Contract disclosure has always been a challenge in many parts of the world. But many governments, international organizations and investors are beginning to see the benefits of contract disclosure. And Guyana, as of 2016, has joined the emerging global phenomenon.
But contract disclosure is not to be taken lightly. This type of transparency can undermine the drivers of unfair deals by addressing the asymmetry of power and information between governments and companies. For example, in many resource-rich developing countries, the government’s negotiating team may be limited in size and fiscal and technical experience. In contrast, companies have access to a wide range of knowledge and specialized expertise to negotiate each component of a deal. The prospect of public scrutiny can help to deter select government officials from the corrupt use of their power in contract negotiations, thereby helping to secure a better overall deal in the public interest.
Despite the many benefits of contract transparency, some companies remain reticent to publicly support it. This is usually down to a number of widely shared ‘myths’. Below are just a few of these.
Myth 1: Contract disclosure conflicts with confidentiality of agreements
In extractive industry contracts, one of the contracting parties is a national government representing its citizens, not private interests. In this scenario, the government is not accountable to private shareholders, but to a population of citizens, and the funds involved is also public. Therefore, the normal protocols for confidentiality between the two parties are not applicable, and full transparency regarding the terms of agreement may be reasonably expected. Given governments’ primary obligation to citizens and the viable risks of corruption associated with contract secrecy, the public benefits of transparency should nullify any proprietary claims to confidentiality. However, some governments and companies allege that contracts contain sensitive information that must be kept confidential. Unlike laws, regulations and statutes that are also used to govern extractive industry activity, those opposed to contract transparency argue that these agreements contain specific proprietary information that is not meant to be in the public domain.
Myth 2: All contractual information is commercially sensitive What information can be considered ‘commercially sensitive’ differs by industry and context. Generally, information may be considered commercially sensitive if disclosure of the information would cause competitive harm to the company, such as trade secrets, specific production techniques or other proprietary practices.
In the extractive industries, this may include:
• Financial terms of a deal;
• Assumptions in assessing commercial terms;
• Work obligations, operational data and cost information;
• The exact quality and quantity measurements of the reserve;
• Any pending mergers and acquisitions;
• The identity of company shareholders;
• Information on revenue, cash flow data and capital; and
• Operating expenditure information.
Myth 3: Competitors are not able to access contracts According to the International Monetary Fund (IMF),
contract terms are frequently shared within the industry soon after a deal is made. Contracts are more widely shared within private industry than with the general public. Contracts are shared among ‘competitors’ through pay-for-access websites, industry publications and forums, and electronic mailing lists. Companies regularly use the profitable market of energy and mineral intelligence firms that provide precisely this type of information.
Additionally, large projects are often undertaken in joint-venture partnerships in which a number of companies operate as partners. In these circumstances, partners normally share contracts and detailed internal information relevant to the partnership. Through these means, competitors frequently share and compare contracts and generally have easy access as compared with citizens and project-affected communities for whom this information may be too expensive or out of reach.
Myth 4: Publishing contracts will make it harder to do business
Many extractive industry contracts are already in the public domain. In total, nearly 1,600 extractive industry contracts have been made public with little to no apparent negative repercussions. This includes through government websites and gazettes, online contract repositories, stock exchange databases and company websites.
In countries with mandatory contract transparency policies, companies have demonstrated no reluctance or unwillingness to bid on contracts because of the increased transparency. In some cases, contract transparency has actually had the opposite effect. For instance, Peru’s decision to institute open contracting requirements in the country’s hydrocarbon sector had no negative effect on company interest in the sector as the country continued to attract investors in multiple subsequent successful bidding rounds.