On June 1, 2015, Canada proclaimed into force the Extractive Sector Transparency Act (Federal Act). The Federal Act requires mining, oil and gas companies to disclose payments made to Canadian and foreign governments and others, including aboriginal groups.
The Federal Act is the result of a commitment made by Canada at the 2013 G8 summit. The “Publish What You Pay” movement and its supporters have long been lobbying G8 and other “rich country” governments for mandatory payment disclosures to combat corruption and increase governmental accountability in poorer countries. For a discussion of the Federal Act please refer to our post of June 2, 2015.
On June 11, 2015, Quebec’s Minister for Mines, Luc Blanchette, tabled Bill 55 before the National Assembly. Because Bill 55 closely mirrors the Federal Act, with many of its defined terms and obligations being nearly carbon copies of what is found in that legislation, one might wonder why Quebec felt it necessary to introduce legislation similar to the Federal Act, especially since companies headquartered or operating in Quebec are already subject to the Federal Act? There were actually several reasons for doing so.
Firstly, Quebec wants to “occupy the field” in a constitutional sense. In other words, it does not want to appear to be ceding any core competency to the Federal Government. Constitutionally, natural resources are a provincial competence. Section 10 of the Federal Act provides that compliance with the reporting requirements of another jurisdiction (e.g., Quebec) may be an acceptable substitute. Once Bill 55 becomes law, it is likely that Quebec will enter into an administrative arrangement with the federal authorities to allow for substitution.
Secondly, and more importantly, the primary focus of the Quebec legislation is domestic. Bill 55’s main objective is not to fight corruption in remote locales. Rather, the main purpose of Bill 55 is to facilitate the development in Quebec of oil, gas and mining projects. A rapidly aging Quebec population content with the status quo has tended in recent years to be hostile to new extractive and industrial projects. Indeed, it might be said that Quebec has a bad case of NIMBYism. What the Quebec government is trying to do is increase the social acceptability (social license) of projects by providing objective information to its population. Experience has shown that local populations properly informed of the tangible benefits offered by projects are far more likely to support them. The Quebec wind power industry is a case in point. Quebec is currently working on a social acceptability policy and Bill 55 is an essential building block of that policy.
Thirdly, Quebec wants to control the availability and credibility of the information. Quebec’s obligations may end up being more stringent than under the Federal Act. For example, Bill 55 currently imposes a disclosure obligation when the total value of payments in a year is $100,000. The Federal Act has the same threshold but also provides that such threshold may be increased or decreased by regulation. Any threshold increase is unlikely to be viewed as helpful by Quebec because it would reduce the amount of information publicly available. In fact, Quebec may very well expand the ambit of Bill 55. The Quebec Mineral Exploration Association issued a press release on June 11, 2015 supporting Bill 55 but asking that it go further. The Association wants all exploration companies, irrespective of size, to be subject to the disclosure obligations. At this time only companies of a certain size are subject to disclosure obligations. The reason for this is that confidentiality provision in the agreements with local governments and First Nations prevent full and frank communications with investors and make raising capital that much more difficult.
Bill 55 applies to every legal person, corporation or other organization that meets the following criteria:
- it engages in exploration for or development of mineral substances or hydrocarbons,
- it holds a permit, right, license, lease or other authorization in connection with such exploration or development, and
- it is listed on a stock exchange in Canada and has its head office in Quebec, or it has an establishment in Quebec, exercise activities in Quebec and, based on its consolidated financial statements, meets at least two of the following conditions for at one of its last two financial years: it has at least $20 million in assets, it has revenues of at least $40 million, or it employs at least 250 employees.
Entities subject to Bill 55 must send to the Autorité des marchés financiers (AMF) not later than the 150th day following the end of their financial year a statement declaring all payments made to the same payee in that year, if the total value of those payments is at least $100,000.
A payee includes a government, a body establishment by two or more governments, a municipality, a First Nation, a board or commission that exercises the duties of a government or any other payee designated by regulation.
A payment includes a monetary payment or a payment in kind made to a payee in relation to the exploration or development of mineral substances or hydrocarbons on account of taxes, fees, production entitlements, dividends (other than those paid to an ordinary shareholder), signing and other bonuses, contributions to infrastructure construction or improvement and any other payment designated by regulation.
Entities subject to Bill 55 must keep records of all payments for seven years and must make public for five years any statement filed with the AMF pursuant to Bill 55.
As stated above Bill 55 closely mirrors the Federal Act and there are virtually no substantive differences between the two statutes. While it is Quebec’s intention to regulate this area, it is not its intention to exercise its jurisdiction by increasing the administrative burden of disclosing entities.
The provincial government intends to see Bill 55 become law before the end of 2015 and public hearings are scheduled at the National Assembly of Quebec for August 18 and 19, 2015.