OpenOil is launching a project to map the corporate supply chain in the oil sector, combining Big Data techniques and collaboration with domain experts on the ground. We are piloting this approach in Nigeria and invite you to join us.
An article from the Petroleum Economist last week was a reminder of just how much supply chain has mattered for shale oil and gas development in the United States, and this is true everywhere. Project development depends on the nature of the service companies and other entities up and down the supply chain. But the taxonomy of this industry is an undercovered part of the value chain in extractives governance.
This is the first of three blogs we’ll be posting as the Next Generation Governance initiative progresses, and we’re interested in your ongoing feedback. If you’re working on corporate supply chain issues in the oil sector, we want to know what you’re doing, whether you are in Nigeria or elsewhere.
Our approach is designed to be compatible with the new global standard of the Extractive Industries Transparency Initiative (EITI), which includes company disclosure of beneficial ownership as a core recommendation for implementing countries, of which there are currently 39. We are also exploring the possibility of geo-mapping contract areas by coordinates, which EITI requires in its country reports, to see what connections might be drawn between a contract area and social or environmental issues, for example.
But our main focus at this early stage is on supply chains. Here’s how the project works. Preliminary public domain data scrapes have found references to hundreds of companies operating in the Nigerian oil sector, from the upstream, midstream and downstream sectors, including service, finance and transport companies. So far we’ve found, for example, that the ownership network of the service company Tuboscope Vetco Nigeria Limited goes six levels and three countries deep. We’ve also noted the presence of many maritime companies, hinting at the growing importance of Nigeria’s offshore oil sector.
Now that we have the raw data, we need to do two things. First, in the next couple of weeks, see if we can cross-fertilize with other public domain data sets, such as media scrapes and research documents, to see if we can establish relationships between those companies – who owns who, who has a contract with who, who serves on the board of which company. And second, to work with global and local domain experts to confirm or reject the leads offered by the pattern seeking on the raw data.
Ultimately, we aim to put in place a process which can be maintained and extended by interested parties in-country, to keep an up-to-date guide to who’s who in the Nigerian industry.
We are working with two global level technology partners: with OpenCorporates to map the beneficial ownership structures, and with the Open Knowledge Foundation to layer the other types of relationships on top of that. We are also in contact with potential Nigerian partners on the ground.
All this scraping, scrumping and dataset hunting will culminate in a ‘data expedition‘ on the weekend of November 30, which you can participate in from anywhere in the world. We’ll bring together oil experts, global governance activists and tecchies – people with interest and experience working with data – to start applying these datasets to the real world.
The data ‘explorers’, as the School of Data who pioneered the method calls them, will start drawing connections between datasets to discover what stories this data can tell. We will see what the data can teach us about companies or individuals in the news recently, and may dive into a deeper investigation of one or two entities which seem particularly interesting.
Most important to us, though, is that the project galvanizes civil society in its efforts to improve governance of the oil sector, in Nigeria and elsewhere. So we invite you to join us no matter where you are. If you are interested in learning more about the project or relating your experience working on supply chain issues, email project coordinator Amrit Naresh at firstname.lastname@example.org.
Are you looking for a way into promoting transparency and public understanding of your country’s oil and gas contracts? At OpenOil we are looking for partners to work with across the world to take the conversation around contracts to the next level by beginning to examine oil contracts country by country, working with model contracts.
We would like to identify by Friday October 19th partners in five countries who we will work with over the next few months to produce a joint preliminary of model contracts. OpenOil will contribute professional technical advice to enable country-level partners to formulate a list of questions to be addressed to government on those model contracts. We will then jointly publish the questions in English and any relevant national language.
If you or your organisation would like to work on this with us, please fill in the form here by then. We guarantee to work with partners in five countries to publish such analysis by March 1, 2014. See below for more detail.
What Are Model Contracts and What We Want to Do With Them?
Only a few countries have already published their final signed contracts. But many more have published “model contracts” which give the general structure and language, and many of the terms. These are industry documents in fact published to give oil companies an idea of the likely agreements to be signed, so that they can determine whether they would like to bid or not.
Model contracts have limitations. They do not contain the all-important financial terms, and you can never be certain that any particular clause or article has been retained in the same form in the final signed contract – the government and companies may have negotiated changes.
But they do represent a general structure to the contracts. And that allows the public in oil producing countries to begin work on understanding contracts, which lie right at the heart of the industry, by getting an idea of the structure of their country’s contracts.
What we basically want to achieve is that each country gets more specific and moves away from a general, theoretical debate of “why should contracts be published” to “what are the specific questions around these contracts in this country” such as “What bonuses are due to be paid at the start of commercial production?” or “How much money the contract specifies to be spent on social projects in areas where Petroleum is produced?”
This process itself should answer one of the main objections put forward by those who oppose contract transparency – what public use or understanding could come of it? Analysis of the model contract also familiarises people with the basics of understanding and reading their country’s oil sector contracts.
OpenOil and the Center for Public Integrity pioneered this approach in Mozambique this summer, when it jointly publishing a list of questions on the Mozambique model contract of the 4th licensing round, which closed in 2010 with an award of the Lower Zambesi area to the Norwegian company DNO. The letter was addressed to Esperanca Bias, Mozambique’s Minister of Resources, on the occasion of Mozambique’s accession to the EITI mechanism, and as a result the minister was asked about the confidentiality of Mozambique’s contracts at a press conference at the EITI summit in Sydney, Australia.
This is only the start. We know that either model or signed contracts for the following countries are currently publicly available: Afghanistan, Angola, Azerbaijan, Bangladesh, Brazil, Burkina Faso, Cambodia, Colombia, Congo, Cyprus, DRC, Ecuador, Equatorial Guinea, Ethiopia, Ghana, India, Iraq, Jordan, Kenya, Liberia, Libya, Mauritania, Mexico, Mongolia, Mozambique, Nicaragua, Peru, Senegal, Sierra Leone, Tanzania, East Timor, Trinidad and Tobago, Turkmenistan, Uganda.
Whatever changes Mexico’s energy sector will take, they will be radical compared to the status quo. At least this is what one might think, having followed Mexico`s energy reform debate since 2008 and president Nieto’s announcements following his ascent to power in December 2012. The wind of change to Mexico’s heavy crude is blowing.
I doubt that. A lot. And having put some thought to what the options are for Mexico`s production impasse, I finally concluded that the options are very slim. The energy industry is in a political Catch-22 situation, allowing for no substantial reform. There is such a great need for reform to revive the sector that there might be some change. But not enough to attract investment on the grand scale needed.
Since 2004 Mexico’s oil and gas industry output has nose-dived, and with it, its exports to the U.S.. Varying by grade, Mexico’s production of heavy crude oil fell by an astonishing 46 percent from 2004 to 2012 (mainly due to steep production declines of the Cantarell field). At the same time, exports to the US fell by 34 percent, decreasing Mexico’s share of total U.S. crude oil imports to 11 percent in 2012 from 16 percent in 2003.
More worrying note for Mexico, however, this decrease in production has come about with an increasing per capita consumption of energy over the last decades and some specialists estimate that Mexico’s energy demand and production will cross between 2018 and 2000, if no sector reforms happen. A dismal future taking the fact that one third of Mexico’s budget is currently financed through its oil and gas income.
No wonder that Mexico`s Congress enacted energy reform legislation which allowed foreign companies to participate in the oil sector through service contracts (Under a service contract the right to explore and take ownership of the oil once it is extracted, does not transfer to the IOC – more information on contract types here). To counter this downward trend in production, however, this is not enough.
In order to overhaul more than 60 years of state control over the energy sector, Nieto would have to amend the constitution to allow at least partial foreign ownership of Mexican oil. Articles 25, 27 and 28 are in play, of which article 27 is regarded as the most contentious one as it prohibits concession agreements.
Earlier this year he openly floated the idea of selling a minority stake in Mexico`s state-owned oil giant Pemex, a partial privatization à la Brazil’s Petrobras. But is questionable how radical his reform propositions will be in the face of immense popular opposition and possible disagreements within Congress which would need to approve constitutional level reform by a two-thirds majority.
The conservative National Action Party (PAN), the main opposition party to Nieto’s Institutional Revolutionary Party (PRI), already suggested a radical proposal including a reform of all the relevant articles of th constitution, and a proposal to make the country`s energy regulatory bodies autonomous. At the other end of the political spectrum, the leftist Party of Democratic Revolution (PRD) vows total opposition to any reform.
Mexicans generally are not happy about giving foreign companies a share of the oil pie. A new poll by the Center de Investigación y Docencia Económicas (CIDE), shows that 65 percent of Mexicans are against opening up Pemex.
In the face of this opposition room for manoeuvre is small, however much Mexico`s politicians might yearn for it. Some analysts don´t even believe that production sharing agreements will take hold. For instance Daniel Kerner stated in an interview with Reuters that the most ambitious Nieto could get are risk contracts, a tiny change from a service contract in which a third party shares risks and rewards related to results instead of receiving a flat fee. PRI’s party president, Cesar Camacho, has said in a recent interview that Nieto will propose production-sharing contracts for new exploration areas, but ruled out the idea of any concession agreements.
The dilemma is that if the government wants to attract investors, change might need to be radical. That means that even if the government implements some less radical changes, it might not be enough to bring in the investors.
What’s in it for foreign investors?
Exxon, Chevron and the Spanish oil producer Repsol SA are among the companies that have expressed interest in Mexico`s oil fields.
Yet what awaits them might not necessarily be the best operational environment. The country’s proven and probable reserves have fallen from a combined 31.5 billion barrels in 2007 to just 26 billion as of last year. The industry’s infrastructure hasn`t been updated for years, and there are still quesstions over a massive explosion that destroyed parts of Pemex`s headquarters in Mexico City in January 2013. When it comes to investment in existing and new infrastructure Pemex spent about $19 billion across its business – less than half the total amount budgeted for investment by Petrobas.
The World Bank has just recommended among other things that Kenya should publish its oil and gas contracts. The government could modify the terms of its contracts, said the consultants from Challenge Energy, to allow publication and create greater transparency.
Great! Except… the copies of the model contract we find show no obligation to keep the contract confidential in the first place! So by framing the issue as one where the government must – and should – modify the agreement to allow publication, the World Bank is, perversely, reinforcing a concept of currently prevailing confidentiality that has no basis in the model agreements.
This might seem like a fine distinction. But in the debate around transparency we frequently find “if only” statements, of which the least that can be said is that they are not helpful. We’d love to publish, if only we could, it’s just that the contract, our partners, other undisclosed circumstances don’t allow us to…
Down the East African coast, Mozambique’s mining minister Esperanza Bias in May said that of course all efforts should be made to create transparency. But it shouldn’t be understood that this will include publishing the contracts, she added in a press conference at, of all places, the EITI summit in Sydney, because “business is business”. That conveniently ignored the fact that Mozambique’s model agreements also do not prevent publication. Like many modern petroleum contracts, obligations of confidentiality are subject to requirements under applicable law – in this case the law of Mozambique. In other words, if Mozambique’s parliament passed a law requiring publication, that requirement on the government would release it from any contractual obligation not to publish.
With Kenya the case is even less distinct. In two versions of the model agreement that we have found, including this one published by the University of Dundee, the clause around confidentiality states only (clause 37.1) that “All the information which the contractor may supply to the Government under this contract shall be supplied at the expense of the contractor and the Government shall keep that information confidential”. Information supplied by the contractor. It is highly questionable whether the contract itself, signed by both parties, normally containing no commercially proprietary information belonging to the contractor, would count as supplied by the contractor.
Secondly, clause 37.2 states: “Notwithstanding sub-clause 37 (1), the Minister may use any information supplied, for the purpose of preparing and publishing reports and returns required by law”. In other words, even if you were to accept that the contract itself fell under a category of information supplied by the contractor, if law required either party, then this obligation would be waived. In the case of the Kenyan model agreement the applicable law pertaining to the whole contract is Kenyan law itself. Therefore we reach a situation similar to Mozambique – there is nothing in the contract which would prevent the Kenyan government publishing the contracts if parliament passes a law saying they should. They would not need to negotiate this with the oil companies.
The only remaining question is whether the signed agreements contain the same provisions as the model agreements. We cannot know for sure – since of course the signed contracts are secret, which is the whole debate! But the fact that two separate versions of the model agreement prepared a decade apart contain exactly the same clause on confidentiality would suggest it is unlikely these particular clauses have been changed from the model.
These might seem like lawyerly word games with little relevance for the nascent industry, or the huge expectations it is arousing, or the millions of Kenyans hoping for a better life from their coming oil and gas industry. But it isn’t.
One interpretation, the World Bank’s, says Kenya should publish the contracts at some time in the future when they have been able to modify the agreement, for which they would certainly need to negotiate with the companies. We are in a world of wishes and plans and if-onlys. This is further reinforced by more statements by the consultant proposing that “Kenya publish new and existing production sharing contracts only to the extent permissible under the applicable confidentiality provisions.” So what are the restrictions then under the confidentiality provisions?
The other says they could publish today if they wanted. Or, if they really wanted to play safe, they could pass a law in parliament making it law. In either case, the prerogative to do this already rests with the Kenyan government, which needs no approval from its commercial partners.
It’s a big difference.
Below is the entire text of the confidentiality clause, just for the record…
(1) All the information which the contractor may supply to the Government under this contract shall be supplied at the expense of the contractor and the Government shall keep that information confidential, and shall not disclose it other than to a person employed by or on behalf of the Government, except with the consent of the contractor which consent shall not unreasonably withheld.
(2) Notwithstanding sub-clause 37 (1), the Minister may use any information supplied, for the purpose of preparing and publishing reports and returns required by law, and for the purpose of preparing and publishing reports and surveys of a general nature.
(3) The Minister may publish any information which relates to a surrendered area at any time after the surrender, and in any other case, three (3) years after the information was received unless the Minister determines, after representations by the contractor, that a longer period shall apply.
(4) The Government shall not disclose, without the written consent of the contractor, to any person, other than a person employed by or on behalf of the Government, know-how and proprietary technology which the contractor may supply to the Minister.
OpenOil and Cordaid are publishing a series of policy briefs about the oil, gas and mining industries of South Sudan, Colombia, DR Congo, Guatemala and Nigeria. The briefs are written for the people directly involved and aim to improve the quality of the public debate about the industries. The first policy brief is on South Sudan. Download it here.
We view these briefings as natural contributors to the transparency movement around the extractive industries of these countries, and hope that they help open a more public discussion around the key issues affecting citizens of these countries and other stakeholders around the world.
The briefings are designed as quick reads covering the range of social, political, economic and environmental issues these industries impact, and are separated into three key areas: Five Features, Five Major Players and Five Unanswered Questions. They seek to make information digestible while illuminating major industry trends.
We aim to reach people in these countries and around the world who are engaged in the industry, or in governance or transparency activism around it, who may want to gain a broader understanding of how it works and who exactly is involved. How, for example, the theft of oil has spurred development of a vast parallel economy in Nigeria. Or details of the confrontation between indigenous peoples and international mining companies in Guatemala. We hope readers will include those in the public and private sectors, journalists and civil servants, local activists and business communities: anyone looking to gain more nuanced understanding of the industries that fuel our world.
As more information on these industries makes it into the public domain, the chance exists to begin to build understanding around them. Public suspicion of the extractive industries remains high around the world, largely because of their secrecy. So these briefings include maps, graphs and data-driven visualizations to draw connections between local geography and national political economy. They contain links and references to other online resources, and we encourage readers to use the briefings as a launch pad to explore each country’s industry in greater depth.
No matter where you are, you can take action only if you are informed. It is our belief that, with better access to information, people can engage with issues around the extractive industries on a level which enables real, mature and informed public discussion. We hope that while reading the briefings you will agree.
For more information about the extractives programs of OpenOil and Cordaid, please contact:
Amrit Naresh, Research Associate: email@example.com
Jeroen de Zeeuw, Programme Manager: Jeroen.de.Zeeuw@cordaid.nl
Young people started Libya’s revolution, young people fought and young people finished it. Now, almost two years after Tripoli’s liberation, their role in this new nation they helped create is unclear.
Some of them have started radio stations to bring a little more exposure to the outside world. Others are active in a bustling civil society, trying to make politics more accessible for the youth. And some have launched new businesses to try their luck in the suddenly free-for-all economy.
Trying to get a handle on the petroleum sector is also a priority. It might not be as cool as western radio or youth activism, but learning about a business that contributes 70 percent of GDP still counts for something. On my visit to the country last month, I ran three workshops explaining oil contracts in Tripoli, Misrata and Benghazi. Most of the people attending were under 30. Misrata, where a few grizzled veteran petroleum engineers showed up alongside students and young journalists, was a notable exception.
There, in Misrata, the yawning generational gap between Libya’s young people and its more established working force became clear to me.
To illustrate, let’s try on two different pairs of shoes. You’re a 23 year old Libyan who just risked his life to help end Gaddafi’s rule. Now you find yourself entering adulthood with the world thrust open for you. Libya is suddenly a dynamic place – you fought to make it that way – and now you want to take advantage.
Or you’re a 50 year old Libyan who has spent most of his working life in a stale economic environment, trapped in a state-planned kleptocracy. On the subject of politics or strategic sectors like petroleum you’ve kept your mouth shut for a long time – didn’t want to end up in Abu Salim prison, did you. But now you can say whatever you want, about whomever you want, to whomever you want, and chances are there is someone else out there who will back you up. A new dawn has risen.
You can see why neither of these characters wants to give up a chance to wield influence he never had before. In Misrata I saw young and old spar on issues ranging from what the structure of an ideal Libyan oil industry would look like, to what time we should start and end the workshop on a Thursday. The young workshoppers would ask questions about how other more stable and democratic countries managed their petroleum sectors, and how Libya might follow suit. The elders of the group more often relayed stories about how working under Gaddafi’s iron fist could stunt development and limit an ambitious person’s career.
The older people in attendance did not necessarily look backward, but they did seem to resist what they perceived to be radical ideas about reforming the oil industry, because they were unrealistic. Young people seemed more amenable to the cause, but of course they were also clueless compared to their older counterparts about how such a vast and complex industry works. To me it seemed like the young felt they were ready to pick up the torch and run with it but the older generation was loath to let it go.
Influencing the new Libya doesn’t have to be a zero sum game, of course. I think there is enough space in this nation of 6.4 million for everyone who wants to get involved to do so. The mature workforce should continue plying its trade and also learn about and try out new ideas. At the same time, young leaders should be able to voice their political concerns through formal structures endorsed and supported by the state. These leadership structures do not yet exist, though, and what form they might eventually take is not clear.
Regional rivalries and competing militias with differing agendas mean the struggle for legitimacy can sometimes turn violent. Most people in cities stay in after dark. Many households keep a closet or two of guns they stocked up on during the revolution, just in case. There are probably as many young people involved in the post-revolutionary clamor on the streets as there are young entrepreneurs launching radio stations and start-ups.
The only thing clear so far is that Gaddafi and his goons’ way of doing business is finished. Libya is not in danger, as its neighbor, Egypt, seems to be, of having new power structures give way to the old status quo. Senior positions in the new government, and in the oil management, are filled by fresh faces – a law passed in May banning Gaddafi-era officials from holding office made sure of that.
The new oil minister, Abdulbari Al Arusi, is an engineer who was vocal enough during the Gaddafi years that he served eight years of a life sentence in Abu Salim, an unhappy home to many political prisoners. Nuri Abusahmain, the new president of the General National Congress, Libya’s proto-parliament, is an ethnic Amazigh, a Berber minority that was systematically excluded from politics during the four decades of dictatorship. In a speech after his election to the post, Abusahmain distanced himself from any political or regional affiliation and declared himself independent.
This is pretty refreshing stuff. But what interests me most is how the mindset of today’s young people influences Libya’s future, and what avenues they might pursue to make that influence felt. Especially when we’re talking about oil. Exposure to different ways of doing business around the world, whether it’s Norway, Brazil or Botswana, could inject new thinking into Libya’s oil management. Al Arusi has spearheaded a move to review Libya’s oil contracts and possibly draft new oil legislation. That’s a start. But what about looking at how money from oil best trickles down to the average citizen? The focus, during the Gaddafi years and even now, in the call to review contracts, seems to be on how to maximize the government ‘take’ of revenues and give foreign multinationals the toughest break. How about a more concerted focus on reforming what is done with the money after the government has got it?
Few seem to be talking about that in Libya at the moment. Maybe a new generation of leaders will start to shift the mentality that for so long has kept this kind of thinking quiet.
Energy subsidies are without doubt one of the main problems of Egypt`s ailing economy. Officially accounting for 20 percent of Egypt’s budget, the government has proposed a long list of subsidy reforms (the latest being a smart card reform) as it struggles along to pay its bills – or not at all with the Egyptian General Petroleum Corporation (EGPC) currently owing up to $20bn to oil companies and banks.
If that would not be enough, there are two reasons why Egypt`s subsidy bill has not only eaten up a staggering $17 bn ($120bn), but probably a lot more.
1. They just got the methodology wrong
If the government would account for the opportunity costs (sometimes also referred to as economic costs) of energy subsidies, it’s subsidy bill would be at least 50 percent higher than the official figure.
Opportunity costs have long been a part of the academic discourse and deemed crucial by economists like Bassam Fattouh. They are basically all the money that the Egyptian government loses by not selling fuel at the international market price, but below.
For instance, out of its production sharing agreements with international companies, the EGPC gets oil and gas which it could sell on the international market. Instead, however, it provides it at a cheaper price for the domestic market. Exactly, this difference between the profit that the EGPC could have made from selling the fuel internationally and selling it domestically at a subsidised price instead is the opportunity cost.
In order to capture this opportunity costs, economists have usually use the so-called price gap approach. Using this approach, the International Energy Agency estimates that Egypt`s subsidy bill was at around $24 bn ($7 bn higher than the current budget estimate) in 2011. And setting a political signal of the importance of subsidy reforms, the IMF has recently published an estimate of around $22bn in energy subsidies in Egypt for 2010 alone (the IMF also accounts for post-tax subsidies
which means the costs that the Egyptian government pays for not taxing fuel “efficiently” as to account for negative externalities as pollution and so on).
2. Budget records are convoluted opening channels for corruption and hidden subsidy costs
During an interview Samir Radwan, former minister of finance, told me that many costs of the government are recorded badly or simply the wrong way making it impossible to track the true costs of energy subsidies:
“When I started to look at the budget file, I realized that it is not simply about the amount of energy subsidies. There is an amazing labyrinth of relations between different ministries and different entities of the government that wherever you try to pull a threat, you find yourself entangled in a ball of spaghetti. […] within this spaghetti some of the costs of subsidies just get lost. Official figures are not credible. On what basis does the government want to reform subsidies?”
And just to give an impression about the entanglement, Radwan outlined how the budget records, for instance, the provision of subsidised fuel to the Ministry of Electricity:
“When the General Authority of Petroleum, an arm of the Ministry of Petroleum, provides fuel [natural gas] to the Ministry of Electricity, its sells it at the subsidised price. The Ministry of Electricity, in turn, collects revenues from electricity sales and pays them to the Ministry of Finance which issues a bond to the Ministry of Electricity. The weird thing is that the subsidies are recorded as an expenditure at the General Authority of Petroleum. Something I have never seen in any other country. It would be more the correct, however, if the General Authority of Petroleum would sell fuel at the market price and then account for the subsidies as loss.”
And by the way, Radwan does not seem to be the only one who discovered that the government records subsidies in an obscure way. A paper by Vincent Castel, principal coordinator at the African Development Bank, for instance, reads: “…Energy subsidies are not reported clearly and accurately…”. Castel even states that the official figures do not cover electricity subsidies properly.
Another interesting aspect of this administrative convolution is, of course, that also a whole bunch of other government expenditures are recorded badly, particularly pensions according to Radwan, opening up possibilities for corruption on an unknown scale:
“Half of the petroleum ministry is in prison, not only because of supplying gas to Israel.”
The main question of course is then, how the government is going to undertake a fuel subsidy reform, if it is not even able to track its own subsidy records – even it is actually interested in doing so.
But that is another story.
One of my favourite catchphrases thrown around last week at the sixth EITI global conference was ‘zombie transparency’. Not a reference to jetlagged scenes over EITI Board meetings, as suggested by one Board member, but to the danger of implementing countries sleep-walking through the box-ticking exercises required by the standard, while contributing little to meaningful reform. The reformed standard finalised this week is a crucial attempt to keep the EITI at the avant-garde of the governance agenda and to remain relevant in the eyes of all of its stakeholders. So is Azerbaijan guilty of being a transparency ‘zombie’? And what do disappointing results for accountability in the country mean for its ongoing relationship with the initiative?
Azerbaijan has been involved with the EITI since the outset, taking part in a pilot in 2002 along with Ghana and Nigeria. Achieving compliant status in 2009, Azerbaijan has been seen as a ‘poster child’ for the initiative, despite little acknowledgment of the initiative beyond a small group of experts within the country.
Warning signals were sent last year when the country’s national EITI coalition released a statement pointing to the ‘stagnation’ of the EITI process in the country – frustrations abounded over unfulfilled promises on publishing of contracts and delays in decision-making processes. Alarm bells then rang in late 2012 when Revenue Watch Advisory Board Member Ilgar Mammadov was detained in Azerbaijan, marking the beginning of a spate of politically motivated arrests and harassments of civil society activists which has gathered pace over the last couple of months as September’s presidential elections draw nearer. More worryingly, speak to frustrated civil society leaders who have been involved in the process in Azerbaijan and it becomes clear that many believe that the EITI has been a lost battle for years.
The soul-searching over the last two years, battled over at (often heated) EITI Board meetings, have resulted in the reformed standard officially launched in Sydney last week at the sixth global conference. New inclusions include tighter reporting demands and stronger contextual information, license disclosure and encouragement of contract transparency and divulging beneficial ownership of assets.
The success of the new reforms in going ‘beyond transparency’, to borrow from the official conference theme, will make or break the EITI initiative. The initiative point in whether the mechanism remains ahead of the curve among a proliferation of other global governance initiatives, or whether it will have to settle with a legacy of kicking off the debate but not taking the next step. The crucial point is that this delicate balance relies on the legitimacy of the EITI in the eyes of all stakeholders.
It is on this count that Azerbaijan appears to have become a thorn in the side for the international Board.
Look carefully at the programme for this year’s event and you will see that Azerbaijan seems to play a far less prominent role than on past occasions. The one high-level government representative, head of the State Oil Fund, had to make do with moderating in one afternoon panel, and most references to one of the first implementing countries in the more high-profile panels were far from celebratory. Compare this to the Paris agenda in 2010, and we find Azerbaijan representation on high-profile panels throughout, celebrating progress to date. Of course this can be partly explained by the increasing geographical expansion as the EITI adds new member countries, which must be represented at the event. Or… was the country being hidden from sight?
All this is not to say that there are not courageous members of Azerbaijani civil society working to keep the initiative alive in a country where, despite assurances of economic diversification, oil still represents 95% of total exports. And among EITI member countries can be found plenty of countries going through complicated political transitions, not least new joiners such as Afghanistan and Iraq. But as a long-standing member, Azerbaijan should be getting some warning signals – one panel member this week rightly pointed out that ‘compliance does not mean complacency’. According to official EITI rules, any breaching of the EITI rules and criteria can be temporarily suspended until those breaches are corrected.
But what would the reaction be? While dress-downs in the international press over democratic shortcomings and heavy-handed dealing with peaceful protests this year have had frustratingly little impact on the Azerbaijani regime, the government would not take the loss of the EITI brand lightly. President Aliyev enjoys using the EITI badge to win over critics.
This is not an empty exercise of ‘NOC-bashing’, another term cropping up in Sydney. The $30 billion-strong state oil fund SOFAZ in fact broadly ticks the boxes, complies with the reporting criteria and produces neat brochures. It was ranked a middling 14th in RWI’s new governance index for sovereign wealth funds, and criticisms centre on lack of oversight of expenditures rather than the revenue collection covered by EITI.
But Azerbaijan’s score as a whole on the RWI index suffered from the introduction of a new component assessing the ‘enabling environment’. The importance of a satisfactory ‘enabling environment’ was a point repeated over and again in Sydney, as in its absence transparency is meaningless and can never reach ‘beyond transparency’ to genuine accountability. Few countries demonstrate this better than Azerbaijan. RWI’s new index assesses this environment based on over 30 measures of accountability, government effectiveness, rule of law, corruption and democracy, which places Azerbaijan in 40th place (of 58), keeping company with Sierra Leone and Iran.
The EITI Criteria require national governments to commit to work with civil society on implementation, without legal or regulatory impediments to civil society’s ability to participate freely and actively, enjoying internationally recognized rights outline in the Universal Declaration of Human Rights. Without going over old ground, concerns on this front have been raised here and here, and the chorus of concerned voices is getting louder.
Immediate de-listing on these grounds would not be in the spirit of an initiative that supports implementing countries, understanding the complicated political backdrops policy-makers have to work against. While the enabling environment is crucial to achieving genuine accountability, there is also recognition that it would be unrealistic to wait for every country to have the idea conditions in place before engagement begins. This would have meant abandoning those post-communist countries making transitions after 1990. But the suspension mechanism is there for a reason, as a last resort.
All the data in the world means nothing if that data cannot be harnessed to make the leap to increased accountability. If Azerbaijan were a new member of the initiative, we might be inclined to give a little more slack. But in order to remain legitimate in the eyes of a wide range of stakeholders (across government, civil society, the private sector and the investor community) the EITI, in the words of Bob Jenkins of the London Business School, needs to be seen as a “tough, hard-to-get standard”. Not a PR exercise. The pioneers of the EITI can quite rightly give themselves a pat on the back for making great leaps in any industry with a long tradition of obscurity. But length of service cannot be a criteria for ongoing acceptance and for the sake of the EITI’s long-term standing, any country that puts that in danger needs to be held to account.
I was somehow surprised when Saudi Arabia’s Economy and Planning Minister Mohammed al-Jasser announced last week that their rock-bottom fuel prices, some of the lowest in the world, are after all a serious problem that needs to be dealt with. “This has become an increasingly important issue as these subsidies have become increasingly distorting to our economy. This is something we are trying to address,” is what he said at a financial conference in Riyadh, and implicitly referred to a looming economic and energy crisis if Saudi Arabia does not change its direction soon.
A first sign of this problem already emerged in 2009 when Glada Lahn and Paul Stevens from Chatham House released a report in which they estimate that Saudi Arabia could become a net importer by 2038 and face a serious fiscal deficit in less than 10 years, if it doesn’t handle its sumptuous oil reserves more carefully. This is because, as it stands, Saudi Arabia does not only consumes over one quarter of its own oil production, but is also one of the highest consumers of fossil fuels world-wide (consuming even more than the US per capita and the same amount as the UK although having only half the size of its population). And shockingly enough, in the days of photovoltaic the country still burns a big chunk of its oil to produce electricity – alone 40 percent of its electricity is produced by burning oil.
Despite these increasing signs of a crude awakening, Saudi Arabia hasn`t really acted yet and might take a long time to do so. Instead rulers have twiddled their thumbs and did the easiest they could do – they responded with more supply instead of demand reducing incentives, such as reforming subsidies. And ironically enough, while admitting that fossil fuel subsidies are now a problem, the country was not even willing to admit that it had any subsidies under the G20 reporting mechanism.
So why should it reform its subsidies exactly now and how should it go about it? On the international stage, the time for subsidy reforms could not be better. The G20 has called for energy subsidy reforms for long enough and the IMF has just released a report multiplying the level of estimated fossil-fuel subsidies world-wide and setting a determined sign to end unreasonably cheap oil. On the other hand, there are only a few examples like Iran in which reforms have been successful while a large number failed as sharp price hikes were met with angry protests ending attempts in Nigeria and Jordan just last year.
The problem that Saudi Arabia shares with these countries is that subsidies have been one of the main means through which they have managed to form a social contract with their citizenries. Yet, on top of that Saudi Arabia’s subsidy problem has been amplified by an incredibly young population, without jobs and future in a highly undiversified economy, an explosive basis for Arab-spring-type revolts against any such type of reform. About 64 percent of its population is under 30 years and face an unemployment rate of 27 percent rising to 39 percent for the 20 to 24 year olds. That’s what possibly scared off the government for long enough to change the status quo, apart from the fact that also powerful commercial and industrial entities benefit from these low prices that increase profits, particularly for exports, as the Chatham House report states.
While the government hasn’t got any official plan about how to deal with the subsidy issue yet (surprisingly), most studies, like the recent one by the IMF, suggest that fossil-fuel subsidies should be reformed with the help of targeted cash transfers or should, at least guarantee that fuel subsidies are more targeted to the poor who really need them. But how do you determine who should get cheap fuel or a targeted cash transfer and who not in a system that is already, sorry to say that, very corrupted?
It ends up with the same reform suggestion. The best would be a universal targeted cash transfer as outlined here.
The army medical orderly tells me he has seen men die in front of him, crushed by wells that collapsed in the middle of Sudan’s desert. And in the next breath he tells me if I have any money to invest, he’ll join me to dig for gold in Kordofan: “All we need are a few thousand dollars to get rich.”
So goes Sudan’s gold rush. ‘Artisanal mining’ is the phrase normally used to describe the phenomenon of ordinary people digging for minerals with basic equipment. We hear a lot about it in Eastern DRC, some West African states, parts of India.
But it doesn’t describe what’s happening in Sudan. There’s not much ‘artisanal’ about it. The orderly, Mahmoud, has a nephew, Mohammed, a recent graduate from Khartoum University, who tells me he has friends from college who have just headed out into the desert for months at a time, digging with a pick axe, a spade, sometimes scrabbling with their bare hands. But they have no training and no craft. An American miner who visited the fields says that most of the prospectors don’t know how to set the metal detectors they have bought, sometimes for up to $12,000, so that they can spend hours digging to find it was an empty biscuit tin or food packet that triggered the machine.
And the most astonishing thing of all about Sudan’s gold rush is the way it materialised from nowhere. Five years ago, nobody was digging for gold. Now estimates put up to two hundred thousand men in the northern deserts at any one time. How is it that gold was ‘discovered’ so late, and embraced so widely – just as Khartoum’s major source of money for the last few years, oil, disappeared with the independence of the south?
The government makes no secret of its ‘plans’ – ‘prayers’ might be a better word – for gold to replace oil as the cash generator in Sudan’s economy. There’s precious little else. Agriculture is in disarray, lacking investment, prey now to land grabs from Gulf investors and export of crops which are needed at home for a population of 30 million for whom prices are far too high. There is no real industry to speak of. Several hundred thousand Sudanese still work in the Gulf and send remittances, but not enough to float the economy, particularly Khartoum, now a bulging city of seven million people. And there are no jobs, especially for the young.
Mohammed shows me a film he shot in college about how there is no opportunity for the young and gifted. A man with an engineering degree from the UK returns home and can’t get even a low paying civil service job. We spend an evening with a friend of his who can quote Aristotle and Habermas – he earns $400 a month as a bell boy in a hotel. And that’s the educated elite. Hawkers sell the usual array of goods at traffic lights and, in the shanty towns which now surround the old town of Khartoum on all sides, a million young men or more hang around with nothing much to do.
And then gold came, all of a sudden. Industry figures put Sudan’s gold production as four tonnes in 2009. Sudanese government figures have jumped that to 41 tonnes of gold last year, worth about $2.5 billion. Though how they know that, since he also says that most of that is outside any kind of government ambit, is hard to say. There was only one foreign company active in Sudan, the French ArialGold. now the government says 128 companies are active.
It’s hard to make those figures add up. A recent report by France24 from the country’s only industrial mine, operated by an affiliate of Areva, quoted the French engineers on site as saying it had produced about two tonnes a year in the last few years, and the operation turned over about 65 million euros. And it’s not clear even if the rosiest of predictions came true that it would balance the government books. Nobody knows with precision in Sudan but oil probably made up two thirds of government income before South Sudan’s independence in 2011. That dropped to virtually nothing last year when the South shut oil production in. The government will earn some revenues from the re-opening of the pipe, but not much compared to its yawning needs. It has to all intents and purposes given up providing much in the way of public services like health and education.
The rise of the official shift towards developing a gold industry coincided with an astonishing bombardment of media coverage about young men seeking their fortune in the deserts. Most of the gold now produced is artisanal, which means the government sees little to no tax revenue from it. It finds is way to Port Sudan and a network of traders who know how to place it into world markets.
But the question is, what is the connection between the popular gold rush, and high government policy?
Ask ordinary Sudanese if they actually know anyone who’s struck it rich and they all do. The guys from Gedaref who came back and moved out of their tin shacks into an actual house with bricks and a roof. The young man from a poor family who could suddenly afford a big four -by-four. It’s never anyone close, though, always someone from the town or the neighbourhood. As a distribution, the chances don’t seem that high.
The structure of the industry takes care of that. The vast majority of those working the wells and scratching in the dirt are on a daily subsistence allowance and a notional cut of anything they find. The allowance barely covers their costs – since all food and provisions cost twice to three times as much in the desert as they do even in Khartoum. A small bottle of water might cost $3 in a country where the average income per head is $40 per month.
The workers sign on for a trip of two to three months with an ‘investor’, a guy with enough capital to get them there in a truck, own a few metal detectors and some kit to break up rocks. Different outfits just set up an operation wherever they feel lucky – there are no licenses or rights awarded and no local authorities to arbitrate. There are no facilities. Most miners sleep on bare ground and live for a couple of months out of a knapsack. No cover, no privacy, nowhere to wash.
The mines can be up to 20 metres deep but are often less, depending on the equipment available. Out of a vertical shaft, they will dig many horizontal tunnels, and the haphazard nature of this development is what makes the wells vulnerable to collapse. Up to 100 people died in one such complex of tunnels in Jebel Amir in Darfur in April. The team owner puts guards at the top of the wells to search all miners ending their shifts, to ensure they aren’t withholding any nuggets.
The whole context is anarchic. There are frequent disputes within and between mining teams. An unknown number of people died at the same mine which collapsed in Darfur back in February when two Arab tribes fought for ownership of it. Mahmoud says he has seen a single mountain with perhaps 2,000 men mining it when news – or rumour- spread of a couple of decent finds. Mining is said to have picked up in areas controlled by Malik Agar, a former rebel reconciled to the regime under the peace agreement in 2005 and now split again and waging insurrection as the Sudan Revolutionary Front – the rebels, too, would like as much ready cash as they can lay hands on. And insecurity in the mining regions is such that many Sudanese citizens consider it normal and inevitable to be stopped and robbed on their way out of mining districts. Mahmoud himself had been forced off a bus near El Obeid and robbed. Luckily, he says, he was on leave and in civilian clothing. As a soldier, he could easily have been shot.
And scams, of course, are rife. Mohammed’s cousin bought an ‘American’ detection machine from a shop and headed out into the desert. A couple of days later, he realised he had a cheap Chinese knock-off which had been re-labelled, and went straight back to Khartoum. But, one week later, the shop had disappeared without trace.
Gold mining has also entered folk-lore in these five years. There are plenty of songs about it. Stories about how a team found a rich seam before dusk but they were all dead in the morning – the jinns, or spirits, of the place had killed them. Another story about how a team is heading back empty-handed after months of scratching in the dirt. As they are having their last meal, one of the rocks heated by the fire starts to glow with liquid gold. There is a human canvass being painted which is epic and, it has to be said, tragic more often than not.
So what is the government role?
Mustafa, a businessman who once worked for a senior presidential adviser, tells me there are rumours that when artisanal miners strike a rich seam, officials come and ‘poison’ the wells with so much arsenic ordinary folk are scared off. That’s how the government locates deposits which it intends to exploit itself commercially later on.
What’s undeniable is that the vast majority of land in northern Sudan is owned by the state. And that with growing and restive urban populations, it doesn’t hurt to have millions of them fixated on the idea that there is a way out of grinding poverty.
Sudan is a country whose political leaders of virtually all ideologies have frequently shown themselves to be world class cynics. Governments who arm murderous militias and then claim they had nothing to do with resulting massacres. Rebels who cut off food aid to civilian populations under their control so the international community declares famine and sends supplies, which they then appropriate. For decades, with the lives of tens of millions of people.
In that context, it’s not at all hard to believe that the government has actively promoted gold fever as the cheapest way of prospecting. Why spend any of your own money exploring if you can get half a million men so desperate that they will drive out into the desert to do it on spec? Then you can strike the deals, favour your own companies, maybe even throw a little money into the Treasury at the end of the day.
It’s a country where, really, anything is possible.
Following is an open letter to Esperanca Bias, Mozambique’s Minister of Resources, on the occasion of Mozambique’s accession to the EITI mechanism. It is jointly signed by OpenOil and the Center for Pubic Integrity, a research institute and NGO based in Maputo.
Dear Minister Bias,
This year, 2013, is of unprecedented importance in ensuring good governance of the extractive sector in Mozambique. We are worried that the Government of Mozambique is falling short in its commitment to transparency.
At the EITI Global Conference, Mozambique will be welcomed as a compliant country in reporting and reconciling revenue payments made by extractive sector companies. Everyone accepts that transparency is an essential component of good governance. But transparency means more than publishing revenue payments.
In the consultation process on reforms to the EITI, Mozambique voted for mandatory contract disclosure to be a “requirement” for all EITI countries. We are surprised and disappointed to find, in the recent publication of new draft laws on the mining and petroleum sector, that there is no commitment to mandatory contract disclosure at all. Why would you advocate for contract disclosure inside the EITI, but not do it yourself?
Your current position seems to be that you will publish the “principal terms” of the contracts. OpenOil’s experience in analysing petroleum contracts shows that it is impossible to understand the implications of contract terms for government revenue without seeing all of the relevant clauses.
To illustrate this point, we append to this letter, a series of questions (indicative not exhaustive) that we consider vital to fully understanding the implications of these EPCC contracts for government revenue. This is information that citizens of Mozambique have the right to know.
There is a clear global trend towards mandatory disclosure of extractive sector contracts. From the Sydney Global Conference onwards, EITI will encourage all countries to disclose contracts. The current revision to the mining and petroleum laws provides an ideal opportunity to demonstrate Mozambique’s commitment to transparency. The alternative is to pass laws that will already be out-of-date before they are even signed.
Adriano Nuvunga, Executive Director, Centre for Public Integrity
Johnny West, Founder, OpenOil
A Review of Mozambique’s Model Exploration and Production Concession Contract
4th Licensing Round – 2010
Following is a list of questions of vital public interest formed by a reading of the model contract of the 4th licensing round, which closed in 2010 with an award of the Lower Zambesi area to the Norwegian company DNO. But the questions pertain to all oil and gas agreements Mozambique has signed so far with international companies.
- Could the minister confirm that the terms of these contracts allow the Government to place all contracts in the public domain immediately, since clause 23 enjoins confidentiality on both parties “except as authorised by applicable law”? Since the applicable law (clause 31.1) is that of the Republic of Mozambique, the government has the contractual right to be transparent.
KEY FINANCIAL TERMS
- Royalties: Could the minister confirm that the 6% of natural gas and 10% of crude oil referred to as the Petroleum Production Tax (clause 11.5.a) is effectively a royalty for all contracts since 2007, since it seems to be levied unconditionally and before Disposable Oil is calculated.
- State Participation: Could the minister clarify the situation with regard to possible state participation in the project by a state-owned company? Clause 9.13 stipulates various conditions under which a State Participating Interest might evolve, such as the ‘soft carry’ of costs for that percentage stake being reimbursable to the Contractor as Petroleum Costs – but the contract does not specify what percentage the State Interest might be, or when in the lifetime of the project a decision to take it up might be made.
- Cost Recovery Ceiling: Could the minister provide the percentage specified in clause 9.5 as the maximum percentage of Disposable Petroleum every year? This clearly has an impact on how soon the government of Mozambique might expect sizeable revenue flows from projects governed by this contract.
- Valuation: Could the minister disclose whether there have been disagreements over valuation of Petroleum under this contract (clause 10.3) that caused an expert to be appointed to adjudicate? Or whether this has ever happened under similar valuation clauses in Mozambique’s other petroleum contracts?
- Profit Splits: Could the minister specify the rate of profit splits applied to the Contractor and the State at different R factors from 0 to 3? Does the ministry have any estimate for when the different R-factor thresholds might be reached in the lifetime of this project, and the same for other projects under similar R-factor profit share arrangements?
- Economic Equilibrium: Could the minister confirm that clause 11.9 is effectively an economic equilibrium clause? Since it guarantees adjustments to the contract to offer “the same economic benefits as it would have obtained if the change in the law had not been effected”, can the minister specify whether an assessment of such benefits under the current project has been agreed between the Parties, and if so, how has it been specified? (For example by Internal Rate of Return?). If such an assessment has not been agreed between the Parties now, does the government have its own analysis of the economic benefits to the Contractor so that in the event of new legislation affecting that, it is able to make its own proposal as to what changes would be needed in the contract to restore the existing economic benefits to the Contractor?
- Production Bonuses: Could the minister specify what bonuses are due to be paid at the start of commercial production, at 25,000 barrels of oil a day equivalent (BOE) production? And also, could she clarify whether the text intends increments of bonus every additional 25,000 BOE or every 50,000 BOE (since both are mentioned in the text, one apparently in error).
- Training: Clause 18.3 states “The Concessionaire shall co-operate with MIREM in giving a mutually agreed number of Government employees the opportunity to participate in training activities”. Could the minister specify how many employees that is? Could the minister also clarify how much money has been agreed for training programs during the Exploration Period (clause 18.6)?
- Institutional Support: Could the minister clarify how much money the contract specifies (clause 18.5) the Concessionaire will pay to support Government entities involved in Petroleum Operations? To which institutions are these sums paid, have these sums in fact been paid, and who keeps a record of those payments?
- Social Projects: Could the minister specify how much money the contract specifies (clause 18.6) to be spent on social projects in areas where Petroleum is produced? Is there a list of such areas by administrative district for this and other contracts with similar clauses?
- Environmental Protection: Clauses 28.2 and 28.3 specify that the Contractor shall prevent environmental damage “in accordance with accepted standards in the international petroleum industry” and “in accordance with Good Oilfield Practices”. Could the minister specify what such accepted standards are, and provide a definition for “Good Oilfield Practices” which despite being referenced six times in this contract is not included in the article of definitions? Could the minister further clarify whether any specific environmental reporting standards, such as those of the Global Reporting Initiative or IPIECA, have been agreed?
- Environmental Impact Study: Clause 28.6 specifies that the Contractor will conduct a baseline study of the state of the environment in the concession area and the potential impact of Petroleum Operations? Can the minister confirm that a study has been carried out, and if so has it been made available to the public?
- Arbitration: Could the minister specify what the seat of arbitration under ICSID rules would be if the two parties had a significant dispute they could not solve themselves?
If this had been the UN, we might have sent a strongly worded statement to the Norwegians. They were absent from a forum in the heart of Africa on the corrupting effects of oil, an affliction for which Norway, more than any other nation, seemingly knows the cure.
It wasn’t the UN – it was a workshop on the Ugandan oil sector at a hotel in Kampala. But Norway’s absence from the foreign donors gathered there seemed to underscore the challenge they face to figure out how to help Uganda make the best of its oil wealth. If all the stakeholders on the donor side can’t come together and grind out a cohesive strategy to coax the power players in government not to misuse oil money, where do they begin? Read More
This is post is cross-posted at the EITI blog
As there was a lot of talk around beneficial ownership within the new EITI standard, we thought we’d try and model what it could look like. It’s one of those thorny issues. Civil society wants it, corporates often state their belief that it is a heavy reporting burden – but the arguments on both sides can tend to be at a theoretical level. So we thought we’d try and ground it a little (report here, data here), by using Norway as a proxy for what kinds of data that would yield, and to what end?
What we were seeking is to find a sweet spot which would impose very little reporting burden on companies and yet which could demonstrably yield value for the EITI process because it could answer questions. So we adopted what has been called the “one level up” principle – to look at what would happen if all EITI reporting companies included their own legal names and corporate identifiers, their shareholders and their corporate identifiers, and the jurisdiction of their parent companies. Any reasonably run company should be able to access this information in less than an hour!
The ‘first mile’ of corporate data – the Tanzanian company register in government offices in Dar es Salam
“Tullow” as it is referred to in media reports or ordinary conversation (and some current EITI reports!) but the full name of the particular corporate vehicle operating in that country (such as “Tullow Uganda Holdings B.V” in Uganda). And the identifier is a unique number that the company has within any company registry, much as individuals have unique tax and national insurance numbers. These are the bits of information which allow a particular corporate vehicle, the one which is legally responsible for signing the contract and observing its conditions, to be uniquely identified.
We restricted to one-level-up because it avoids the debate around finding ultimate ownership. Our friends at OpenCorporates.com actually claim that the concept of “ultimate ownership” is in any case misleading, since in many, perhaps most, cases we are not talking about a single dimension of ownership, travelling from local affiliate up to source like some explorer finding the source of a river. What happens if a company four steps up the chain has a cross-holding in another one three stages “higher”, for example?
We could model Norway because the EITI reports were in Excel format, the legal names were included, and the Norwegian company register can provide the corporate identifiers and shareholding structures of the parents. We took the companies in the 2011 EITI report and then matched them to these records and where possible, established the jurisdiction of the parent holdings. Finally, we related these company structures back to the size of payments reported within EITI.
The results are not particularly surprising in the case of Norway. The oil sector is dominated at both affiliate and parent level by companies which are incorporated in Norway itself – 64 percent, as you can see from the diagram.
Then again, many of the international companies had at least two levels of local vehicle: ExxonMobil Exploration & Production Company AS, for example, which is a Norwegian company, is owned by ExxonMobil Norway Upstream Holdings Inc, also a Norwegian-registered company with its own number in the Oslo registry. There might well be other Norway-based companies further up the chain. And yet one would imagine that this chain ultimately stretches back to ExxonMobil in the USA.
This illustrates a key point in the positioning of EITI. It’s the first mile of company information which EITI can most painlessly provide – and which is the most useful and needed. For instance, while the records in Norway are already online and available with a simple web scrape, the picture at the top of the blog shows you what we start wth – what the “first mile” of corporate ownership looks like in, for example, Tanzania, in the offices of the company register in Dar es Salam.
But once this level of information is there, it is likely to lead out into the global corporate web which is increasingly coming into the public domain. Even if a parent company is in a tax haven like the Cayman Islands, we at least know that it is there, and what its address is because the index to the Cayman Islands, along with around 70 other jurisdictions around the world, are digitised and online.
The world is full of “data wranglers” who can connect the first mile data to the rest of the growing repository of public domain data.
What immediate applications could the “one level up” approach be used for? One might be to indicate potential black spots in double taxation treaties. The graph from Norway shows 35% of sector activity controlled by foreign companies in some 16 other countries – what percentage of that is in juridictions that Norway has double taxation avoidance treaties? This may be a case which becomes more interesting in many EITI countries which may not have developed comprehensive treaties.
Another application is to be able to create a roster of parent companies – and their publicly listed company officers and shareholders – who represent the beneficial ownership of an extractives sector in a country as a whole. When available for public view, this can offer a powerful tool for civil society and local media to evaluate for possible connections with decision makers in government. Such data are also of great interest to new entrants in the private sector who are trying to understand the landscape for potential investment, one of the reasons the World Bank has sponsored digitisation and upgrading of company registers in over a dozen countries around the world to date.
We therefore believe “one level up” would position EITI well to contribute great value with a relatively small data set with minimal reporting burden.
On first appearances, the fact that there appears to be abundant information about Egypt’s oil and gas sector would seem like a sign of transparency, a well managed information dissemination system allowing citizens to know what is going on with their extractive industries.
Under more scrutiny, however, it reveals the opposite. The information available contains contradictory figures and reports about the oil and gas sector on a daily basis and it seems as though raw information released through outlets one would assume to be reasonably reliable is being overwhelmed by rumours and popular gossip, to the detriment of accountability of the sector.
There are many international institutes and organisations monitoring Egyptian extractive industries, in pary because of the country’s geopolitical importance. These organisations, as well as government agencies and companies, produce a lot of data about a range of things such as company activities, trade figures and environmental impacts. Nor is Egypt is a newcomer to the business; while it might not be a major hydrocarbon producing country comparable to Saudi Arabia, it has a significant history of oil and gas production going back four decades. Since the country’s oil boom in the 1970s, and since the discovery of vast reserves of natural gas in the 1980s and 1990s, the extractive industries have played a major role in Egypt’s political economy, and the country has been a net exporter of energy for most part since World War II. Given its experience with and the importance of the sector, you would therefore expect people to know more about it, or at least how to handle existing information.
That’s not to say that people with these skills don’t exist – there are of course very knowledgeable people in Egypt who have a great understanding of the industry. The problem is, they are few, and their informed opinions are often overwhelmed in the public sphere by all kinds of incorrect assumptions and estimates, and invented ‘facts’.
Let’s take the example of oil and gas exports. In July 2012, a time when Egypt was facing serious electricity blackouts, an Egyptian Petroleum Ministry official was cited talking about government plans to decrease exports of natural gas in order to meet growing domestic demand. While there have been similar statements made before, the topic still is of great importance considering the country’s dependence on revenues from hydrocarbons on the one hand, and its almost complete reliance on gas for its electricity production on the other. One would expect journalists and government officials to be accurate about something carrying such political weight.
But what then followed the announcement was a serious of conflicting and contradictory news about the actual current status of exports. In October 2012, state-run newspaper al-Ahram reported that Egypt had in fact already stopped exporting gas to Jordan and Spain since March the same year – three months before the original ministry announcement. Spain and Jordan account for about a third of Egypt’s gas exports, so halting shipments to those countries is not a minor issue. The flow of gas had to be stopped several times for shorter periods before, as the Arab Gas Pipeline through which Jordan receives its gas had been sabotaged 15 times since the ousting of Mubarak. A complete stop of exports, however, results in a substantial decrease in revenues, so press reports require attention to detail.
Yet only a week later, Petroleum Minister Osama Kamal released a statement claiming that the country had only decreased and not halted the exports to Jordan, thereby contradicting what had been reported by Egypt’s main outlet. He even stressed Egypt’s general willingness to increase exports again. This line of information was then followed for some time, until it was announced last December that gas was again pumped at the normal rate to Jordan. But when there finally seemed some clarity on the status of natural gas exports to Jordan, al-Ahram again reproduced the same counter-factual news as previously, stating Egypt had halted its exports to Jordan since March, thereby adding further uncertainty to an already nebulous information environment.
It would be unfair to say that conflicting news reports are somehow an issue specific to Egypt. Publishing information around the oil and gas sector is often, if not always, highly political and even more so in a country where petroleum has been increasingly difficult to obtain and become a subject of hot, popular debate. All the data produced by companies, statements by public figures and so on are therefore likely to be subordinate to certain interests, which is true for most parts of the world.
With Egypt, however, there seems to be another issue besides interest-led news: accuracy. In a country in which social media has become such an impressive and widespread phenomenon, any kind of information is travelling at tremendous speed from person to person. Perhaps because of this, it seems like the country has also become a big rumour mill. To increase transparency in the Egyptian extractive industries, it therefore is of great importance to first increase the knowledge about how to handle information on oil and gas. While transparency in terms of publishing contracts and reporting on negotiations, amongst other issues, is still of major concern in Egypt, so is the improvement of the general information environment.
There are some big decisions to be made by investors in Azerbaijan’s oil and gas sector this year, with up to $30 billion at stake at the Shah Deniz Stage 2 gas development, planned to come on stream in 2018. Statoil is fretting about political uncertainty in the EU. But it and other investors should be closely watching political developments at the production end in the run-up to November’s presidential elections, amid signs that the long-standing pact between Aliyev and Azerbaijani citizens – trading a measure of stability for an authoritarian grip on civil life – is showing cracks.
The protests I witnessed on March 10 in Baku’s Fountains Square, motivated by non-combat deaths and ‘hazing’ allegations in the Azerbaijani military, may not have delivered the thousands of activists promised on Facebook. But the government’s heavy handed response was enough to reveal jitters at the heart of the Aliyev regime, as rumblings of discontent arrived in Baku following earlier protests in regions such as Ismaili. Baku’s riot police were certainly sporting their Sunday best in central Baku, kitted out with state-of-the-art water cannons and rubber bullets and deploying them generously. But they had little to show for their efforts than a series of iconic defiant images beamed across international media.
Tom de Waal, in his recent piece for Foreign Policy, asked the question “how do you renovate a house that’s falling apart at the foundations?”, one likely to be vexing President Aliyev, even if he is elected to a third-term later this year (a strong possibility, even if a smooth ride is unlikely). The oil revenues reliably filling state coffers over recent years have allowed him to buy patronage and support (or at least passive compliance) both inside his country and on the international stage. But depletable resources have a nasty habit of depleting, and as Azerbaijan passes peak production such revenues are likely to fall year on year, with significant implications for Aliyev’s financial and political capital. And he will only be able to dip into the State Oil Fund to cover the gaps for so long (the Fund’s direct transfers to the state budget shot up 16-fold from $686 million in 2007 to $11.64 billion in 2011, while oil production began a downward trend, falling by 17% over 2010-2012 ).
Oil riches and regime stability have long been linked by Resource Curse theorists. Windfall oil revenues, like “manna falling from heaven”, allow leaders to buy political loyalty and to strengthen coercive structures, placating citizen opposition (enter water cannons). This anti-democratic effect of oil might help to explain why authoritarianism has proved so durable in Azerbaijan, where we are coming up to 20 years of Aliyev rule. In 1993, when Aliyev Sr. came to power, the prospect of a relatively stable autocratic political system seemed like a pretty good deal for a nation at war and in economic turmoil.
But to a resident of Baku’s suburbs in 2013 watching the Bentleys roll past while the prices for staple goods continue to rocket, just how convincing is this stability narrative? And just how much stability can be expected from a notoriously volatile commodity such as oil, which plunged from $145 – $60 per barrel in one year from 2008-2009? Even for those willing to sit back and exploit the rent-seeking opportunities, with falling production, even at current prices there will simply soon be far fewer rents to seek.
What the waves of civil unrest across the country have shown recently is the potential for popular content to spill over unexpectedly and quickly gather momentum, such as that which led to Georgian President Sakashvili’s unexpected downfall in last year’s parliamentary elections across the border. In all of the Caucasian countries emerging from the break-up of the Soviet Union, the birthing pains of the 1990s have been at the forefront of peoples’ minds. But what recent displays of anger and defiance have shown is that, while Azerbaijanis will tolerate poverty levels and the misery of missing out on the fruits of the most recent oil boom, it is when their dignity is insulted that the touchpaper is lit. In Ismaili it took the obnoxious son of a Minister crashing his Hummer into a downtrodden local taxi driver that provided the trigger.
Cynicism is also on the rise over the role of international democracy watchdogs, such as the OSCE Office for Democratic Institutions and Human Rights, ODIHR (dubbed ‘Oh, Dear’ by some activists). And the government’s response to events does little to stem the growing anger – the arrest of youth activists from the NIDA movement over recent weeks on the usual trumped up drug charges is a tactic that is wearing thin. And neither do international ‘meddlers’ get off lightly, as Presidential aide Ramiz Mekhtiev’s war cry against foreign NGOs makes clear, and the more recent closure of the Western-led Free Thought University by government security forces.
Getting a reading of the level of genuine will for political change in Azerbaijan is tricky – opposition activists can draw dramatic conclusions from the wave of protests, while what we have seen until now are ripples on the surface. The few hundred brave protesters taking a shower in Fountains Square last month will not be the only ones at the polling stations in November. But on the ground nerves can be felt on all sides, and the outlook for the oil industry has no small part to play.
The wiki-based Azerbaijan Oil Almanac, co-produced by OpenOil and Baku-based news agency Turan, is now live at oil.turan.az (in Azerbaijani) and en.oil.turan.az (in English). It is the first bilingual open-source, digital curation of publicly available information on Azerbaijan’s oil industry.