As prepared for delivery
Press briefing teleconference on section 1504 regulations
John Felmy, API chief economist
Tuesday, August 21, 2012
Opening statement:
Good morning everyone. Thanks for calling in.
Tomorrow, the Securities and Exchange Commission is scheduled to vote on regulations to implement Section 1504 of the 2010 Dodd-Frank financial reform law that seeks to increase transparency in dealings between private energy companies and foreign governments.
The vote will be a test of the administration’s ability to balance the goals of regulation with the needs of our economy, job creation and competitiveness. Achieving this balance is more important than ever given the perilous condition of our economy with millions of Americans still out of work.
Unfortunately, indications are that the administration will take a draconian approach to disclosure that would unnecessarily harm U.S. competitiveness and jobs.
The SEC appears to want to require publicly traded energy firms to release commercially sensitive, detailed payment information about every foreign and U.S. project. For example, firms would have to reveal extensive data about how much they pay in licenses, taxes, royalties and other fees.
With a few clicks of a mouse, state-owned foreign firms – companies like the China National Petroleum Company and Russia’s Gazprom – could plunder information, which could help them determine their rivals’ strategies and resource levels.
Unfortunately, disclosure would not be a two-way street. State-owned foreign companies would have to reveal nothing – and might even be favored for projects in host countries reluctant to have financial information disclosed.
Because these state-owned companies control the vast majority of energy assets world-wide and own 78 percent of all oil and natural-gas reserves, most of the global industry would escape the rule. The 16 biggest oil companies in the world do not fall under SEC jurisdiction.
Without appropriate changes to the final rule, its imposition would harm the U.S. economy. U.S. firms would lose business. U.S. jobs would not be created. And potential revenue to our government would not be generated.
And all of this potential harm and sacrifice are unnecessary. A structure already exists to provide greater financial transparency, one that’s endorsed both by the Obama administration and the World Bank. It’s called the Extractive Industries Transparency Initiative (EITI), and it was launched in September 2002 by then-British Prime Minister Tony Blair. This initiative creates a workable framework for payment disclosures.
Under EITI, energy companies provide information about payments made to the governments of the countries where they operate. That data is then aggregated and listed on a countrywide basis. Operational details for specific companies aren’t publicized, and propriety information is protected. The initiative is already being implemented in the U.S. through the Interior Department. It makes participating governments publicly accountable for how they spend tax dollars. Regulators and average citizens alike are given access to information that can tell them where their money went, how much was spent, and toward what purpose.
This approach would increase disclosure of financial information without harming job creation and our economy. It should be the basis for the rule the SEC is about to issue.
Thanks. And now I’d be happy to take your questions.