EITI Transparency in Commodity Trading

02 Feb 2016

The Trafigura Group, one of the world’s leading energy commodity trading companies, has committed to the Extractive Industries Transparency Initiative (EITI) Principles and started publicly disclosing its payments to state energy companies. In 2014, the company formally declared its support of the EITI and issued a ‘Policy on Payments to Governments’ document which was endorsed by the EITI International Secretariat.

In 2015, Trafigura disclosed, via its ‘Responsibility Report’, that in 2013 it paid to the Petroleum Company of Trinidad and Tobago (Petrotrin) and Trinidad and Tobago LNG Ltd. a total of US$503.16 million for 3.88 BBLs of refined products and 1.74 million BBLs of gas. The company reported the actual value and volume of products purchased from State-owned energy companies in all EITI member-countries in which it operates. In 2013 it made payments amounting to US$4.3 billion to EITI member-countries, US$1.8 billion of which is accounted for by first purchases of 1.74 BBLs of physical crude, refined products and gas from state owned energy companies, the remainder representing the exchange of crude oil for refined products in Nigeria.

Thanks to these voluntary disclosures, the Natural Resource Governance Institute was able to identify Trafigura as a purchaser of Ghanaian oil as well as confirm that the quantities reported by Trafigura matched those reported by the Ghana EITI. This is a clear example of the usefulness of EITI Reporting in empowering citizens through disclosure of information hitherto not available to the public.

Although Trafigura is owned by its employees and exempt from the legal disclosure initiatives applicable to publicly listed companies, its Policy on Payments to Governments commits it to voluntarily disclose payments to governments and to participate in a process to establish disclosure parameters for the commodities trading industry within the EITI framework. This Policy shows Trafigura’s support for the EITI Principles and the main points of agreement are summarized as follows:

  1. The prudent use of natural resource wealth is an important driver of sustainable economic development and poverty reduction but, if not managed properly, can create negative economic and social impacts.
  2. The management of natural resource wealth is the domain of sovereign governments.
  3. The benefits of resource extraction occur as revenue streams over many years and can be highly price dependent.
  4. Public understanding of government revenue and expenditure over time could encourage public debate and inform choice of appropriate and realistic options for sustainable development.
  5. There is need to enhance public financial management and accountability.
  6. Achievement of greater transparency must be set in the context of respect for contracts and laws.
  7. Financial transparency may create an enhanced environment for domestic and foreign direct investment.
  8. Accountability by government to its citizens is important for the stewardship of revenue streams and public expenditure.
  9. Trafigura is committed to encouraging high standards of transparency and accountability in public life, government operations and business.
  10. A consistent, simple and workable approach to the disclosure of payments and revenues is required.
  11. Payment disclosure in a given country should involve all extractive industries companies operating in that country.
  12. In seeking solutions, all stakeholders have important and relevant contributions to make – including governments and their agencies, extractive industries companies, service companies, multilateral organisations, financial organisations, investors and non-governmental organisations.

The Trafigura Group has committed to further advancing the discussion on EITI participation by commodity trading companies. For example, its disclosure strategy was presented at the 29th and 30th meetings of the EITI International Board and it has also successfully lobbied for the establishment of an EITI mandated multi-stakeholder working group on commodities trading and transparency which includes leading companies, expert NGOs, relevant governments and National Oil Companies.

Today, revenues from the purchases of state oil by commodity traders are formally included in Iraq’s EITI Reports and several other countries are expected to follow suit in the near future. It is also expected the other commodity traders will soon declare their support for the EITI Principles thus helping to shed more light on payments to governments that would otherwise be unreported and not known to citizens. This is a welcome trend that will support and improve openness and accountable management of revenues from a country’s natural resources. Trinidad and Tobago’s ongoing implementation of the EITI ensures that citizens will benefit from this new trend of disclosures by commodity traders of payments to state-owned companies.

 

TTEITI Secretariat