NRCan Releases Updated ESTMA Implementation Tools

After reviewing the first reporting cycle under the Extractive Sector Transparency Measures Act (ESTMA) as well as conducting stakeholder consultation, Natural Resources Canada (NRCan) has released its updated guidance document (Guidance) and provided a new reporting template, released a new information sheet on reporting payments to Indigenous payees, and provided an updated verification checklist for use in future ESTMA reporting.

What You Need To Know

  • NRCan has introduced a new form of reporting template and verification checklist. However, while entities required to report under ESTMA are encouraged to report using the new form, reports for the 2017 reporting period using the prior form will be accepted.
  • Updated Guidance addressing a number of areas of concern and confusion among stakeholders has been released by NRCan, including a number of examples of the application of ESTMA. The Guidance now provides additional clarification on a number of matters, including the treatment of joint ventures, payments to Indigenous governments (together with the new information sheet), social payments, and reporting requirements for overcharging by governments in the provision of services and goods.

Who is Subject to ESTMA Reporting?

NRCan has provided further guidance on the reporting obligations of entities who control other entities whose business is the commercial development of oil, gas or minerals (commercial development). This is relevant to businesses and other organizations, such as private equity firms or governments, that (directly or indirectly) own oil, gas or mineral assets as part of their portfolios but that are not themselves primarily involved in the extractive sector.

These entities must independently register under ESTMA (in addition to their reporting subsidiary or portfolio companies) if they, or entities they control, make reportable payments. The parent/controlling entity will (a) identify the payments made by or attributed to entities that it controls and incorporate these payments into the parent's report, (b) subtract the payments reported in the subsidiary or controlled portfolio companies' reports from the payments in the parent's report, and (c) separately report any payments to the extent they have not otherwise been reported by their subsidiary or controlled portfolio companies (e.g., if a portfolio company did not itself meet the size thresholds for a reporting entity).

Test for Control

Consistent with the intended purpose of ESTMA, NRCan is emphasizing that control under ESTMA should be considered in substance over legal form. A business that may not have formal control over an entity involved in commercial development but that, through contractual or other arrangements, has effective decision-making authority or control over an entity may be subject to reporting under ESTMA. For example, control may exist where an entity exercises joint control over a joint venture or a private equity firm indirectly controls a subsidiary engaged in commercial development.

Joint Ventures

The updated Guidance clarifies that participants in joint ventures are expected to coordinate to ensure that either the operator is reporting payments made on behalf of the joint venture or non-operators are provided with the information needed to report their proportionate share of payments reportable under ESTMA. Determining ESTMA reporting obligations for joint ventures requires a case-by-case consideration of both (a) control (including the possibility of joint control), and (b) the separate rules on the attribution of payments.

The attribution rules treat a payment made for an entity (e.g., by an operator) as having been made by the entity (e.g., the non-operator). However, there has been a significant amount of concern in industry about how these rules apply and the practical challenges associated with gathering this information, especially in the context of large companies with a number of joint ventures across multiple jurisdictions.

In addition, NRCan has indicated that, while joint venture agreements existing prior to ESTMA may not have contemplated reporting obligations under ESTMA and similar legislation, reporting obligations should be considered in entering into and revising agreements moving forward.

Government Payees

NRCan explains that in reporting payments to a government payee, it is not necessary to specify the particular departments, agencies, boards, or other government bodies that received the payments. However, this level of detail is encouraged and may be included in a new section of the reporting template. In addition, NRCan has clarified that the term "government" is meant to be interpreted broadly to capture any group or organization that performs a power, duty, or function of government, and may include organizations not formally recognized as governments. This may include schools, hospitals, a non-for-profit organization with regulatory authority, or a charity funded by government.

Reporting Payments to Indigenous Payees

With payments to Indigenous payees made since June 1, 2017, now being reportable, the new information sheet on reporting payments to Indigenous payees and the updated Guidance seek to provide clarification with respect to which payments are reportable. Notably, while Impact Benefit Agreements (IBAs) themselves are not reportable, certain payments to payees such as the council for a First Nation, a treaty association, a development corporation, or a trust set up by a band administration under IBAs are potentially reportable under ESTMA.

Overpayments for Goods or Services

NRCan has now noted that, while payments to government payees made in the context of commercial transactions are not typically reportable under ESTMA, this will not be the case where the government payee is overcharging. Where use of the government payee for the provision of services or goods is a condition of commercial development, or the services or goods are not otherwise required, and the amount charged is in excess of the fair market value, the amount of the overpayment to the government payee will be reportable where in substance it falls within the specified categories of reportable payments (likely as a fee). Determining whether overcharging by a private business is reportable—where the use of that business is required as a condition of commercial development by a government—will require analysis on a case-by-case basis.

Social Payments

Community payments made as part of, or expressly required for, commercial development are likely reportable. NRCan has clarified that where a payment is required by, or negotiated with, a payee, this is an indication the payment may be reportable. This may include amounts paid for "no opposition" to a project.

We have previously written about the reporting requirements under ESTMA.1 Additional information can be found on the NRCan website.2

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1 See "New 'Publish What You Pay' Guidance from Natural Resources Canada."

2 See http://www.nrcan.gc.ca/mining-materials/estma/18192.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

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