The Hindu Business Line : Oil-rich, corruption-riven

The TI Corruption Perceptions Index 2004, which ranks countries by perceived corruption, terms oil-rich Angola, Azerbaijan, Chad, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Russia, Sudan, Venezuela and Yemen the most corrupt nations.

THE finding by Transparency International (TI) that oil rich nations are perceived as the most corrupt holds no surprises, coming, as it does, in the wake of the March report of Global Witness, `Time for transparency: Coming clean on oil, mining and gas revenues,' urging governments to disclose oil, mining and gas revenues as a first step towards stopping their misappropriation and mismanagement.

The TI Corruption Perceptions Index 2004, which ranks countries by perceived corruption, has said that oil-rich Angola, Azerbaijan, Chad, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Russia, Sudan, Venezuela and Yemen are considered the most corrupt nations. The TI Chairman, Mr Peter Eigen, has attributed this perception to their lack of transparency in public sector oil purchases and contracting which have resulted in, among other things, revenues being guided into the pockets of Western oil executives, middlemen and local officials. He has stressed the need for oil companies to make public their payments to governments and public oil sector firms in order to fight bribery and corruption.

While the TI corruption index has a wide following and is often taken into account by companies worldwide while making their investment decisions as also aid agencies in assessing the governance policies of recipient countries, its critics point out that the index measures perceptions of corruption and not real corruption levels and that it affects the development of those countries which perform poorly on the scale.

However, in the case of the TI Corruption Perceptions Index 2004, there is no reason at all to believe that there is a mismatch in perception and fact in the light of the report by Global Witness, a non-governmental investigative organisation that exposes the links between natural resource exploitation and human rights abuses, which makes a strong argument for the prioritisation of revenue transparency in the oil industry as a component of good governance and energy security.

The report states that, across the globe, revenues from oil, gas and mining that should be funding sustainable economic development have been misappropriated and mismanaged and goes on to consider five major examples of this problem: Kazakhstan, Congo Brazzaville, Angola, Equatorial Guinea and Nauru.

"In these countries, governments do not provide even basic information about their revenues from natural resources. Nor do oil, mining and gas companies publish any information about payments made to governments. Huge amounts of money are therefore not subject to any oversight and crooked elites can extract all sorts of `facilitation payments' from firms that would probably prefer not to pay bribes. Investigations also reveal that some companies have played a willing role in facilitating off-the-books payments, misappropriation of state assets, and other nefarious activities such as arms shipments, as part of an anti-competitive, under-the-table method of winning business with unaccountable regimes. Ordinary citizens, who often own a country's resources under its constitution, are thus left without the information to call their governments to account over the management of their revenues. The end result is a litany of corruption, social decay, increased poverty, reinforcement of authoritarian government and political unrest, which can ultimately lead to state failure and the spread of instability across regions."

It points out that in Kazakhstan, the largest-ever foreign corruption investigation in US legal history has uncovered a major international corruption scandal that defrauded the Government of Kazakhstan of funds to which it was entitled from oil transactions and defrauded the people of Kazakhstan of the right to the honest services of their elected and appointed officials.

The scheme was based on the demand raised by the Kazakh President, Mr Nursultan Nazarbayev, and the Oil Minister, Mr Nurlan Balgimbayev, that international oil companies such as Chevron (now Chevron-Texaco) and Mobil (now ExxonMobil) pay a series of "unusual fees" to a middleman, Mr James Giffen, on behalf of the Republic of Kazakhstan. This arrangement, the indictment alleges, helped Mr Giffen skim money from the deals and send some $78 million in kickbacks to Mr Nazarbayev and others through dozens of overseas bank accounts in Switzerland, Liechtenstein and the British Virgin Islands. Only Mr Giffen is charged in this indictment. Another $1 billion of Kazakh oil money has also been uncovered offshore and out-of-sight under Mr Nazarbayev's direct control in a secret fund in Switzerland. "Ironically, the only reason that such information has emerged is because President Nazarbayev inadvertently revealed the true state of affairs whilst trying to discredit a presidential rival..."

As for Congo Brazzaville, it is one of the petro-states most closely associated with the legacy of influence peddling and dirty deals in Africa by the now-notorious French state oil company Elf Aquitaine (now Total), according to Global Witness. "Elf treated Congo as its colony, buying off the ruling elite and helping it to mortgage the country's future oil income in exchange for expensive loans. The company even financed both sides of the civil war, as it also did in Angola."

In Angola, new evidence from IMF documents and elsewhere confirm previous allegations made by Global Witness that over $1 billion per year of the country's oil revenues — about a quarter of the state's yearly income — has gone unaccounted for since 1996. "Meanwhile, one in four of Angola's children die before the age of five and one million internally-displaced people remain dependent on international food aid. This report highlights the latest revelations from the `Angolagate' scandal, in which political and business elites in France, Angola and elsewhere exploited the country's civil war to siphon off oil revenues. Most recently, evidence has emerged in a Swiss investigation of millions of dollars being paid to President Dos Santos himself."

Global Witness reports that, in Equatorial Guinea, "oil companies appear keen to do business with the brutal regime of President Obiang Nguema... The country's government has been tarnished by allegations of corruption, political violence, human rights abuses, and narcotics trafficking. Although the country's oil boom has resulted in a dramatic increase in GDP, its living standards remain among the worst in Africa. This may be because much of the country's oil money stays abroad: journalists have recently uncovered evidence that major US oil companies are paying revenues directly into an account under the president's control at Riggs Bank in downtown Washington DC."

Finally, according to the Global Witness report, the opaque and unaccountable management of phosphate reserves has transformed tiny Nauru from the richest nation in the world (per capita) to a bankrupt wasteland. "Phosphate mining took place in a country synonymous with secret banking and money-laundering, where over $80 billion was laundered during Russia's economic transition in the 1990s. In this tax-free, reporting-free environment, the island's phosphate revenues were squandered by irresponsible officials, frivolous speculation, and in the words of one observer, `a steady stream of carpetbaggers and outright crooks'. The money has now dried up. Bankrupt, in social and political turmoil, and facing possible extinction from rising seawaters, Nauru is a sinking ship."

The major finding of the Global Witness report is that none of the revenue embezzlement scandals discussed in it could have happened if multinational companies had been required to disclose publicly their basic payments for resources to the state

"More generally, transparency in the management of revenues from natural resources is fundamental for successful development and poverty reduction.

"Oil, mining and gas are critically important economic sectors in about 60 developing or transition countries. Amongst the 3.5 billion people in those countries, some 1.5 billion live on less than $2 per day and constitute over two-thirds of the world's poorest people.

"Twelve of the world's 25 most mineral-dependent states and six of the world's most oil-dependent states are classified by the World Bank as Highly Indebted Poor Countries with amongst the world's worst Human Development Indicators."

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