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
