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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 governance
Ominous Correlations:Oil and Governance

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 corruption concerns in developing countries
A Widely Recognized Challenge:Corruption Concerns in Developing Countries

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

Home governments with friends like these
Home Governments:“With Friends Like These…”

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 Plenty”

  • 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): Plenty” 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 Plenty”

  • 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 Plenty”

  • 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 Plenty”

Thank you!

Questions or Comments?

Open for Discussion