504 requires reporting issuers engaged in the commercial development of oil, natural gas, or minerals to disclose in an annual report certain payments made to the United States or a foreign government.”

Companies listed with the US Securities and Exchange Commission (SEC) will have to report on these payments within one year or face possible de-listing from the exchange on which they are trading.

As the rules will cover all companies listed on US stock exchanges, not just US companies, 90 percent of the major internationally-operating oil and gas companies and eight of the 10 most successful mining companies will come under the Section 1504 requirements.

Amid speculation that lobbying by oil and gas companies contributed to the postponement, the SEC has not commented directly on the timing.

But Giulio Carini of Global Witness—a London-headquartered organization that researches and campaigns on natural resource-related corruption and human rights issues—told The Irrawaddy that a number of other factors are likely to have contributed to the delay.

“Dodd-Frank is a huge, complex and multi-faceted piece of legislation, and staff at the Commission have a lot of separate sections to deal with,” he said.

The drafting and comment phase of the rules process has been open and transparent to date, says Karin Lissakers of the Revenue Watch Institute. She told The Irrawaddy that “companies have been trying to water down the rules,” as might be expected, but she is more disappointed that the consultation has become a protracted process.

Peter Voser, the CEO of Royal Dutch Shell, recently warned that the Section 1504 requirements could undermine the progress made under the Extractive Industries Transparency Initiative (EITI), in which companies and governments disclose payments made and received in oil, gas and mining. The EITI has been touted as a success so far, but only 11 of the 35 implementing countries are fully compliant with the voluntary reporting procedures.

Voser added that Section 1504 “may even require companies to violate sovereign laws to disclose information that the laws do not allow.”

In a Nov. 2010 letter to the SEC, the American Petroleum Institute (API), a trade association representing over 400 oil and gas companies, said that “Section 1504 could provide competitors with commercially sensitive contractual information and insight into bidding strategies, placing US listed companies at a competitive disadvantage.”

News : Irrawaddy