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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

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petroleum sector corruption
Petroleum Sector Corruption


BBL Seminar Series


Charles McPherson, COCPO

Stephen MacSearraigh, Consultant


Clive Armstrong, COCDR

Erika Jorgensen, OPCCE

outline of presentation
Outline of Presentation
  • “Paradox of Plenty”
  • Ominous correlations
  • Corruption typology
  • Relevant actors
  • Oil value chain
  • Remedies and responses
  • Extractive Industries Transparency Initiative (EITI)
paradox of plenty
“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
the record in oil rich africa
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…
role of governance
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…
ominous correlations oil and corruption
Ominous Correlations:Oil and Corruption

Transparency International 2000 Corruption Perceptions Index:

corruption as a development issue
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
a widely recognized challenge international community initiatives
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)
special features of the petroleum sector
Special Features of the Petroleum Sector
  • Strategic significance (“Commanding Heights”)
  • Large margins
  • Large transaction sizes
  • Heavily regulated
corruption typology
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…)
relevant actors
Relevant Actors
  • Governments (host and home)
  • Industry (IOCs, NOCs and INOCs)
  • “Big Men”
  • Banks
host governments my money to spend
Host Governments:“My Money to Spend”

“My Money to Spend,” says Deby.

Economist, January 6, 2001

big men following the oil money
Big Men:“Following the Oil Money”

Washington Post, September 25, 2000

the oil value chain
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)
beyond the oil sector contributions to the paradox of plenty
Beyond the Oil Sector: Contributions to the “Paradox of Plenty”
  • Erosion of governance
  • Weakens institutional capacity
  • Undermines popular support/consensus
remedies and responses
Remedies and Responses
  • Improved sector governance
  • Broader context of reform
  • Stakeholder engagement (civil society)
  • Transparency (EITI)
extractive industries transparency initiative eiti a specific response
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.
eiti principles and objectives
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
eiti implementation criteria
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
petroleum sector corruption1
Petroleum Sector Corruption

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