GLOBAL WITNESS: Investigates the role of natural resources in funding conflict and corruption around the world.
Global Witness is a UK-based
non-governmental
organisation which investigates the
role of
natural resources in funding
conflict and
corruption around the world.
References to ‘Global Witness’ in
this report
are to Global Witness Limited, a
company limited
by guarantee and incorporated in
England
(Company No. 2871809).
Global Witness
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30 Holborn
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mail@globalwitness.org
ISBN 978-0-9570101-1-6
© Global Witness 2012
Supported in part by funding from
Cordaid,
Novib Oxfam, and The Revenue Watch
Institute
SUMMARY
The scramble for Africa’s oil, gas
and minerals.......2
ANGOLA & NIGERIA
What is at stake? .................6
CASE STUDIES
Angola......... 10
Nigeria............. 20
Democratic Republic of Congo..........
28
CONCLUSION AND RECOMMENDATIONS..........
30
CITIZENS CHECKLIST
Preventing corruption in the award
of Oil, Gas and Mining Licences......... 32
The intensifying competition for
commercial access to the world’s remaining deposits of oil, gas and
minerals brings with it a serious
risk of exacerbating corruption and violent conflict. Such corruption
can prop up autocratic governments
that keep their people in poverty while enriching elites and the international
companies that are willing to do business with them. The first step towards
tackling the problem is to shine the light of public scrutiny on the complex
and often opaque relationship between
extractive companies and states.
There is growing international
awareness of the need for greater transparency in the extractive industries as
a vital first step towards tackling the “Resource Curse”. The Extractive
Industries Transparency Initiative (EITI), a global association of governments,
companies, investors and civil society groups (including Global Witness), has
more than 30 countries implementing its rules (soon to be joined by the United
States), of which 11 are Compliant.
The EITI aims to strengthen
governance by improving transparency in the natural resource sector. Under the
EITI, Compliant countries and companies operating within these Compliant countries
are required to disclose all material payments or revenues paid (in the case of
companies) and received (in the case of countries).
The aim is that through this
reporting, citizens and civil society are able to track that money and holdtheir governments to account for its
management. The EITI approach of
promoting public reportingof revenue flows is being reinforced
by legislation like Section 1504 of the US Dodd-Frank Wall street Reform and
Consumer Protection Act (Dodd-Frank Act) 1, which requires companies to report on tax payments made in
each country. The European Commission has recently proposed similar rules in
the European Union. These efforts are a welcome and necessary first step
towards ensuring that all oil, gas and mining companies pay what they ought to
and governments manage revenues as they should.
For the first time in some
countries, they have taken information of vital public importance and brought
it out of the shadows of state secrecy, and into the public domain. However, the risk of corruption lies not only
in the flow of revenues from contracts and licenses’, but also right at the
start, when extractive companies are granted access to these licenses’ and
contracts. Too often private ‘shell’ companies with opaque ownership structures
are awarded lucrative concessions, with little information available as to who
the beneficial owners of the company are, how much (if anything) the company
has paid for the license, and what the country has gained in return. If these
companies do not have the technical capacity or financial resources to develop
the asset themselves, they may end up being carried by international and
national operators. Alternatively, they may squat on lucrative concessions by acquiring
them from government before ‘flipping’ them quickly to other investors who
actually have the capacity to develop the license.
It is our view that joint ventures
with such shell companies, while not necessarily breaching anti-corruption laws
such as the US Foreign Corrupt Practices Act (FCPA) 2, could be indirectly sustaining a
system in which resource revenues are being siphoned off by corrupt elites.
Whilst foreign investors may be
fully compliant with the local and international laws, in effect, they are
paying huge fees to elites in order to access the local market. Angola and
Nigeria are archetypal examples of countries
which have been afflicted by the Resource Curse. They are two of the largest
oil producing countries in Africa; exporting between them over four million
barrels of oil per day. 3 Their
citizens, however, remain amongst the poorest in the world, with approximately
70 per cent of Angolans and 80 per cent of Nigerians living on less than two US
dollars a day. 4 This report reveals an alarming
degree of opacity and scope for deviation from due process in what, in both countries,
have been presented to the world as open and competitive oil allocation
processes. As this report shows, the apparent overlap between political and business
elite in the two countries has undermined public confidence in the license
bidding process and created suspicion over its legitimacy. The very existence of
this suspicion, whether or not it is founded, is harmful. Political
institutions and the sustainability of investments into industry are both
endangered, which is counterproductive for development.
Our research reveals two major problems in the government
allocation of oil contracts:
• Governments are not making clear
the rationale for choosing particular companies in the bidding process and, in
certain cases, they appear to allow companies special or preferential access to
oil licences, leading to doubts about the integrity of the process.
•
Governments are awarding oil
licences to companies whose beneficial owners remain undisclosed. In certain
cases, there are grounds for suspicion that some of the companies may be owned
or controlled by government officials or their private-sector proxies.
This report also includes a short
case study from the Democratic Republic of Congo (DRC), where the issues
surrounding access to mineral licences remain very live and real. In this case,
the state mining companies sold off stakes in four mineral concessions in
secret to companies which were based in offshore tax havens and therefore did
not have to disclose their ownership. There are also serious concerns that the
sales prices agreed were much lower than most reported commercial estimates. If
citizens do not know why particular companies have been awarded natural
resource licences, it leads to suspicions of wrongdoing, especially in countries
like Nigeria, Angola and the DRC with track records of natural resource-related
corruption. The last part of this report recommends a number of measures that
governments could adopt to make the allocation of oil and other natural
resource licences more open and identify who benefits. These measures should be
mainstreamed into the EITI and into national laws and regulations. It also
presents a ‘Citizens’ Checklist’ for the allocation of resource concessions. It
is based on the investigative findings of the report and extensive discussion with
civil society activists, academics, industry and international financial
experts and others concerned with corruption.
Introduction to The citizens’ checklist
The Checklist is part of a broader
global debate about the best ways for countries to manage their natural
resource endowments to maximize the long-term benefits to their citizens while protecting
other public goods, such as the natural environment. An important product of
this debate is the Natural Resource Charter, a set of principles for natural
resource management by governments that was created by academics and civil
society thinkers working with the British development economist Paul Collier.
The Charter is designed to be used by reformist government officials, so our
Checklist is a civil society complement to that approach, framing allocation
issues from the perspective of what a citizen should be able to find out to be
confident that the allocation of a resource concession was broadly free and
broadly fair.
The Citizens’ Checklist has three main principles:
• Citizens need full information
about the ownership of companies that bid for oil, gas or mining rights, to
ensure they are bona-fide companies with the competence to do the job, not
simply fronts for corrupt vested interests.
• The process for awarding oil, gas
and mining rights, and its outcome, need to be open to public scrutiny.
Licences and contracts should be published.
• Independent mechanisms are needed
to check that the rules are being upheld. These mechanisms should actively
involve civil society groups from the country concerned African countries with
mineral resources have too long been held back from prosperity by a baleful
history of collusion between corrupt and incompetent rulers and amoral
international companies: more transparency would ensure a more open competition
and one that is fairer to countries and their citizens.
This is also true in other countries
where competition between Western, Asian and other international extractive
investors is growing. Iraq, with its
huge oil and gas reserves, is an example of a country long plagued by conflict and
misrule that will need to carefully manage the international competition for
its resources, to avoid further corruption and instability.
Another example is Afghanistan, with
its large mineral reserves. In oil rich Libya, where former dictator Colonel
Muammar Gaddafi was recently overthrown, Global Witness has just started a dialogue
with local civil society and activists: their consistent message is that oil
should now become
the servant of the people of Libya,
not its master.
International extractive companies,
whether from the Americas, Europe, China or other parts of the world, would
also benefit from a more open competition for access to natural resources in
Africa and other developing regions. More transparency and public
accountability would reduce the risk that well-intentioned companies lose out
to corrupt rivals. It would ensure greater legitimacy for extractive companies,
in the eyes of citizens, in countries where they may need to operate for
decades to come, boosting investor confidence and reinforcing the rule of law
in these countries’ extractive sectors.
The home countries of international
extractive companies also have an interest in a global competition for access
to oil, gas and minerals that is more open and fair. Corruption and mismanagement
of the natural resources sectors in poor countries can not only threaten the security
of resource supplies, as in the Niger Delta region of Nigeria, where armed
attacks on oil companies forced major cuts in production in the mid-to-late
first decade of this century.
Corruption also makes developing
countries poorer and less stable, creating risks of conflict and humanitarian
disaster which taxpayers in the world’s richer countries will be expected to
respond to.
For all these reasons, there is a
pressing need for the principles of the Citizens’ Checklist to be endorsed and put
into effect by resource-rich countries, by multinationals and their home governments
in the West, Asia and other regions.
Corruption in the extractive
industries has always been an international problem and the solutions must also
be international. International Financial Institutions, such as the World Bank and
the European Bank for Reconstruction and Development, should make public
disclosure of beneficial ownership a condition for providing financing to
companies. International governments should ensure that anti-corruption and
anti-bribery laws become a global norm and are adopted in all countries.
There is no single instrument that
can enact all these reforms across a diversity of sovereign states. Solutions
need to arise from national law such as stock listing regulations which require
companies to disclose payments, from voluntary associations like the EITI, from
good practice amongst corporations and, in the end, from the creation of
international agreements which govern the access and trade of natural resources
and ensure that public goods are adequately protected.
All these solutions need to start
from a sincere recognition amongst decision-makers in both governments and
industry, that for reasons of morality and enlightened self-interest,
corruption should no longer be tolerated in the interest of securing cheaper
oil and minerals for the rich world, at the expense of the poor.
CONTINUE READING.............
https://www.globalwitness.org/sites/default/files/library.pdf
https://www.globalwitness.org/sites/default/files/library/RIGGED20The20Scramble20for20Africa27s20oil,20gas20and20minerals20.pdf
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