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Petroleum Sector Corruption

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

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Petroleum Sector Corruption

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  1. Petroleum Sector Corruption OGMC/ PREM/ OPCS BBL Seminar Series Presenters: Charles McPherson, COCPO Stephen MacSearraigh, Consultant Discussants: Clive Armstrong, COCDR Erika Jorgensen, OPCCE

  2. Outline of Presentation • “Paradox of Plenty” • Ominous correlations • Corruption typology • Relevant actors • Oil value chain • Remedies and responses • Extractive Industries Transparency Initiative (EITI)

  3. “Paradox of Plenty” • 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

  4. The Record in Oil-Rich Africa • 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…

  5. “Awash in Oil, Mired in Poverty”

  6. “Oil Fuels War and Corruption”

  7. Role of Governance • Good governance is critical…. • Good governance has multiple features: • 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…

  8. Ominous Correlations:Oil and Governance

  9. Ominous Correlations:Oil and Corruption Transparency International 2000 Corruption Perceptions Index:

  10. Corruption as a Development Issue • 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

  11. A Widely Recognized Challenge:Corruption Concerns in Developing Countries

  12. A Widely Recognized Challenge:International Community Initiatives • US FCPA (1977) • Inter-American Convention on Corruption (1966) • OECD Convention Against Bribery (1997) • UN Convention Against Corruption (2003) • EITI (2002)

  13. Special Features of the Petroleum Sector • Strategic significance (“Commanding Heights”) • Large margins • Large transaction sizes • Heavily regulated

  14. Corruption Typology • 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…)

  15. Relevant Actors • Governments (host and home) • Industry (IOCs, NOCs and INOCs) • “Big Men” • Banks

  16. Host Governments:“My Money to Spend” “My Money to Spend,” says Deby. Economist, January 6, 2001

  17. Home Governments:“With Friends Like These…”

  18. Big Men:“Following the Oil Money” Washington Post, September 25, 2000

  19. The Oil Value Chain • 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)

  20. Beyond the Oil Sector: Contributions to the “Paradox of Plenty” • Erosion of governance • Weakens institutional capacity • Undermines popular support/consensus

  21. Remedies and Responses • Improved sector governance • Broader context of reform • Stakeholder engagement (civil society) • Transparency (EITI)

  22. Extractive Industries Transparency Initiative (EITI): A Specific Response • Transparency has many dimensions: • Revenues • Expenditures • Policies • Laws and regulations • Administration • Applies to all sectors • EITI focuses on EI resource revenue transparency as a manageable, meaningful starting point.

  23. EITI Principles and Objectives • 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

  24. EITI Implementation Criteria • 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

  25. Petroleum Sector Corruption Thank you! Questions or Comments? Open for Discussion

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