Extractive Industries Transparency InitiativeMulti-Stakeholder Group Report to GovernmentMAY 2015

ISBN 978-1-925092-55-4 (online)

Contents

Chairmans forewordv

Executive summaryvi

Overviewvii

Outcomesxi

Chapter 1 Introduction1

Highlights1

Global Transparency Agenda1

The extractive industry and the transparency agenda2

EITI in an international context4

EITI rules, principles and validation5

Summary of key changes in the new EITI Standard6

EITI stakeholders7

International trends in mandatory extractives sector disclosure8

Benefits of the EITI10

Benefits of the EITI for Australia11

Chapter 2 Australias transparency system13

Highlights13

Background13

Transparency principles in Australia14

Australias legal framework15

Transparency and accountability in practice16

Anti-corruption framework17

Tax reporting requirements21

International initiatives22

The private sectors commitment to transparency and integrity24

Chapter 3 EITI in the Australian context28

Highlights28

The Australian resources sector28

Developing the Pilot35

Chapter 4 Regulation and taxation of Australias extractive industries42

Highlights42

Relationship between federal and state and territory regimes42

Regulation of extractive industries43

Taxation and revenue systems within the extractive industries46

Chapter 5 Functions of the Multi-Stakeholder Group49

Highlights49

Scope of the Pilot49

Establishment and representation49

Decision-making arrangements50

Sample of Pilot coverage52

Delegations of responsibility52

Multi-Stakeholder Groups sub-groups53

Administrator54

Evaluation55

EITI Multi-Stakeholder Group representatives56

Chapter 6 Materiality58

Highlights58

Materiality for the EITI58

Materiality in Australia59

Materiality by size and structure of Australian extractive companies59

Materiality by revenue stream60

Other payments governments make to businesses materiality consideration61

Materiality by jurisdiction62

Payments threshold63

Payments to non-government stakeholders Payments to First Peoples64

Difficulties in reporting government payment types66

Appendix 169

Appendix 281

Appendix 399

Glossary112

References113

Figures

Figure 1: Voluntary EITI model proposed for Australiaxii

Figure 2: Global transparency agenda1

Figure 3: Australias multi-agency approach to combating corruption18

Figure 4: Contribution to Australian exports of goods and services, by sector, 201213 on a balance of payments basis29

Figure 5: Stylised supply chain for oil and natural gas in Australia34

Figure 6: Voluntary EITI model proposed for Australia39

Figure A1: Annual petroleum royalties in Queensland ($m), 2008201283

Figure A2: Net mineral industry value, mineral production and offsite refining combined; $5.913 billion, 201011, by commodity88

Figure A3: Revenue from mineral royalties, 2002201294

Tables

Table A1: Petroleum resource rent tax, 201011 and 20111271

Table A2: Minerals Queensland produces80

Table A3: Common commodity types, rates applicable81

Table A4: Royalty rates differ between mineral commodities89

Table A5: Summary of Australian carbon pricing mechanism in clean energy legislation102

Table A6: Fuel tax credit rates for taxable liquid fuels, from 1 July 2013103

Table A7: Registrants for the R&D Tax Concession, by Australian and New Zealand Standard Industry Classification (ANZSIC), as at 30 June 2012106

Table A8: Annual depreciation rates108

Maps

Map 1: Major Australian mineral resources and infrastructure31

Map 2: Major crude oil, condensate and conventional gas resources and infrastructure32

Map 3: Major gas resources and infrastructure33

Chairmans foreword

Increased transparency in tax systems and financial markets is a growing trend internationally. Such transparency aims to support better economic stability, revenue management and financial outcomes, both for industry and for governments. Considering the significant revenue the extractives industries can contribute, this sector is receiving particular attention.

In 2011 the Australian Government announced it would pilot the Extractive Industries Transparency Initiative (EITI). Australia is keenly aware of the contribution a strong and well-managed resources sector provides a nations economy, particularly if the sector is enabled to develop and thrive through effective governance regulations and frameworks. The Pilot provided Australia the opportunity to test the compatibility of its systems with international benchmarks.

An Australian Multi-Stakeholder Group (equally representing industry, civil society and government) was formed to deliver this objective. The Group agreed the most relevant revenues to include in the Pilot were:

Petroleum Resource Rent Tax

Company Tax

North West Shelf Petroleum Royalties

North West Shelf Petroleum Excises

Northern Territory Uranium Royalty

state royalties.

Three states (Queensland, South Australia and Tasmania), the Australian Government, and eight companies volunteered to report under these revenue streams, representing both the onshore mining sector and the onshore and offshore oil and gas sector. The companies were BHP Billiton, Rio Tinto, ExxonMobil Australia, Shell Australia, BP Australia, MMG, ERA and OzMinerals. The Pilot would not have been possible without the contribution, effort and goodwill of all participants.

As well, the Minerals Council of Australia and Mandalay Resources were represented on the Multi-Stakeholder Group, and the Australian Petroleum Production and Exploration Association and the Western Australian Government participated as observers to provide a broader perspective on issues facing the sector and governments. Australia civil society was also represented as members.

Under the Groups guidance the Pilot set out to determine the costs and benefits of EITI application, reconcile a sample of financial flows between companies and governments, and determined how applying EITI principles could be suited to Australian circumstances. The Multi-Stakeholder Groups Report to Government outlines the findings and key issues from this process to inform a government decision on Australian EITI implementation.

The Pilot has demonstrated the strength of Australias governance frameworks. The Multi-Stakeholder Group has developed an innovative approach to applying the EITI principles in Australia. It has also allowed Australia to continue to influence international debate on how to maximise the benefits from extracting mineral resources throughout the world.

A clear strength of the Pilot and the broader EITI framework is its emphasis on collaboration. It is the Groups view that any future implementation of the EITI in Australia should maintain the active support and participation of state and territory governments, industry and civil society.

Bruce WilsonHead of Resources DivisionDepartment of Industry

Executive summary

Transparency is fundamental to economic stability as it provides more information, access and accountability. It reduces opportunity for corruption and mismanagement of public funds and recognises the relationship between capital-intensive investments and long-term stability to generate returns. However, a consistent approach to corruption and poor governance is needed, that still allows systemic, practical and flexible application of transparency principles.

For this reason, Australias resources sector is supportive of the Extractive Industries Transparency Initiative (EITI) and advocates for its implementation. Many Australian companies, or companies operating in Australia, are listed as EITI supporting companies and are already participating in EITI reporting overseas. Industry supports a consistent global reporting standard to produce better opportunities for the sector, and more returns for Australian companies and countries with extractive industries interests. Better information also supports an efficient marketplace and provides signals to investors and international financial institutions that Australia provides a transparent, stable and effective environment in which to do business.

The revenue that extractives industries generate is receiving increased attention from Australian and international communities. Domestically, debate around resource taxation has intensified public scrutiny of how extractives revenues are managed and their contribution to the economy. Internationally, a lack of transparency reduces investment opportunities, development of the sector and establishment of a level playing field for Australian companies competing in the global market. There is significant international pressure on Australia to demonstrate leadership in this area given its large resource economy and confidence in the governance and frameworks that supports it.

In response, representatives of Australian industry, civil society and governments united to consider these issues through an Australian EITI Pilot. The Pilot tested the practical application of EITI principles in Australia, recognising and accommodating the strengths of existing systems. It successfully demonstrated the effectiveness and transparency of Australias governance systems and frameworks; it reconciled a sample of Australian c