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Governance

Oil and gas industry lacks transparency

Monday, 28 April 2008

A majority of leading oil and gas companies are far from transparent when it comes to the payments they make to resource-rich countries.

This leaves the door open to corruption and hampers efforts to fight poverty, according to a report published by anti-corruption group Transparency International (TI).

“The tragic paradox, that many resource-rich countries remain poor, stems from a lack of data on oil and gas revenues and how they are managed. Companies must do more to increase transparency,” said Huguette Labelle, Chair of TI.

Resource-rich countries

The 2008 Report on Revenue Transparency of Oil and Gas Companies evaluates 42 leading international and national oil and gas companies operating in 21 countries, based on the transparency of their reporting, particularly on payments made to governments for resource extraction rights.

The report, based on data made publicly available by companies, categorises companies into high, middle and low performers. Only a third of companies evaluated in the report are considered high performers.

Today, sixty per cent of the world’s poorest people live in resource-rich countries. Most constitutions grant citizens ultimate ownership of their country’s natural resources.

Yet much of the data on what companies pay for the right to exploit these resources and how this money is spent by host governments remains unpublished and beyond public scrutiny.

When companies and governments are fully transparent, citizens, journalists, civil society, researchers and investigators can track revenue flows, holding public officials to account and discouraging corruption.

Proactive reporting

With oil prices at record highs and industry revenues in OPEC countries alone expected to reach nearly US $1 trillion in 2008, the question of transparency has never been more critical.

“Oil and gas wealth, if properly managed, should support better services and infrastructure. It should lead to a better quality of life for all citizens. It is the duty of civil society to work with companies and governments to unlock this potential,” said Labelle.

Transparency International advised companies to act quickly to introduce proactive reporting, rather than wait for legislation.

In identifying high-performers, TI’s report shows that revenue reporting on a country-by-country basis, which is identified as best practice, is possible.

As the companies with best results show, transparency and profitability are not mutually exclusive. To the contrary, TI claims greater transparency can enhance confidence in the financial markets and with stakeholders.

Analysing company performance

Cobus de Swardt, managing director of TI, said that revenue transparency is a win-win equation.

De Swardt hoped that the report would help motivate companies to improve their revenue transparency and that they would understand that civil society stands ready as a constructive partner in this process.

“When we update the report data we look forward to seeing not only improved scores, but greater company engagement in our work. This is an issue that can only be tackled collaboratively,” De Swardt added.

Analysing company performance is just one piece of the puzzle. Although the private sector must increase revenue transparency, governments of host countries are ultimately accountable for the management of their resources.

They must therefore lead the drive for a more equitable exploitation of oil and gas wealth, by enacting, promoting and enforcing regulation.

Future reports by Transparency International will look at the role of resource-rich country governments as well as those governments home to major extractive companies.

Mandatory revenue transparency

The 2008 Report on Revenue Transparency of Oil and Gas Companies makes four key recommendations.

Companies should proactively report revenues paid to governments on a country-by-country basis.

Governments, stock exchanges and regulatory agencies should urgently consider mandatory reporting for companies operating in-country and abroad.

Governments from oil and gas producing countries should introduce legislation mandating revenue transparency by all companies operating in their territories.

Regulatory agencies and companies should agree to publish information in a uniform and accessible format, one that facilitates both comprehension and comparability.

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