Petroleum Sector Corruption

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Petroleum Sector Corruption. OGMC/ PREM/ OPCS BBL Seminar Series Presenters: Charles McPherson, COCPO Stephen MacSearraigh, Consultant Discussants: Clive Armstrong, COCDR Erika Jorgensen, OPCCE. Outline of Presentation. “Paradox of Plenty” Ominous correlations Corruption typology - PowerPoint PPT Presentation

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Petroleum Sector Corruption

OGMC/ PREM/ OPCSBBL Seminar Series

Presenters:Charles McPherson, COCPO

Stephen MacSearraigh, Consultant

Discussants:Clive Armstrong, COCDRErika Jorgensen, OPCCE

Outline of Presentation

“Paradox of Plenty” Ominous correlations Corruption typology Relevant actors Oil value chain Remedies and responses Extractive Industries Transparency Initiative

(EITI)

“Paradox of Plenty”

Widespread resource wealth in developing countries

Potential for good has not been realised Resource rich developing countries have

experienced:

• Low per capita growth

• Slow progress on human development

• Social and political instability and violence

The Record in Oil-Rich Africa

Oil-rich countries include: Nigeria, Angola, Equatorial Guinea, Cameroon, Gabon, ROC, Sudan, Chad

Significant resources: 4MMBD or 5% of world production

High dependency:70% of government revenues Below average per capita Africa income Below average scores on infant mortality, life

expectancy, literacy Instability and violence: Nigeria, Angola, Chad,

Sudan, ROC…

“Awash in Oil, Mired in Poverty”

“Oil Fuels War and Corruption”

Role of Governance Good governance is critical…. Good governance has multiple features:

• Clear and stable laws and regulations• Rule of law• High level of capacity and skills in government • Fiscal monetary and budget discipline• Open dialogue between government and civil society• Public sector/private sector balance• Transparency• Control of corruption

Resource-rich developing countries do not score well on governance, or corruption…

Ominous Correlations:Oil and Governance

Venezuela

AzerbaijanIndonesia

Ecuador

Nigeria

Cameroon

Gabon

United Kingdom

Saudi Arabia

Russia

Colombia

Mexico

Malaysia

Kuwait

Norway

Chad

Angola

Algeria

Iran

155 CountriesStrong governanceWeak

governance

Ominous Correlations:Oil and Corruption

Country Country Score1 Finland 10.02 Denmark 9.834

New ZealandSweden

9.49.4

5 Canada 9.26 Norway 9.1

9 Netherlands 8.910 United Kingdom 8.71112

LuxembourgSwitzerland

8.68.6

13 Australia 8.314 USA 7.81516

AustriaHong Kong

7.77.7

17 Germany 7.618 Chile 7.419 Ireland 7.220 Spain 7.021 France 6.722 Israel 6.62324

JapanPortugal

6.46.4

25 Belgium 6.126 Botswana 6.027 Estonia 5.72829

SloveniaTaiwan

5.55.5

Country Country Score3031

Costa RicaNamibia

5.45.4

32 Hungary 5.233 Tunisia 5.234 South Africa 5.035 Greece 4.936 Malaysia 4.837 Mauritius 4.738 Morocco 4.73940

ItalyJordan

4.64.6

41 Peru 4.442 Czech Republic 4.343 Belarus 4.144 El Salvafor 4.145 Lithuania 4.146 Malawi 4.147 Poland 4.148 South Korea 4.049 Brazil 3.950 Turkey 3.851 Croatia 3.75253545556

ArgentinaBulgariaGhanaSenegalSlovak Republic

3.53.53.53.53.5

5758

LatviaZambia

3.43.4

59 Mexico 3.3

Country Country Score606162

ColombiaEthiopiaThailand

3.23.23.2

6364

ChinaEgypt

3.13.1

656667

Burkina FasoKazakhstanZimbabwe

3.03.03.0

68 Romania 2.96970

IndiaPhilippines

2.82.8

717273

BoliviaCôte-d’IvoireVenezuela

2.72.72.7

7475

EcuadorMoldova

2.62.6

767778

ArmeniaTanzaniaVietnam

2.52.52.5

79 Uzbekistan 2.480 Uganda 2.381 Mozambique 2.28283

KenyaRussia

2.12.1

84 Cameroon 2.08586

AngolaIndonesia

1.71.7

8788

AzerbaijanUkraine

1.51.5

89 Yugoslavia 1.390 Nigeria 1.2

Transparency International 2000 Corruption Perceptions Index:

Corruption as a Development Issue

Major threat to development Undermines ability of governments to

function properly Distorts markets Stifles private sector Encourages non-productive activity Reduces investment, incomes and growth

A Widely Recognized Challenge:Corruption Concerns in Developing

Countries

A Widely Recognized Challenge:International Community Initiatives

US FCPA (1977) Inter-American Convention on Corruption

(1966) OECD Convention Against Bribery (1997) UN Convention Against Corruption (2003) EITI (2002)

Special Features of the Petroleum Sector

Strategic significance (“Commanding Heights”)

Large margins Large transaction sizes Heavily regulated

Corruption Typology Policy corruption (sector policies, laws,

contracts, taxes…) Enforcement corruption (approvals, access,

fiscal administration, price controls, HSE regulations)

Procurement corruption (kickbacks, local content abuse)

Grand corruption (Niger Delta bunkering, diversion of funds, activities outside the sector…)

Relevant Actors

Governments (host and home) Industry (IOCs, NOCs and INOCs) “Big Men” Banks

Host Governments:“My Money to Spend”

Economist, January 6, 2001

“My Money to Spend,” says Deby.

Home Governments:“With Friends Like These…”

Big Men:“Following the Oil Money”

Washington Post, September 25, 2000

The Oil Value Chain

Exploration and production (licensing, laws, contracts, taxes, approvals procurement)

Trading and transport (liftings, invoicing, deliveries, theft, access to pipelines/terminals)

Refining and marketing (black markets, smuggling, theft, product adulteration)

Corporate (accounting, reporting, transparency)

Beyond the Oil Sector: Contributions to the “Paradox of Plenty”

Erosion of governance Weakens institutional capacity Undermines popular support/consensus

Remedies and Responses

Improved sector governance Broader context of reform Stakeholder engagement (civil society) Transparency (EITI)

Extractive Industries Transparency Initiative (EITI):

A Specific Response

Transparency has many dimensions:• Revenues

• Expenditures

• Policies

• Laws and regulations

• Administration

• Applies to all sectors EITI focuses on EI resource revenue

transparency as a manageable, meaningful starting point.

EITI Principles and Objectives

Ensure that resource revenues are properly accounted for and contribute to sustainable development and poverty reduction

Provide guidelines to stakeholders on auditing, reporting and disseminating information on resource payments and revenues

Facilitate TA in support of EITI implementation

EITI Implementation Criteria

Credible, independent audit of payments made and revenues received

Publication and widespread dissemination of the audit results in easily accessed format

Comprehensive coverage, i.e., all companies including NOCs

Engagement of civil society in the process Public, financially sustainable, time-bound

plan of implementation

Petroleum Sector Corruption

Thank you!

Questions or Comments?

Open for Discussion