Submission to Discussion Paper DP/2010/1 on Extractive Activities

We refer to the Discussion Paper (DP) on an International Financial Reporting Standard (IFRS) for Extractive Activities. Commenting as an investor and not a preparer of financial reporting, Norges Bank Investment Management (NBIM) supports the project team’s research and conclusions, and we welcome the opportunity to contribute to the process.

NBIM is the investment management division of the Norwegian central bank (Norges Bank) and is responsible for investing the international assets of the Norwegian Government Pension Fund. NBIM also manages the major share of Norges Bank's foreign exchange reserves and the Government Petroleum Insurance Fund. NBIM holds assets worth approximately NOK 2800 billion (€350 billion), of which a substantial part is invested in companies engaged in extractive activities.

Being supportive of the overall conclusions on scope, approach, definition, recognition, measurement, impairment, disclosure objectives and types, we think it is important to keep in mind the premise of IASB reporting in which “the objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions”. To this end, we encourage the IASB to explore both the need for a dedicated IFRS and the usefulness of IFRS compared to other requirements of disclosure.

We think that reporting of benefit streams from oil, gas and mining companies to host governments or their agents has several advantages. From an investment decision standpoint global, appropriate and standardized accounting of government dealings on a country-by-country basis will increase the understanding of a company’s access to markets, risk profile and cost of resources, and improve evaluation of the companies’ use of funds for investment. Comparable information would be, where material, a important tool in valuing a company.

Several companies already voluntarily report benefit streams following up on international voluntary initiatives such as the Extractive Industries Transparency Initiative (EITI). Recently we have seen the development of stock exchange listing requirements in Hong Kong and the USA that require disclosure of payments to governments and on material risk of an entity’s extractive activitites. Although we view these initiatives to improve transparency as positive, we also recognize that the diversity in disclosure and financial reporting results in a lack of comparability. The development of an internationally accepted global reporting standard would therefore be welcomed.

As a universal owner with an increasing interest in emerging markets and significant holdings in many companies in the extractive industry, NBIM also sees clear benefits from reporting of benefit streams to reduce the scope for corruption. Corruption diminishes the value of our global portfolio and we consider appropriate reporting to be an efficient way to address corruption linked to benefit streams. We also recognize that the publication of such data, ideally matched by public government records, will, as a beneficial side-effect, be a valuable impetus to improved governance in many resource-rich countries.

NBIM commends the ambition to improve financial reporting for extractive activities as we need improved disclosure. NBIM supports the premise that reporting should be limited to information that is material in economic decision making and significant for the company in question. We also see that payments to governments and related arrangements can be material in the valuation of the company.

Yours sincerely