On 22 August 2012, the Securities and Exchange Commission (SEC) adopted rules obliging oil and gas companies listed in the United States to reveal the details of payments they make to foreign governments. With nine African countries in the bottom twenty of Transparency International's 'Corruption Perceptions Index 2011' measuring public sector corruption, these rules are likely to have a significant impact across the continent.

The Cardin-Lugar Amendment to Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act adds a section to the Securities Exchange Act of 1934. The new Section 13(q) mandates the SEC to force disclosure by 'resource extraction issuers' in their publicly available annual reports of:

Information related to any payment made by [it], a subsidiary, or any entity under its control to a foreign government or the U.S. Federal Government...for the purpose of the commercial development of oil, natural gas or minerals.

These payments include taxes, royalties, fees, production entitlements, bonuses, dividends and infrastructure improvements. Companies including ExxonMobil, Shell and Total (all of whom are active in Tanzania) will have to provide the following information about such transactions:

  • Type and total amount of payments made for each project
  • Type and total amount of payments made to each foreign government
  • Total amounts of the payments, by category
  • Currency used to make the payments
  • Financial period in which the payments were made
  • Business segment of the resource extraction issuer that made the payments
  • The government that received the payments, and the country in which the government is located
  • The project of the resource extraction issuer to which the payments relate

Caveats which lessen the impact of the rules are that companies only need to disclose payments that are "not de minimis" (defined by the rules as US$100,000 or above) and the term "project" is left undefined to grant additional flexibility.

The response to these new SEC rules has been mixed, with exponents of the reforms emphasising the potential long term benefits for economic output and investor confidence while detractors complain about compliance costs (estimated at more than US$1 billion overall) and possible loss of business to less accountable competitors.

In any case, now that the rules are enacted they are sure to have an impact on the thinking of US listed energy companies on their dealings in East Africa. We will monitor all aspects of this impact closely in the coming years, including to see whether greater transparency will have a knock-on effect on the way local institutions conduct their business.

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