One of the last lingering attempts by David Cameron to detoxify the Tory brand is his commitment to keep international development spending at 0.7% – despite misgivings from his party.

In keeping with this compassionate conservatism, the prime minister used a speech in Nigeria last July to trumpet support for greater accountability and transparency of the extractive industry. He told an audience that it was "vital that when foreign companies invest in a country, the benefits of that investment reach the African people", before adding for good measure that he wanted to "disclose the payments our companies make to your governments so you can hold your governments to account for the money they receive".

Fine words indeed, and the publication last year of the EU accounting and transparency directives has given Cameron's government the chance to put into practice what it has supported in public. It is an opportunity it is doing its best to flunk.

AstraZeneca, Rio Tinto, Shell and others have been persistent in lobbying MEPs and governments for nearly a year in a bid to water down the legislation. In the European parliament it doesn't seem to have worked on the main reforms.

MEPs from across the political spectrum want extractive companies to disclose all payments of more than €25,000 made to governments, ranging from direct payments, bonus schemes and tax payments to their properties and running costs, in their annual report which must then be subject to a thorough audit. Even then, the €25,000 figure is well above the £10,000 threshold on the London Stock Exchange's AIM programme, the international market for growing companies. They also want the reporting requirements to apply on an individual project-by-project basis.

So it would be logical to think that Cameron and his ministers would back this position? Wrong.

A letter from the business minister Norman Lamb which was passed to me reveals the coalition's duplicity. In it, Lamb urged the Publish What You Pay group to accept a feeble compromise favoured by the government on the grounds that "it would be a real pity if we cannot agree any European level requirements as a result of sticking out for a more comprehensive outcome".

The reality is that the coalition's compromise strips out the most important provisions from the legislation. Papers detailing the government's negotiating strategy in Brussels indicate that the government wants the threshold for payments to be €500,000, with no auditing requirements. NGOs on the ground say that this would mean that most illicit payments would never be disclosed.

Even more importantly, it flatly opposes any project-by-project reporting of payments. Project-by-project reporting is the most effective way of stamping out illicit payments, while also shining a light on whether local communities benefit from the exploitation of their natural resources. Lord Browne, a former chief executive of oil company BP, has stated that the legislation will only work if companies are required to disclose payments by project.

The government's somewhat spurious claim is that this would impose an unfair burden on businesses and damage their competitiveness. But it is difficult to believe that a company would lose business for being honest and transparent. The US certainly does not share these fears, where the Dodd–Frank Wall Street Reform and Consumer Protection Act already includes project-by-project reporting.

The perversity of the government's position is that developing nations would need far less aid if they were allowed to get a decent chunk of revenue from exploiting their own resources. Today, even in a climate where there are no reporting requirements for extractive companies, Africa's income from its resources is six times the amount it receives in aid.

On political, economic and moral grounds, the case for project-by-project reporting is unarguable. We should be able to see where extractive companies are operating, whether they are paying a fair price and whether governments are selling their people short by giving their country's mineral wealth away too cheaply.

In his Nigeria speech, Cameron rightly stated that "mineral wealth should be a blessing not a curse", and it is hard to see why the coalition wants to shoot down reforms that would put this rhetoric into reality. But if they do, no amount of hand-wringing will hide the hypocrisy.

• The Publish What You Pay coalition has responded to this article below