Petroleum Sector CorruptionOGMC/ PREM/ OPCSBBL Seminar Series
Presenters:Charles McPherson, COCPOStephen MacSearraigh, Consultant
Discussants:Clive Armstrong, COCDRErika Jorgensen, OPCCE
Outline of PresentationParadox of PlentyOminous correlationsCorruption typologyRelevant actorsOil value chainRemedies and responsesExtractive Industries Transparency Initiative (EITI)
Paradox of PlentyWidespread resource wealth in developing countriesPotential for good has not been realisedResource rich developing countries have experienced:Low per capita growthSlow progress on human developmentSocial and political instability and violence
The Record in Oil-Rich AfricaOil-rich countries include: Nigeria, Angola, Equatorial Guinea, Cameroon, Gabon, ROC, Sudan, Chad Significant resources: 4MMBD or 5% of world productionHigh dependency:70% of government revenuesBelow average per capita Africa incomeBelow average scores on infant mortality, life expectancy, literacyInstability and violence: Nigeria, Angola, Chad, Sudan, ROC
Awash in Oil, Mired in Poverty
Oil Fuels War and Corruption
Role of GovernanceGood governance is critical.Good governance has multiple features:Clear and stable laws and regulationsRule of lawHigh level of capacity and skills in government Fiscal monetary and budget disciplineOpen dialogue between government and civil societyPublic sector/private sector balanceTransparencyControl of corruption Resource-rich developing countries do not score well on governance, or corruption
Ominous Correlations:Oil and Governance
Ominous Correlations:Oil and CorruptionTransparency International 2000 Corruption Perceptions Index:
Country
Country
Score
1
Finland
10.0
2
Denmark
9.8
3
4
New Zealand
Sweden
9.4
9.4
5
Canada
9.2
6
Norway
9.1
9
Netherlands
8.9
10
United Kingdom
8.7
1112
Luxembourg
Switzerland
8.6
8.6
13
Australia
8.3
14
USA
7.8
1516
Austria
Hong Kong
7.7
7.7
17
Germany
7.6
18
Chile
7.4
19
Ireland
7.2
20
Spain
7.0
21
France
6.7
22
Israel
6.6
2324
Japan
Portugal
6.4
6.4
25
Belgium
6.1
26
Botswana
6.0
27
Estonia
5.7
2829
Slovenia
Taiwan
5.5
5.5
Country
Country
Score
3031
Costa Rica
Namibia
5.4
5.4
32
Hungary
5.2
33
Tunisia
5.2
34
South Africa
5.0
35
Greece
4.9
36
Malaysia
4.8
37
Mauritius
4.7
38
Morocco
4.7
3940
Italy
Jordan
4.6
4.6
41
Peru
4.4
42
Czech Republic
4.3
43
Belarus
4.1
44
El Salvafor
4.1
45
Lithuania
4.1
46
Malawi
4.1
47
Poland
4.1
48
South Korea
4.0
49
Brazil
3.9
50
Turkey
3.8
51
Croatia
3.7
5253545556
Argentina
Bulgaria
Ghana
Senegal
Slovak Republic
3.5
3.5
3.5
3.5
3.5
5758
Latvia
Zambia
3.4
3.4
59
Mexico
3.3
Country
Country
Score
606162
Colombia
Ethiopia
Thailand
3.2
3.2
3.2
6364
China
Egypt
3.1
3.1
656667
Burkina Faso
Kazakhstan
Zimbabwe
3.0
3.0
3.0
68
Romania
2.9
6970
India
Philippines
2.8
2.8
717273
Bolivia
Cte-dIvoire
Venezuela
2.7
2.7
2.7
7475
Ecuador
Moldova
2.6
2.6
767778
Armenia
Tanzania
Vietnam
2.5
2.5
2.5
79
Uzbekistan
2.4
80
Uganda
2.3
81
Mozambique
2.2
8283
Kenya
Russia
2.1
2.1
84
Cameroon
2.0
8586
Angola
Indonesia
1.7
1.7
8788
Azerbaijan
Ukraine
1.5
1.5
89
Yugoslavia
1.3
90
Nigeria
1.2
Corruption as a Development Issue Major threat to developmentUndermines ability of governments to function properlyDistorts marketsStifles private sectorEncourages non-productive activityReduces investment, incomes and growth
A Widely Recognized Challenge:Corruption Concerns in Developing Countries
A Widely Recognized Challenge:International Community InitiativesUS 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 SectorStrategic significance (Commanding Heights)Large marginsLarge transaction sizesHeavily regulated
Corruption TypologyPolicy 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 ActorsGovernments (host and home)Industry (IOCs, NOCs and INOCs)Big MenBanks
Host Governments:My Money to SpendEconomist, January 6, 2001My Money to Spend, says Deby.
Home Governments:With Friends Like These
Big Men:Following the Oil MoneyWashington Post, September 25, 2000
The Oil Value ChainExploration 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 PlentyErosion of governanceWeakens institutional capacityUndermines popular support/consensus
Remedies and ResponsesImproved sector governanceBroader context of reformStakeholder engagement (civil society)Transparency (EITI)
Extractive Industries Transparency Initiative (EITI): A Specific ResponseTransparency has many dimensions:RevenuesExpendituresPoliciesLaws and regulationsAdministrationApplies to all sectorsEITI focuses on EI resource revenue transparency as a manageable, meaningful starting point.
EITI Principles and ObjectivesEnsure that resource revenues are properly accounted for and contribute to sustainable development and poverty reductionProvide guidelines to stakeholders on auditing, reporting and disseminating information on resource payments and revenuesFacilitate TA in support of EITI implementation
EITI Implementation CriteriaCredible, independent audit of payments made and revenues receivedPublication and widespread dissemination of the audit results in easily accessed formatComprehensive coverage, i.e., all companies including NOCsEngagement of civil society in the processPublic, financially sustainable, time-bound plan of implementation
Petroleum Sector Corruption
Thank you!Questions or Comments?Open for Discussion
