June 20, 2003

Discussion on oil industry transparency

As international calls grow for reform of the oil industry's business practices, Angola announced this week that oil corporations would invest US $23 billion in the country over the next five years. Mobil, BP, Total and ChevronTexaco are among the multinationals looking to expand their presence in Angola by building offshore production ships, a refinery and liquefied natural gas plant, Lloyds List reported from an Angola Oil and Gas Summit held in London this week.

Angola at present produces around one million barrels of oil per day, a figure likely to double over the next decade. "Angola's astonishing estimated growth rate of 18 percent in 2002 is almost entirely due to the fact that more than half of its GDP is attributable to the oil and gas industry. The industry accounts for more than 90 percent of Angola's exports, and around 90 percent of the government's revenue," said a World Bank study on corporate social responsibility in the Angolan oil industry

The Angola oil summit in London coincided with the unveiling on Tuesday of an Extractive Industries Transparency Initiative (EITI) by UK Prime Minister Tony Blair, which urges governments in the developing world and the oil and mining industry to be more open about revenues earned and payments made. "We aim to increase the commitment of the developed world to aid and to industry on the basis of partnership. In return, developing countries have to take measures towards governance. The transparency initiative is one part of that," Blair said.

The Financial Times reported that Nigeria, Africa's largest oil producer, and 10 other developing countries agreed to support the initiative and open their books for scrutiny.

According to Lloyds List, the Angolan Minster of Finance, Manuel Neto Da Costa, said his country was progressing with better transparency, and audits the accounts of the state oil firm Sonangol annually, but its efforts are hindered by the lack of any national statistics programme.

"In the past, we had off-budget transactions, so the budget lacked credibility," Angolan Deputy Prime Minister Aguinaldo Jaime said in a speech at an oil industry conference in London. "For the first time in Angola's history, the budget will encompass all revenue and that will send to the donor community the signal that the Angolan Government is committed to a fully transparent way of managing the budget." Jaime clarified that these figures will include all the country's oil revenues.

The investigation of the London-based Non-governmental Organisation Global Witness in Angola over the past two years have uncovered that at least US$1 billion per year - about a quarter of state income - appears to have been misappropriated from the state's coffers for the last five years. This missing money is over three-times the value of the international humanitarian aid that currently keeps about 10% of Angola's citizens alive.

The World Bank study on Angola's oil sector noted that the country was a mono-economy dominated by oil, at the expense of other productive sectors. The government's reliance on offshore oil revenues, a situation exacerbated by three decades of civil war, weakened the normal "social contract" between citizen taxpayers and the government.

"The potential for rent-seeking behaviour has been increased - i.e., only those with access to the oil sector can benefit, creating the incentives for patronage and lack of transparency," the study said. However, it added "there are small signals that there is a concerted government effort to improve the investment environment and transparency".

Transparency activists have been far more scathing, notably the UK-based Global Witness, which alleges that Angola's oil revenues benefit the political elite - accusations vehemently denied by the authorities. The rights group also contrasts oil earnings with Angola's dire social statistics - among the worst in the world.

The World Bank study noted that several oil companies interviewed did acknowledge that "the lack of transparent business practices in Angola was damaging their reputations overseas", but they were reluctant to raise the issue with the government. Apparently fearful of disclosing information to competitors, "the foreign oil companies would be willing, in principle, to disclose their payments to government, but will not do so unilaterally." (IRIN / Global Witness, London)

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