Quebec mining and oil and gas industries must now comply with the Regulation respecting the application of the Act respecting transparency measures in the mining, oil and gas industries (Regulation), which came into force on August 3, 2017. The Act is designed to impose transparency measures in the mining and oil and gas industries, discourage and detect corruption and foster the social acceptability of projects and closely mirrors the federal Extractive Sector Transparency Measures Act (ESTMA).
The Act provides for reporting requirements with respect to payments made to government and municipal bodies and aboriginal payees. The first reporting deadline under the Act is set for December 31, 2017.
We also note that on August 17, 2017, the Ministère de l’Énergie et des Ressources Naturelles (MERN) published Guidelines for the application of the Act respecting transparency measures in the mining, oil and gas industries (Guidelines) for consultation. Once finalized, the Guidelines will set out the government’s expectations for compliance with the Act. Interested persons may submit their comments on the Guidelines by September 15, 2017. The comments must be submitted online through the web platform created by MERN.
THE ACT’S REPORTING REQUIREMENTS
As set out in our June 2015 Blakes Bulletin: Drilling Down on Transparency: Quebec Introduces Bill Requiring Reporting For Mining, Oil & Gas Industries, the Act’s reporting requirements apply to entities that either: are engaged in the exploration for, or development of, mineral substances or hydrocarbons; hold a permit, right, licence, lease or other authorization to carry out such activities; or control an entity engaged in such activities or an entity holding such authorizations, and which meet at least one of the following requirements:
- The entity is listed on a stock exchange in Canada and has its head office in Quebec
- The entity has an establishment, exercises activities or has assets in Quebec, and based on its consolidated financial statements, during one of its two most recent fiscal years, meets at least two of the following thresholds:
- It has at least C$20-million in assets
- It has generated at least C$40-million in revenues
- It employs an average of at least 250 employees.
Entities subject to the Act are required to provide a statement to the Autorité des marchés financiers (AMF) annually declaring all “payments”, monetary or in kind, made within a category of payments determined by the Act to the same “payee” in that fiscal year, if their total value is equal to, or greater than C$100,000.
“Payee” is broadly defined to include six categories of beneficiaries: all levels of government, a body established by two or more governments, all types of municipalities and the Kativik Regional Government, a body established to exercise public functions on behalf of any of the above payees, a Native nation, community or group of communities and any other payee that the government may designate by regulation. Payments made to intermediaries are caught by the Act as well.
The Act establishes eight categories of “payments” that must be reported: taxes and income tax other than consumption taxes and personal income taxes, royalties, fees, production entitlements, dividends (other than those received as an ordinary shareholder), bonuses, contributions for infrastructure construction or improvement and any other payments that the government may designate by regulation.
REGULATION AND GUIDELINES
The Regulation sets out the form of the annual statement required to be filed with AMF, the currency conversion options for the calculation of payments made in non-Canadian currency and the list of jurisdictions whose reporting requirements with competent authorities are recognized as acceptable substitution for the filing of the annual statement with AMF under the Act. Currently, the Regulation designates Canada (the reporting to Natural Resources Canada under ESTMA) and 30 EU and European Economic Area (EEA) jurisdictions as “alternative” competent authorities for the purposes of the Act. It should be noted that a reporting entity wishing to take advantage of the substitution mechanism must, nevertheless, file the substitute statement with AMF.
The annual statement or the substitute statement must be certified by a director or officer of the reporting entity or an independent auditor and must be transmitted to AMF using the System for Electronic Document Analysis and Retrieval (SEDAR). The statement transmitted via SEDAR will be public and available for consultation by the general public.
The Guidelines clarify several requirements set forth in the Act. Notably, the Guidelines expand on what activities are covered by the Act, which include prospecting, exploration or extraction of metals and non-metallic ore, hydrocarbons, brine and surface mineral substances in Quebec or abroad. Processing operations, such as oil refining, metal smelting and alloy production, transportation and export, are excluded from the Act’s application. However, it proposes that ore processing activities be covered when they occur at the mine. In addition to mining and oil and gas companies, forestry and construction companies may also be subject to the Act. An entity can be subject to the Act even if its operations are located outside of Quebec.
The Guidelines clarify the reporting obligation in case of business arrangements involving consortiums, groups of companies and production sharing arrangements. They also provide guidance on the payments subject to the Act and the calculation and reporting thereof, as well as expand on other provisions of the Act.
As a reminder, the Act applies to fiscal years that began from October 22, 2015. For fiscal years beginning between October 22, 2015 and July 31, 2016, statements must be provided no later than December 31, 2017. Entities whose fiscal year began on or after August 1, 2016 must file their statements no later than the 150th day following the end of their fiscal year. However, entities are not required to report payments made to aboriginal payees before June 1, 2017. The Act provides for administrative monetary penalties and penal proceedings in the event of failure to comply with the Act.
Entities engaged, directly or indirectly, in mining or oil and gas related activities should consider whether the Act applies to their activities and if necessary, take action to ensure the timely compliance with the Act. Parties who wish to clarify or relay concerns related to interpretation provided in the Guidelines should submit their comments to MERN by no later than September 15, 2017.