The debate over whether trade secrets undermine transparency and promote corruption continues to dominate discussions on Africa’s growing governance landscape. Often difficult to define because of its many faces and manifestations, trade secrets are used interchangeably with commercial secrets, commercially sensitive information or confidential information.
Ghana’s Parliament is considering the Right to Information Bill, which has been pending for several years. Unfortunately, the Bill contains many exemptions covering in particular classified information in the name of national security and trade secrets or third party economic interests. The global oil and gas industry is the most protected in the world and close home in Ghana, all oil contracts signed by the government of Ghana and international oil companies provide confidentiality clauses to protect trade secrets. This paper focuses on trade and economic secrets, which constitute a major source of corruption, but which are often protected by law or through contracts.
The U.S. Economic Espionage Act (“EEA) defines “trade secret” as “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, analyses, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if – (A) the owner thereof has taken reasonable measures to keep such information secret; and (B) the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, the public”.
Whilst there are justifications for protecting trade secrets including for competition, investment and technological reasons, there are even more compelling reasons to balance this demand with the desire to protect the public interest through legal regimes. It has further been argued that protecting trade secrets is meaningful for private businesses, but it is even more meaningful for businesses in which there is public ownership even if they are operated by the private sector. The oil and gas industry falls in this category considering that in most countries of the world, the public’s right to ownership of the resources are strongly linked to the interests of the private sector that invests in the extraction of these resources and operates the projects. For instance, based on the petroleum fiscal regime and local content requirements, the public is entitled to taxes, share of oil produced, environmental sustainability and job opportunities from projects operated by the private companies.
Oil industry information most protected in the world
As stated earlier, if there is any industry that overprotects investor information or trade secrets, it is the oil and gas industry. Oil companies keep relevant information of public interest away from the people who are often the primary owners of the host country’s resources. They argue that when disclosed, their commercial interests would adversely be affected. Disclosure would often reduce their competitiveness where the so called secrets relate to technological innovations, seismic data and project economics involving relevant economic data such as returns on investments, petroleum costs, prices and identity of shareholders. Unfortunately, it is not only the people that are kept at bay from this information, but also the governments of resource host countries, thereby perpetrating information asymmetry to the disadvantage of the governments, as that is used by oil companies to get unfair access to licensing rights.
Oil companies consider this practice rather legitimate especially as the confidentiality of trade secrets strengthens their negotiation power against host Governments, creating convenient bases for the exploitation of resource-rich countries. Fact is, host governments in African countries lack the technical and negotiation capacity to scrutinize proposals from oil companies. In areas that are relatively unknown, host governments are further disadvantaged, as they have no knowledge of the area they negotiate over.
The most disturbing observation so far has been the temptation by public officials to always develop framework conditions that legitimize trade secrets and through these secure a veil on their own secrets. By their nature and for the sake of supporting their argument for foreign investment attraction and technology, and more important for securing their interests, public officials accept trade secrets as defined by private companies, often enshrined in legislation. The right to information legislations and contracts are often the legal frameworks used as convenient vehicles to perpetrate these acts. In this case, public officials are obliged to protect this information in order not to undermine contract sanctity. Once this condition is created, the conspiracy between public officials and the private companies to plunder the resources goes in motion, both of them championing the protection of information for fear of litigation over secrecy disputes.
It is therefore apt to surmise that the scope of information and data protected by confidentiality clauses in the oil and gas industry is appropriately defined at the instance of private oil companies. Some of what constitute trade secrets, considered commercially sensitive are: financial terms in contracts; assumptions used for assessing commercial terms; work obligations; environmental mitigation costs; quality and quantity of the reserve; operational data; cost information; manufacturing processes; pending litigation; pending mergers & acquisitions; identity of shareholders; revenue and cash flow data; capital expenditures and operating expenditures; and employee information.
In Ghana, the classification of trade secrets in the oil industry as defined in oil contracts are – all information, data, (film, paper and digital forms), samples, interpretations and reports, (including progress and completion reports) including but not limited to the following:
These are protected by legislation and contracts that criminalize disclosure.
It must be stated however that in most jurisdictions, disclosure is allowed under a few conditions – for use by state agencies in the performance of their duty, by investors for the purpose of mobilizing financing and to satisfy disclosure requirements of the stock exchange in which companies are listed. Unfortunately, there are no conditions under which disclosure is allowed for the purpose of protecting the public interest, the more important reason for the enactment of the right to information legislations. The public does not get access to this relevant information of public interest. Sadly, where we have existing Right to Information Laws – whether from Uganda or Nigeria, such laws have prevented the public from legitimate access to information, by exempting them from disclosure particularly those that relate to oil deals. The US and the UK are no exceptions in this regard. These conditions confirm the exceptionality of oil deals in as far as transparency is concerned, as they exclude conditions under which citizens can have access to these information. Ghana’s is certainly following this trend in the current form of the Right to Information Bill.
There are examples of countries where public officials have frustrated disclosure of resource contracts to satisfy secrecy protection. In Uganda where Tullow Oil said it was not against publishing its oil contract with the government of Uganda, the government refused to grant public access to the contracts in spite of the invoking of a clause in the country’s Freedom of Information Law by citizens groups since 2009. In Tanzania, a leaked contract on natural gas sharing between Norway’s Statoil and the Tanzania Petroleum Development Corporation (TPDC) in 2014 led to citizens demand for contract disclosure; but in spite of the promise by government to grant access to the Public Accounts Committee in Parliament, this was not done leading to the arrest of two officials of TPDC under an order to the police by the committee. The Committee had ordered the release of 26 oil contracts by November 26th, 2014. Similarly, the Ghanaian government refused to publish oil contracts despite several calls by civil society until after Kosmos Energy published its contracts following its Initial Public Offer in the United States. These actions by host governments are mostly decided on the basis of protecting trade secrets.
Convergence of the interests of Public Officials and Private Sector
However, there is growing evidence that protection of trade secrets in Africa is in effect protection of the secrets of the public officials involved in negotiating oil deals. Commercial interest encompasses the economic interests of investors and public servants. These interests are inextricably intertwined that not even the most sophisticated anti-corruption mechanism can unlock them without being co-opted. Thus, the industry is dominated by vested commercial interest at the expense of the public interest.
The complex balance required to satisfy investor interest with the public interest is however confusing because confidentiality clauses are broad and strict, and turn to undermine public ability to scrutinize investment contracts. One way to balance these interests where disclosure is prohibited is to adopt a process that requires the awarding institution to show that disclosure is likely to cause substantial harm to the investor’s competitive position and not necessarily to protect the commercial interest of officials involved in the negotiation of such deals. The Danes provide perhaps the best balancing act in this circumstance. Denmark’s Model License of 2005 for Exploration and Production of Hydrocarbons provides, “Information can be disclosed if no legitimate interest of the Licensee requires the information to be kept confidential; essential public interest outweigh Licensee’s interest in maintaining confidentiality”.
The most common cases in which the secrets of public officials are also protected through the exemption of trade secrets from disclosure are not far fetched:
First, the protection of trade secrets facilitates the protection of information on beneficial owners in oil deals including public officials who have significant stakes in oil deals often through local partners. This in many respects has promoted illicit financial flows through which not only private but public officials illegally transfer ill-gotten money, avoid payment of taxes on profits from their share of oil, transfer sensitive public information to private companies in which they have interest, and cover up information on mis-invoicing of trade in which they are tacitly participating.
Second, private oil companies by law engage local partners in their operations including securing of petroleum licenses. These local partners are often either owned by public officials or by people who are connected to powerful public officials. Even where due diligence by foreign companies reveals that their local partners do not have the necessary finances to finance their stakes, they carry them through these deals. Many examples of “soft carry” for local partner firms abound in Africa. However, since information on the identity of shareholders is mostly regarded a trade secret, which must be held confidential, such questionable local firms are protected to facilitate the plunder of public interest.
In Ghana’s model petroleum agreement, oil companies are even required not to disclose, “procurement plans, Subcontractors and contracts for the provision of services to Contractor” without the approval of public officials. This confirms the avowed interest of public officials to conspire to keep this information secret given that public officials may have stake in the subcontracting firms providing services to oil companies. This is particularly of interest in Ghana because the local content law requires indigenous local firms to hold a minimum equity of 5% in a petroleum license or 10% in a service company, but the Minister of Petroleum has power to decide persons who qualify to hold the minimum equity.
Third, many countries suffer significant losses from petroleum licensing. Fact is, many oil producing countries especially in Africa where public officials are corrupt; do not have transparent processes for awarding oil blocks to private companies. They argue that open and competitive bidding processes expose trade secrets to competing companies; which thereby make tem non-competitive globally as they may be interested in blocks elsewhere. Even in countries where open bidding is by law, it is often diluted by exceptional clauses that justify the use of direct negotiations. In most cases, direct negotiations of oil deals have become the norm rather than the exception.
The evidence emanating from licensing of oil blocks shows that public officials usually negotiate their interest in these deals and not that of the state, hence adopting open bidding processes might expose their interests and compromise benefits. A recent report by the Africa Progress Panel, under the chairmanship of Kofi Annan, suggests that in Africa, well-connected foreigners often purchase lucrative assets at prices far below market value, by offering inducements to predatory local élites and public officials. The incentive to use licensing processes that protect so-called trade secrets as well as the secrets of public officials is therefore very high.
It is important to state at this point that significant progress has been made recently on the disclosure regime for trade secrets. International and national campaigns on resource transparency have led to global norms for fighting secrecy in the oil industry and the extractive industries in general. Thus, today, there are private oil companies that support transparency measures and are implementing them in their public reporting; but reporting so far is limited to payments made to host governments and communities impacted by oil extraction. Much of the information that would expose the secrets of public officials remains trade secrets. Information such as beneficial owners in oil deals, the competence and financial capacity of local partner firms, the number and identity of affiliate firms, financial terms in contracts and subcontracts; and tax liability among others.
Preventing the Plunder – which way out?
To fight this canker of public official complicity in corrupt oil deals in the name of trade secrets, and to prevent the wanton looting of Africa’s oil wealth through private-public conspiracy; several proposals have been promoted for some time now; although their adoption has been undermined or at best delayed. For example, although the government of Ghana drafted a new Petroleum Bill to adopt an open public tender process for granting oil licenses, it took it almost two years to introduce it in Parliament for consideration, whilst in the process granting eleven (11) new oil contracts through non-transparent process.
There is need for radical action by citizens and public-spirited individuals determined to break their countries away from the plunder by public officials and their private collaborators. Some of the measures that must capture the attention of all progressive forces include the adoption of open and competitive bidding processes for oil blocks, mandatory contract disclosure requirements, disclosure requirements for beneficial ownership information, passing of comprehensive right to information laws with strong disclosure requirements, introducing anti-corruption clauses in oil contracts; and strengthening public sector institutions with capacity and adequate financial resources.
Importantly, demystifying trade secrets by removing confidentiality clauses from legislation and oil contracts will be revolutionary. Non-disclosure of the so-called trade secrets must be allowed where there is justification that disclosure outweighs public interest; and this justification should be provided through parliamentary processes rather than by executive or discretionary process.
Finally, the Ghanaian parliament has enormous responsibility to show courage in the face of government and industry lobby for the protection of secrets. Parliament will do justice to the people if the Right to Information Bill when passed, provides limited exemptions as well as provide for comprehensive conditions to warrant disclosure. This is the only way public officials and private companies can be scrutinized beyond their often “flimsy” justifications for the protection of trade secrets such as competitiveness and investment attraction.
Source: Dr. Mohammed Amin Adam
Executive Director – Africa Centre for Energy Policy