Commodities trading giant Geneva-based Trafigura is the only company in the multi-trillion dollar business promising to open its books. The latest drive to convince more traders to disclose information is moving slowly.
In December, Trafigura will publish its first disclosures that are compatible with the global standard of the Extractive Industries Transparency Initiative, or EITI.
The stated goal of EITI, whose board is meeting in the Swiss capital, Bern this week, is to make transparent the governance of countries’ oil, gas and mineral resources.
Implementing nations commit to greater transparency of payments from extractive businesses – essentially mining and energy companies – to governments in producing countries, as a response to the “resource curse”, or failure of resource-rich countries to move out of poverty.
The Extractive Industries Transparency Initiative is an international organization promoting transparency and accountable management of natural resources.
The initiative’s standards are developed and overseen by a board, consisting of representatives of governments, extractive companies, civil society organisations and international organisations, meeting three times a year.
Standards are implemented in 48 countries by the EITI secretariat, its multi-stakeholder groups and the World Bank. Switzerland contributes CHF 700,000 to EITI’s annual $4 million budget. The Bern board meeting is the first to take place in Switzerland.
An important step in the process came two years ago when EITI required its approximately 50 countries to include state-owned enterprises in their reporting. These firms, including state-owned oil companies (NOCs) that control around 80% of world petroleum reserves, are now expected to disclose their so-called “first trade” or payments made to them by commodity traders. The only problem: the traders must also disclose their information for full transparency.
Trafigura is the only trader on board so far. Andrew Gowers, Trafigura’s head of corporate affairs, said the company wanted “to move from a situation of being in a bunker, and beleaguered by the issue, and look at where the constructive fora were for engaging on the issue”. The only one that fit their needs, he said, was EITI.
Stéphane Graber, the secretary general of the industry lobby Swiss Trading and Shipping Association (STSA), told swissinfo.ch that traders wanted to see EITI countries apply the standard first.
“We are ready to offer EITI our expertise,” he said, but added that it was up to “EITI’s secretariat and countries to take the first step to implement its rules.”
Traders may be waiting to see how EITI regulations will apply to them before committing to the initiative. Whether this will mean disclosure on a trade-by-trade basis has yet to be defined.
Olle Östensson, an independent consultant specialized in commodity trading, said that greater disclosure requirements made on traders amidst a growing myriad of regulations may risk squeezing out smaller companies which may have difficulties covering the costs of increased due diligence, and reduce competition.
Gowers however said that while reporting real-time physical trades would be difficult, for Tragifura obtaining data for later disclosure “would not be an issue.”
Reputation and investment climate
In an industry that Gowers himself described as suffering from a lack of trust, joining EITI could offer a boost to the sector’s reputation too. He said, Trafigura’s EITI disclosure would offer clear information to those critical of the industry.
Alexandra Gillies, director of governance programmes at NGO Natural Resource Governance Institute, a full EITI board member, said that by joining EITI, trading companies “would realise that the information that is being asked for is not going to ruin their relationships with governments… and can actually look good and dispel some of the negative reputation that they have.”
The NGO has conducted research on illegal swap deals by the Nigerian government with commodity traders.
Central to EITI’s ambitions is the view that by eliminating corrupt practices, a more efficient use of revenues will benefit producing countries, and promote more sustainable growth.
“Transparency and better governance improves the investment climate and better growth,” added Raymond Furrer of the Swiss State Secretariat for Economic Affairs, or SECO.
Swiss way forward
Several participants at EITI meeting asked whether Switzerland too would not suffer reputational damage for not acting quickly enough in bringing greater transparency to commodity trading. Switzerland is responsible for at least 60% of global metals trading and 35% of global oil trading.
Monica Rubiolo, head of the macroeconomic support division at SECO said that further discussions within EITI and getting more representatives from the industry to join the initiative were essential.
Switzerland has been a supporting member of the EITI since 2009 as a board member.
While EITI’s membership lacks several of the major mineral producing countries to offer a level field to the process, various stakeholders have nonetheless expressed optimism that traders will warm to the initiative.
“The idea to get commodity traders to voluntarily disclose information is not going to be easy but I think the writing is on the wall that this issue is not going to go away,” said Gillies.
“We saw the same thing a few years ago with the oil and mining companies where they initially resisted, tried to ignore the issue and hoped it would disappear, and then we saw a number of companies disclosing more information than they had to.”
Gowers, of the first EITI trader, agreed: “Ten years ago, none of the mining companies wanted to join this type of initiative and today they are all part of it. The same will happen for trading companies.”
Swiss commodity traders and EITI
According to Swissaid, Switzerland is responsible for at least 60% of global metals trading and 35% of global oil trading. Geneva, alone, is home to approximately 400 companies specialised in commodity trading.
Between 2011 and 2013, Swiss traders paid $55 billion to ten African governments alone for crude oil, as reported in a study by three NGOs. This is more than double the development aid those countries received during that time or 12% of their public spending.
The organisation’s chair, Clare Short, a former British secretary of state for international development, told swissinfo.ch that Switzerland, has been leading a process, interacting with other international trading hubs, such as Singapore and Hong Kong, to promote further disclosure amongst traders.