Re: CAPP Response to the Federal Government s Consultation Paper Titled Establishing Mandatory Reporting Standards for the Extractive Sector

Transcription

1 May 12, 2014 Mr. Serge Dupont Deputy Minister Natural Resources Canada 580 Booth Street, 21 st Floor, Room B5-1 Ottawa, Ontario K1A 0E4 Dear Mr. Dupont: Re: CAPP Response to the Federal Government s Consultation Paper Titled Establishing Mandatory Reporting Standards CAPP appreciates the opportunity to provide input in response to the Federal Government s consultation paper titled Establishing Mandatory Reporting Standards for the Extractive Sector (the Consultation Paper). This submission is complementary to and expands upon our earlier correspondence sent to Mr. Serge Dupont, Deputy Minister, Natural Resources Canada dated October 9, 2013 and Honourable Joe Oliver, Minister, Natural Resources Canada dated March 11, The Canadian Association of Petroleum Producers (CAPP) represents companies, large and small, that explore for, develop and produce natural gas and crude oil throughout Canada. CAPP s member companies produce about 90 per cent of Canada s natural gas and crude oil. CAPP's associate members provide a wide range of services that support the upstream crude oil and natural gas industry. Together CAPP's members and associate members are an important part of a national industry with revenues of about $110 billion a year. CAPP s mission is to enhance the economic sustainability of the Canadian upstream petroleum industry in a safe and environmentally and socially responsible manner, through constructive engagement and communication with governments, the public and stakeholders in the communities in which we operate. While CAPP is broadly supportive of the objectives of the initiative as proposed in the spring 2014 Consultation Paper, we have a number of outstanding concerns regarding the proposed reporting framework, its applicability and implementation, which are organized based on the structure of the consultation paper and detailed below. 1) Companies Required to Report CAPP is supportive of the government s approach to require private companies and state-owned enterprises to report, in addition to publicly traded companies, as this approach creates a level playing field for all companies within the oil and gas mining and extraction sector. However, it is 2100, Avenue S.W. Calgary, Alberta Canada T2P 3N9 Tel Fax , 275 Slater Street Ottawa, Ontario Canada K1P 5H9 Tel Fax , 235 Water Street St. John s, Newfoundland and Labrador Canada A1C 1B6 Tel Fax communication@capp.ca 310, 1321 Blanshard Street Victoria, British Columbia Canada V8W 0B5 Tel Fax

2 Page 2 important to set a minimum reporting threshold that does not place an undue burden on small private companies in the extractive sector, as per the government s stated intent to capture public and medium and large private extractive companies within the reporting framework. The thresholds currently proposed by the Government of Canada will capture companies with only a handful of employees and low production levels, resulting in high administrative compliance costs for these smaller operators. CAPP recommends that the federal government increase the asset threshold minimum amount to $250 million with a corresponding increase of the amount in the net turnover test (or a removal of this latter test altogether). This threshold will sufficiently capture the vast majority of CAPP non-public member companies, and is consistent with the recommendation presented by the Explorers and Producers Association of Canada (EPAC). 2) Types of Payments As outlined in prior feedback regarding this initiative, CAPP has a number of concerns related to sub-national domestic reporting. These concerns relate to payments to governments at all levels and to Aboriginal entities. Our perspective on the former issue is outlined later in this letter, whereas our views on payments to Aboriginal entities are provided below. The government of Canada is proposing that payments to Aboriginal entities be captured in the reporting framework. CAPP recognizes the potential benefits associated with improvements in the financial transparency and accountability of our members interactions with Aboriginal groups. However, the manner in which such reporting requirements are developed and implemented is critically important, particularly in the context of establishing and nurturing mutually beneficial and respectful relationships with Aboriginal communities and our Aboriginal business partners. As you are aware, constructive working relationships with Aboriginal communities can take many years to develop through extensive engagement. The proposed disclosure requirements have the potential to significantly undermine the trust and goodwill developed between industry and Aboriginal entities over time. We are in especially sensitive period in the relationship among industry, governments and Aboriginals in Canada, particularly given the national importance of achieving export market diversification for Canada s energy resources and the pivotal role played by Aboriginal groups in this process. CAPP recommends that the federal government defer implementation of domestic reporting of payments to Aboriginal entities, in order to allow further consideration by industry, governments and Aboriginal entities of potential alternatives and related implications for this specific dimension of reporting for extractive industries. In the interim, the federal government could consider enabling this reporting authority on a voluntary basis by the Aboriginal entity, in partnership with capacity building groups such as the Centre for First Nations Governance. This approach would have the benefit of showcasing leading practices currently adopted by Aboriginal entities (such as the

3 Page 3 Membertou First Nation, which was the first Aboriginal government in the world to gain International Organization for Standardization certification), while providing time, guidelines and support for other Aboriginal entities to develop similar practices. 3) Potential for a Conflict of Laws CAPP supports the view that companies should not be forced to report payments if such disclosure is prohibited by local laws or by pre-existing contracts (including Impact Benefit Agreements). The legislation should also contemplate exceptional circumstances under which companies request an exemption from the transparency legislation when faced with serious problems such as legal sanctions or losing a contract if the relevant data is disclosed. This clause should preserve the objective of the transparency legislation without putting Canadian companies in difficult situations. This is particularly important given that criminal sanctions may be employed for breaches of domestic law in some countries. Such an exemption clause would also be consistent with recent parallel developments in the U.S. Dodd-Frank Act. Moreover, under the OECD Declaration on International Investment and Multinational Enterprises, to which Canada has subscribed and is committed, OECD member countries will co-operate with a view to avoiding or minimizing the imposition of conflicting requirements on multinational enterprises and [ ] they will take into account the general considerations and practical approaches. In view of this policy commitment made by Canada, CAPP recommends that the Canadian government avoid measures that risk imposing potentially conflicting requirements on multinational enterprises. CAPP also recommends that companies be exempt from payments that would be considered confidential because they are highly sensitive / could result in competitive harm, in the reasonable opinion of the company s management. Aggregation of information is one means to address this issue. 4) Equivalency a) Consolidated Reporting CAPP is encouraged to learn that the Government of Canada is seeking to enable companies operating in multiple jurisdictions with mandatory reporting standards to produce a single report from an equivalency perspective. This is critical for minimizing the administrative burden of this initiative on CAPP members.

4 Page 4 b) U.S. Harmonization and Adapted Implementation Related to equivalency is the notion of consistency and harmonization of approaches across jurisdictions with integrated economies. The most important comparator jurisdiction for Canada in this regard is the United States, as many CAPP members operate in both jurisdictions. Under the proposed U.S. model and its corresponding application under the Extractive Industries Transparency Initiative, the U.S. has applied for the Adapted Implementation program at a subfederal level, due to the scope and complexity of state level revenue collection. Under this approach, only publicly available information will be reported at a sub-federal level. CAPP believes that a similar approach for Canada is both warranted and defensible. Currently provincial governments report revenues received from oil and gas industry in form of royalties, lease payments and land sale payments. Oil and gas production by provincial sub-regions is also publicly available, as is property tax, assessment and fee information for thousands of municipalities across Canada, updated annually. In addition, the federal government s proposed project level reporting approach will provide sufficient detail as to the location of industry investments at a regional level. As such, requiring subnational reporting at the provincial and municipal levels will only result in unnecessary complexity, duplication and administrative burden on an industry that is one of the leading drivers of the national economy. Consequently, CAPP recommends that an Adaptive Implementation approach for sub-federal reporting, similar to the U.S., be adopted by the government of Canada. c) Canada-U.S. Bilateral Exemptions Both the U.S. and Canada are requiring sub-federal level reporting of domestic company operations in foreign jurisdictions. Because of the integrated nature of the Canadian and U.S. economies, and the inherent complexities and redundancies of domestic sub-federal reporting requirements in both jurisdictions, CAPP recommends that Canada and the U.S. strike a bilateral agreement excluding sub-federal payments by domestic extractive industry companies in each other s jurisdiction, thereby eliminating unnecessary administrative burden and complexity. d) Project Definition The definition of a project needs careful consideration. The government of Canada is proposing a project definition based on the EU Transparency Directive. However, uncertainty remains regarding what project definition will be adopted by the U.S. In order to minimize inconsistencies and administrative burden on North American extractive companies while maximizing comparability of information from an end user perspective, CAPP recommends that the federal government continue to consult with industry regarding the ideal project definition and, where possible, seek to harmonize its approach with the U.S.

5 Page 5 5) Reporting Process CAPP recommends that company data be privately compiled and centrally released to maximize the usability and accessibility of the data, while minimizing the potential conflict of laws and disclosure of confidential information. 6) Other Considerations a) Proposed Timelines for Implementation CAPP recommends a phased-in approach to this initiative, as this approach will help ensure the program is effective in achieving its objectives while minimizing administrative burden and duplication. CAPP would welcome the opportunity to work with the government in developing reasonable implementation timelines. b) Opportunity for Further Dialogue Overall CAPP is supportive of the intent of the Extractive Sector Mandatory Reporting Standards initiative. However, as noted above and in previous correspondence, we continue to have substantive specific concerns regarding the design and implementation of the initiative. To help address these specific concerns and work collaboratively towards an effective, meaningful and achievable solution, CAPP welcomes the opportunity to meet with senior federal leadership on this initiative. This would afford an opportunity to clarify the proposed objectives and to discuss alternative approaches to achieve the desired outcomes. Thank you for the opportunity to comment and we look forward to the opportunity for further engagement with the Government of Canada on this important topic. Sincerely, Dave Collyer President Canadian Association of Petroleum Producers cc. Hon. Diana McQueen, Alberta Minister of Energy Mr. Stephen LeClair, Assistant Deputy Minister, Alberta Treasure Boards and Finance Mr. Gary Leach, President, the Explorers and Producers Association of Canada Ms. Brenda Kenny, President & Chief Executive Officer, Canadian Energy Pipeline Association Ms. Ann Marie Hann, President, Coal Association of Canada