IRIN Focus on oil industry transparency

A major two-day oil and gas conference due to begin on Monday in the Angolan capital, Luanda, has come under criticism prior to even getting under way. The British-based NGO, Global Witness, is challenging companies participating in the second annual conference, ‘Oil and Gas Investments in Angola’, to address head on issues regarding transparency and corruption. Already well known in Angola for a highly critical report, ‘A Crude Awakening’, the organisation believes that foreign oil companies could play a major role in increasing accountability of oil revenues which comprise 92 percent of Angola’s exports. “It is simply not acceptable,” said Simon Taylor of Global Witness, “for foreign oil companies to hide behind suggestions that they are not responsible for a significant proportion of Angola’s income from their direct payments.” Taylor argued that the conference is a perfect opportunity for companies “to end their complicity in the wholesale rip-off of Angolan state assets due to their lack of transparency”. His statement came on the heels of an announcement last week that the international firm, KPMG consultants, has been contracted to implement a diagnostic of Angola’s oil sector. Reports in Angola’s state-owned media implied that the contract marks the beginning of accountability in an industry which has long been steeped in allegations of corruption and mismanagement. The daily ‘Jornal De Angola’ reported on Tuesday that “KPMG is going to audit the oil sector”. It said the government’s objective is “rigour and transparency in the management of the country’s resources”. However, reports that KPMG’s contract, worth US $1.6m, is to audit the oil sector have been flatly denied by the company. “KPMG is a consulting firm, not an auditing firm,” said a KMPG spokesman in London. “The task [in Angola] is to put in place a financial monitoring system and a forecasting of future revenues.” Strictly speaking, an audit is an official examination of accounts and, according to KPMG’s spokesman, an “audit of previous years’ accounts of a company”. A diagnostic is less rigorous. KPMG’s 30-month two-part contract does not include a retroactive examination of the use of oil revenues. Critics of the programme said the distinction between an audit and a diagnostic is crucial to understanding the extent to which KPMG’s work might increase transparency in the oil sector. “This is the crux of the matter,” said Alex Vines, a senior researcher at Human Rights Watch in London. “An oil diagnostic is much weaker, particularly because it will not be back-dated. This is a crucial transparency issue.” In April this year, in response to the lack of transparency in the use of oil revenues, an agreement was finalised between the IMF, the World Bank and the Angolan government, to monitor oil funds as part of a broader Staff Monitored Program (SMP). However, asked whether its contract would improve transparency in the oil sector, KPMG’s spokesman said: “I can’t answer that question. I don’t know.” In Luanda, observers are cautious about the diagnostic. A senior diplomat said KPMG’s contract marks “a step in the right direction”. The diplomat said reports that the firm is expected to produce quarterly reports followed by a final report in late 2002 are a “positive sign”. However, the government has not yet agreed to authorise the public release of reports relating to the findings of the diagnostic. Global Witness said the lack of public access to information on oil funds is a crucial human rights matter. Most Angolans, argued Taylor, do not even know the amount of money the government gains from oil production. “If you are an Angolan and you want to hold your government to account about oil funds, you can’t because you can’t even find out how much money is there in the first place,” he told IRIN. Currently, Global Witness is trying to encourage oil companies operating in Angola to publish their tax and royalty payments to the government. However, the organisation is experiencing some resistance. “The companies you might expect to welcome the move - those that have moved their social thinking - don’t want to be exposed by default because of those who have said ‘no’,” he stated. A member of the foreign oil industry in Luanda estimates that taxes and royalties to the Angolan government from oil companies amount to around US $200 million each month. However, the source admitted that it would be difficult to gain that information from outside the industry and even harder to discover how that money is spent by the government. In his opinion, KPMG’s work is the beginning of a very long and slow process which might, in years to come, push the oil industry towards transparency. Angola currently produces an estimated 750,000 barrels of oil a day. Government figures estimate that production will rise in 2001 to 900,0000 bpd, increasing to 1.4 million bpd in 2004. However, the ‘Financial Times’ reported earlier this month that optimistic forecasts that by 2015, production would reach 2.5m bpd, have faded. One analyst has suggested that production next year could fall to 725,000 bpd.