28 November 2012

Transparency, over company protest

In 2010, Timor-Leste became the third country in the world to be certified as compliant by the Extractive Industries Transparency Initiative, which publishes reports from companies and governments detailing payments for oil, gas and mineral extraction.  Reports were published for 2008 and 2009 in four languages, available on paper and from Government and NGO web sites.

However, the process bogged down in 2010, and the reports for 2010 and 2011 have yet to be officially published. Under EITI rules, the 2010 report must be released before the end of 2012 to maintain Timor-Leste's compliant status.

EITI is run by "Multi-Stakeholder Groups" which include representatives from government, oil companies and civil society.  Timor-Leste's MSG has had a contentious year, and the companies have objected to a more detailed breakdown of reporting of their payments. Nevertheless, the draft reports for 2010 and 2011 were ready nearly two months ago, and were approved by most of the MSG on 26 November. Although the MSG usually makes decisions by consensus, the majority of its members decided to circulate the reports despite the companies' objections.  (See the update at the end of this blog for the final versions of these two reports, which were released in late December 2012.)

La'o Hamutuk has not been part of the MSG since 2009, but we continue to support initiatives to increase transparency of public finances and petroleum company operations, and publish relevant information on our EITI web page. Therefore, we are publishing preliminary versions of the EITI reports for 2010: ($2.15 billion total payments) and 2011: ($3.45 billion total payments).

For the first time, the EITI reports detail which companies paid penalties and interest for late payment of petroleum taxes, totalling $21 million in 2010 and $52 million in 2011.

The following is the Executive Summary of the preliminary Timor-Leste EITI Independent Reconciliation Report for 2011. The full report breaks down each company, revenue stream and discrepancy.

The Third (sic, actually Fourth) Timor-Leste Extractive Industries Transparency Initiative reconciliation covering the period from 1 January to 31 December 2011, was carried out by Moore Stephens in accordance with our Service Contract dated 30 April 2012 and as approved by the Multi-Stakeholder Working Group.

The assignment consisted of a detailed reconciliation of the payments made and declared by the Oil & Gas companies to revenue data provided by various entities and agencies of the Government of Timor-Leste.

The overall objective of the reconciliation exercise was to help the Government of Timor-Leste, and other relevant stakeholders, to determine the contribution that the Oil & Gas sector is making to the country’s economy and social development, and this to improve transparency and responsibility in the extractive resources sector.

Principal findings arising from reconciliation work
The main findings resulting from our work are as follows:

1. All oil companies and all Government Agencies have lodged their reporting templates for the 2011 reconciliation exercise. In total, 13 Oil & Gas companies and 3 Government Agencies have been included in the reconciliation scope.

2. Total differences between payments declared by the oil companies during 2011 and Government Agencies receiving these payments, prior to our reconciliation work, amounted to USD (4,244,840), as follows:
Total payments declared:

  Companies $3,436,243,783,  Government $3,440,488,623,  Difference (4,244,840) , 0.1%

3. Following our reconciliation work, we were able to adjust all the discrepancies, both in respect of declarations made by the companies and those made by the Government Agencies:
Total payments declared 

  Companies $3,453,285,817, Government $3,453,285,817, Difference 0.
The types of adjustments made during our reconciliation work, together with their values, are detailed in section 4.3 of this report.

4. We set out in the tables below a summary of the amount declared by the extractive companies at the end of the reconciliation exercise.
(numbers are the same from the Companies and Government, with all differences zero.)

1 ConocoPhillips 1,991,016,698
2 Eni Timor-Leste 401,268,453
3 Santos 365,391,369
4 Inpex Sahul 386,287,273
5 Tokyo Timor Sea Resources 290,213,987
6 Woodside Petroleum 607,763
7 Minza Oil & Gas 91,746
8 Petronas 107
9 Oilex 417,407
10 Reliance Exploration & Production 3,563,379
11 Talisman 6,419,484
12 Japan Energy E and P 29,751
13 AusAid 7,978,400
Total 3,453,285,817

5. We set out in the tables below a summary of the taxes declared by tax at the end of the reconciliation exercise.
(numbers for each revenue stream are the same from the Companies and Government, with all differences zero.)

Petroleum Tax Directorate 1,319,808,421
1 Income tax 659,025,791
2 Additional Profits Tax/Supplemental Profit Tax 569,338,573
3 Branch Profits Tax -
4 VAT 16,196,459
5 Withholding Tax 16,185,154
6 Wages Tax 7,399,504
7 Penalty / Interest 51,662,940
8 Other Payments -
National Petroleum Authority 2,125,498,996
9 FTP - Condensate/Crude Oil 119,655,237
10 FTP - Liquefied Petroleum Gas 35,015,765
11 FTP - Gas 83,102,923
12 Profit oil & gas payments 1,883,696,071
13 JPDA - Application Fee 5,000
14 JPDA - Seismic Data Fee -
15 JPDA - Development Fee 3,064,000
16 JPDA - Contract Service Fee 960,000
17 TL Exclusive Area - Application Fee -
18 TL Exclusive Area - Seismic Data Fee -
Central Bank of Timor-Leste 7,978,400
19 TL Exclusive Area - License Fee/Surface Fee 7,978,400
Total 3,453,285,817

Tim Woodward, Partner,  Moore Stephens LLP
150 Aldersgate Street, London EC1A 4AB

Update, 16 January 2013:
The final versions of the 2010 and 2011 EITI reports were officially released on 28 December 2012, just in time to conform with EITI rules. They are slightly more disaggregated than the preliminary versions. In his cover letter, Minister for Petroleum and Mineral Resources Alfredo Pires, who chairs the Timor-Leste EITI Multi-Stakeholder Group (TL-MSG) wrote:
   "Timor Leste, will no longer compromise on contract discloser and disaggregated information.
   "I realize that, for one reason or another, not everyone shares the view that the current reports should be so detailed. The current report does not have the full consensus of the TL MSG but it does have the blessing from the majority of the TL MSG.
   "After carefully considering the implications of publishing such a detailed report, and having carefully looked at the pros and cons, I reached the conclusion that the pros outweighed the cons, therefore as Chairperson of the TL-MSG I have ordered the publication of the 2010 and 2011 reports as agreed by the majority of TL-MSG."

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