Calls for oil-dealing governments, companies and banks to be more transparent have moved beyond the fringe, write Jon Marks and Thalia Griffiths.
Transparency in oil and other extractive industries has emerged as a very important issue, Nigerian finance minister Ngozi Okonjo-Iweala said in Dubai, where she was among the star performers at this year’s International Monetary Fund/World Bank annual meetings. President Olusegun Obasanjo has committed Nigeria to the Extractive Industries Transparency Initiative (EITI) as part of a wider clean-up campaign which, if implemented, could radically alter the business environment in Africa’s most populous country.
“What we need now is specificity to make EITI work,” Ms Okonjo-Iweala commented. “We need templates and [Western governments and institutions] to tell us what they need.”
This is starting to happen, in a process that no banker dealing in sub-Saharan Africa should ignore – as underlined by the decision of 10 major banks to commit to the Equator Principles. These guidelines address social and environmental sensitivities and wider governance concerns that beset project financings in Africa and other emerging markets. They are based on environmental and social screening policies and guidelines operated by the World Bank and its International Finance Corporation (IFC) affiliate.
Years of conflict
These policies have been worked out during years of criticism and conflict with a wide range of stakeholder groups, which were angry at the imposition of arbitrary policies and the potentials for high-level corruption inherent in big-ticket projects and the trading of resources.
Launch banks ABN Amro, Barclays, Citigroup, Crédit Lyonnais, Crédit Suisse, HypoVereinsbank, Rabobank, Royal Bank of Scotland, WestLB and Westpac Banking Corporation claimed the principles would become a new banking industry standard. This would help to reduce the controversy and transaction costs that beset projects such as the Chad-Cameroon oil pipeline and the Bujagali Falls hydropower scheme in Uganda. The elevation of oil transparency to the front line of policy was underlined on September 22, with a seminar held during the meetings to coincide with the IMF’s publication of a major new study, Fiscal Policy Formulation and Implementation in Oil-Producing Countries.
Much emphasis is being placed on the UK-led EITI, launched by Prime Minister Tony Blair and supported by BP, Royal Dutch/Shell and other international oil companies (IOCs).
BP got into trouble in oil exploration and production hot spot Angola, when in 2001 it took the unprecedented step of publishing what it paid to President José Eduardo dos Santos’ government. State oil company Sonangol’s response (copied to the other IOCs operating in Angola) was to threaten to terminate BP’s production-sharing agreement on the grounds that it had broken its contract by disclosing confidential information.
Campaign groups like the Soros Foundation’s revenue watch team and Global Witness have called for more corporates to “publish what you pay”. Karen Lissakers, a former US executive director at the IMF and now with Soros, says contractual issues can be overcome – indeed, governments could write transparency into law and federal law supersedes any non-disclosure clauses in the contracts.
Not everyone agrees. At the Dubai seminar, IMF executive director for 21 African states Ismaila Usman said that IOCs and contractors should take part of the blame for corruption in sub-Saharan Africa. “It takes two to tango, and we should not lose sight of the fact that oil companies [and contractors] are party to this [rent-seeking] process,” Mr Usman, the former Nigerian finance minister observed. African governments should be encouraged to clean up their acts with measures dear to the IMF’s heart, such as producing good data to help improve management.
But this had its limits, Mr Usman argued: the quiet accumulation of data, improved revenue management and good projects that deliver essential social goods to the poor are better than intimidating [governments] through ‘Publish What You Pay’ and other high-profile initiatives pushed by Western-based lobby groups.
Underlying tensions
This emphasised underlying tensions in the transparency debate. Publicly everyone agrees it is the poor who suffer from the misuse of resources; it is difficult to object to the EITI or Equator Principles. But equally difficult is the implementation of policies to ensure that transparency takes place. EITI and Equator are both voluntary, requiring the good faith of governments, banks and companies to work.
Such mechanisms might work in Norway, where resource misallocation, to provide a solid base for its future generations, is financed from hydrocarbons income in a tolerant open system where a range of stakeholders control income flows. Angola and Equatorial Guinea are a long way from Oslo, but even in these tropical oil frontiers calls for transparency are now impinging on governments, IOCs and the way projects are structured.
