Focus on oil industry transparency

As international calls grow for reform of the oil industry's business practices, Angola announced this week that oil corporations would invest US $23 billion in the country over the next five years. Mobil, BP, Total and ChevronTexaco are among the multinationals looking to expand their presence in Angola by building offshore production ships, a refinery and liquefied natural gas plant, Lloyds List reported from an Angola Oil and Gas Summit held in London this week. Angola at present produces around one million barrels of oil per day, a figure likely to double over the next decade. "Angola's astonishing estimated growth rate of 18 percent in 2002 is almost entirely due to the fact that more than half of its GDP is attributable to the oil and gas industry. The industry accounts for more than 90 percent of Angola's exports, and around 90 percent of the government's revenue," said a World Bank study on corporate social responsibility in the Angolan oil industry [www.sarpn.org.za]. The Angola oil summit in London coincided with the unveiling on Tuesday of an Extractive Industries Transparency Initiative (EITI) by UK Prime Minister Tony Blair, which urges governments in the developing world and the oil and mining industry to be more open about revenues earned and payments made. "We aim to increase the commitment of the developed world to aid and to industry on the basis of partnership. In return, developing countries have to take measures towards governance. The transparency initiative is one part of that," Blair said. The Financial Times reported that Nigeria, Africa's largest oil producer, and 10 other developing countries agreed to support the initiative and open their books for scrutiny. According to Lloyds List, the Angolan Minster of Finance, Manuel Neto Da Costa, said his country was progressing with better transparency, and audits the accounts of the state oil firm Sonangol annually, but its efforts are hindered by the lack of any national statistics programme. However, there was criticism this week by transparency campaigners that the voluntary disclosure approach of the EITI might not work in the face of corrupt officials, anxious to preserve secrecy, and companies eager to avoid conceding a possible competitive advantage, the Financial Times said. "A mandatory approach would make it easier for companies to do the right thing [by creating] a level playing field," Ian Gary, strategic issues adviser for Africa at the NGO Catholic Relief Services (CRS), was quoted as saying. A report by the CRS this week, "Bottom of the Barrel: Africa's Oil Boom and the Poor" [www.catholicrelief.org] argues that Western governments, international financial institutions, and the oil companies themselves, have a unique opportunity to help alleviate poverty and authoritarian rule - conditions that can be exacerbated by resource wealth. "Sub-Saharan Africa is in the midst of an oil boom. Foreign energy companies are pouring billions of dollars into the region for the exploration and production of petroleum. And African governments, in turn, are receiving billions of dollars... Without improving their democratic institutions and administrative capacity, it is unlikely that Africa's oil exporters will be able to use petrodollars to fuel poverty reduction," a CRS statement said. "Many aspects of the oil industry in Africa are concealed or shrouded in mystery, and key facts about oil are often treated as state secrets. Thus, it is difficult, if not impossible, to track how much money is being generated, or how these revenues are spent. Transparency depends on multinational oil companies publishing what they pay, and governments revealing what they spend." Without reform of business practices and government accounting, "oil riches most probably will continue to produce corruption and mismanagement, environmental destruction, human rights violations and conflict," the CRS said. The World Bank study on Angola's oil sector noted that the country was a mono-economy dominated by oil, at the expense of other productive sectors. The government's reliance on offshore oil revenues, a situation exacerbated by three decades of civil war, weakened the normal "social contract" between citizen taxpayers and the government. "The potential for rent-seeking behaviour has been increased - i.e., only those with access to the oil sector can benefit, creating the incentives for patronage and lack of transparency," the study said. However, it added "there are small signals that there is a concerted government effort to improve the investment environment and transparency". Transparency activists have been far more scathing, notably the UK-based Global Witness, which alleges that Angola's oil revenues benefit the political elite - accusations vehemently denied by the authorities. The rights group also contrasts oil earnings with Angola's dire social statistics - among the worst in the world [www.globalwitness.org]. Global Witness is part of the Publish What You Pay coalition of over 120 NGOs worldwide. The coalition is calling for regulations to force resource extraction companies to disclose what they pay the countries in which they operate in taxes, royalties and other fees. The World Bank study noted that several oil companies interviewed did acknowledge that "the lack of transparent business practices in Angola was damaging their reputations overseas", but they were reluctant to raise the issue with the government. Apparently fearful of disclosing information to competitors, "the foreign oil companies would be willing, in principle, to disclose their payments to government, but will not do so unilaterally."