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
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“Paradox of Plenty”
Ominous correlations
Corruption typology
Relevant actors
Oil value chain
Remedies and responses
Extractive Industries Transparency Initiative
(EITI)
“Paradox of Plenty”
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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
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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
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Good governance is critical….
Good governance has multiple features:
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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
Ominous Correlations:
Oil and Corruption
Transparency International 2000 Corruption Perceptions Index:
Country
1
2
3
4
5
6
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Country
Finland
Denmark
New Zealand
Sweden
Canada
Norway
Netherlands
United Kingdom
Luxembourg
Switzerland
Australia
USA
Austria
Hong Kong
Germany
Chile
Ireland
Spain
France
Israel
Japan
Portugal
Belgium
Botswana
Estonia
Slovenia
Taiwan
Score
10.0
9.8
9.4
9.4
9.2
9.1
8.9
8.7
8.6
8.6
8.3
7.8
7.7
7.7
7.6
7.4
7.2
7.0
6.7
6.6
6.4
6.4
6.1
6.0
5.7
5.5
5.5
Country
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
Country
Costa Rica
Namibia
Hungary
Tunisia
South Africa
Greece
Malaysia
Mauritius
Morocco
Italy
Jordan
Peru
Czech Republic
Belarus
El Salvafor
Lithuania
Malawi
Poland
South Korea
Brazil
Turkey
Croatia
Argentina
Bulgaria
Ghana
Senegal
Slovak Republic
Latvia
Zambia
Mexico
Score
5.4
5.4
5.2
5.2
5.0
4.9
4.8
4.7
4.7
4.6
4.6
4.4
4.3
4.1
4.1
4.1
4.1
4.1
4.0
3.9
3.8
3.7
3.5
3.5
3.5
3.5
3.5
3.4
3.4
3.3
Country
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
Country
Colombia
Ethiopia
Thailand
China
Egypt
Burkina Faso
Kazakhstan
Zimbabwe
Romania
India
Philippines
Bolivia
Côte-d’Ivoire
Venezuela
Ecuador
Moldova
Score
3.2
3.2
3.2
3.1
3.1
3.0
3.0
3.0
2.9
2.8
2.8
2.7
2.7
2.7
2.6
2.6
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
Armenia
Tanzania
Vietnam
Uzbekistan
Uganda
Mozambique
Kenya
Russia
Cameroon
Angola
Indonesia
Azerbaijan
Ukraine
Yugoslavia
Nigeria
2.5
2.5
2.5
2.4
2.3
2.2
2.1
2.1
2.0
1.7
1.7
1.5
1.5
1.3
1.2
Corruption as a
Development Issue
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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
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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
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Strategic significance (“Commanding
Heights”)
Large margins
Large transaction sizes
Heavily regulated
Corruption Typology
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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
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Governments (host and home)
Industry (IOCs, NOCs and INOCs)
“Big Men”
Banks
Host Governments:
“My Money to Spend”
“My Money to Spend,” says Deby.
Economist, January 6, 2001
Home Governments:
“With Friends Like These…”
Big Men:
“Following the Oil Money”
Washington Post, September 25, 2000
The Oil Value Chain
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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”
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Erosion of governance
Weakens institutional capacity
Undermines popular support/consensus
Remedies and Responses
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Improved sector governance
Broader context of reform
Stakeholder engagement (civil society)
Transparency (EITI)
Extractive Industries Transparency
Initiative (EITI):
A Specific Response
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Transparency has many dimensions:
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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
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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
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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