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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/ OPCS BBL Seminar Series Presenters: Charles McPherson, COCPO Stephen MacSearraigh, Consultant Discussants: Clive Armstrong, COCDR Erika Jorgensen, OPCCE
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  • 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


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