NEW DELHI (TrustLaw) - Indian groups working to alleviate poverty are unprepared for new financial disclosure rules that will apply to companies extracting oil, gas and minerals from 2014, posing a challenge for campaigners who see transparency as a way of curbing graft and solving the natural resource curse.
New laws in the United States and nearing completion in Europe compel any company listed on stock exchanges there to reveal payments made to foreign governments such as royalties, dividends and license fees for every resource project.
They will allow local communities to find out for the first time how much is being paid to their governments. But experts say many of India’s activists are unaware of the new laws - approved in the US last year and by EU lawmakers earlier this month - and are not equipped to make good use of the data.
“The US and new EU rules will bring in a new era of transparency for citizens in India and across the world. It’s still early days, however, and there’s work to be done to ensure that civil society becomes aware of the benefits,” said Dominic Eagleton from British campaign group Global Witness, who was in India recently to raise awareness about the law.
The extractive industries sector generates $3.5 trillion in annual gross revenues, or around 5 percent of global gross domestic product (GDP), says the United Nations Conference on Trade and Development.
Yet while many of these revenues are made in resource-rich developing countries, local people often remain mired in poverty with little information of how the wealth is being managed.
Groups like Global Witness, who have campaigned for over a decade for the new rules, say they will force firms to make these payments public and easily accessible, giving people the information they need to see if they are benefiting locally from extraction projects. For example, if a mining project is making huge profits but local people are seeing little return, they will be better equipped to demand improved local services or infrastructure.
Similarly, if an oil project contributes little or no tax, communities can start to ask why and can question whether the oil company is paying its dues. The EU and US legislation builds on the Extractive Industries Transparency Initiative (EITI), which countries can join voluntarily to show their willingness to be accountable for natural resource revenues - but the new laws have greater potential impact by requiring companies to release data in many more countries.
India has vast natural resources, particularly coal and mineral deposits. It is one the world’s largest producers of coal, lignite, bauxite, iron ore, crude steel, zinc, aluminum and magnesite. The mining and quarrying sector accounted for about 3 percent of the country’s GDP in 2010/11, says the Revenue Watch Institute.
The new rules would not only apply to Western-based energy and mining giants, but also to Indian companies such as Reliance Industries, Aditya Birla, Tata Steel and Vedanta, which are listed on European Stock Exchanges.
There are numerous groups who have for years campaigned for the rights of poor populations who live in mineral rich areas such as the states of Chhattisgarh, Jharkhand and Orissa, where they have focused on traditional issues such as concerns over the environmental impact of a project or the displacement of local people due to land acquisitions.
Many of these groups have not focused on the link between economic rights and financial transparency as a tool to help end poverty and bring sustainable development, experts say.
“Civil society groups here are not doing much on the issue of financial transparency in the extractive industries and many are unaware of what the new rules are and how they will apply,” said Pooja Rangaprasad from the Centre for Budget and Governance Accountability, a Delhi-based think-tank.
“My feeling is that when the data is made available next year, there is likely to be more interest and people will then be able to see what these big companies are reporting. But there certainly needs to be greater awareness building around it.”
ONE, the activist group which fights against extreme poverty set up by pop star Bono, is starting discussions with other groups on how to prepare for the release of the data, moving from campaigning to educating.
To make the efforts sustainable, Joseph Kraus, ONE policy manager for transparency and accountability, said ONE is pushing for the world’s eight most industrialised countries - the G8 - to set up a “Follow the Money” fund to help finance efforts to increase the capacity of governments and citizens to access and use the data available from the new disclosure rules.
Some international organisations with chapters in India, which have been part of the global push for these laws in US and Europe, say they will be looking at how they can use them.
Both Greenpeace India and Oxfam India have welcomed the move and say that while it does not cover much of India’s mineral sector - as many companies are small, unlisted firms - it will help curb corruption.
They cite recent corruption scandals that have hit the headlines such as irregularities in the sale of coal concessions to private companies and the discovery of suspiciously low royalty payments in the iron-ore sector. Both groups say they hope to take information about the new rule to local activists working in India’s mineral belt and hold awareness-raising sessions in communities living near mine sites.
Scrutinising the data provided by the firms, translating it and making it accessible to local people and asking communities to check if the data matches the reality on the ground will help hold companies to account, they add.
“I think it could help us bring to book firms who may say they are doing something, but are not,” said Arundhati Muthu from Greenpeace India. “We could, for example, bring this information to the notice of their shareholders and the stock exchanges where they are listed.”