G8 must reiterate commitment to oil and gas transparency
Energy security means oil and gas transparency, says Transparency International (TI) as the 2006 Group of Eight (G8) summit begins in St Petersburg, Russia.
Despite its potential to generate growth and improve lives, natural resource wealth is associated in many countries with corruption, conflict, unaccountable government and retarded democratic development. The G8 must reiterate its commitments on transparency in the extractive industries and recognise that a free civil society is an essential prerequisite for government and corporate accountability in the energy sector, at home and abroad.
“The huge revenue streams that flow from oil, gas and other mineral deposits have the potential to improve lives, spurring economic and social development, lifting people out of poverty and paying for health services, schools and infrastructure,” said Huguette Labelle, Chair of Transparency International. “Corruption directly threatens the use of natural resource wealth for the benefit of the world’s population.”
Extractive industry transparency is fundamental to political stability, economic development and global energy security. It holds extractors and governments accountable to one another and ultimately to citizens.
The problem: squandered wealth
Natural resource wealth often ends up fuelling conflict and political repression. The massive sums involved (the market value of the top five oil and gas companies totals over US $1 trillion, according to the 2006 FT Global 500) invite abuse and outright theft, with corrupt officials siphoning off badly needed funds for personal enrichment and corporations playing along in the interest of profit.
As sudden, exorbitant income, wealth from natural resources can distort governance, making government less responsive to tax-paying citizens and the non-energy business sector. This set of conditions, often accompanied by inflation and the loss of economic diversity, is often referred to as the ‘Resource Curse’.
According to the World Bank, six of the nations most dependent on oil industry wealth are classified as ”highly indebted poor countries” with very low scores on human development indicators. The numbers suggest that inadequate governance and corruption are rife. This gap between natural resource wealth and human poverty is a key source of insecurity in the global energy supply.
The solution: follow the money
A powerful tool for greater transparency is the Extractive Industries Transparency Initiative, a voluntary programme in which governments publish revenues received and companies publish payments made. Independent auditing then flags any discrepancies. The EITI is predicated on multi-stakeholders’ commitments, and the belief that mutual transparency fosters mutual accountability and only an informed public can hold business and government to account.
The G8 nations have pledged at past summits to support the EITI. As some of the greatest consumers - and producers - of hydrocarbons, their fulfilment of these pledges and their substantial influence in energy supplying regions can make the difference in achieving greater transparency in the sector.
A case in point
Oil and gas resources account for over 70 percent of the budget of Nigeria, Africa’s largest oil and gas producer. Nigeria saw growth of almost seven percent in 2005, and paid off its Paris Club debt this year, becoming the first African nation to settle its debts with official lenders. Economic indicators and ratings have also improved. The Nigerian EITI (NEITI) has been credited with contributing to these successes.
As a member of the G8 and a growing superpower in energy supply, Russia has a special responsibility to lead by example. With the initial public offering of Rosneft, a state-owned oil giant, Russia should demonstrate its commitment to transparency in its extractive sector by signing up to the EITI.
TI’s recommendations: expand support
Specifically, the G8 should:
- Reiterate its full commitment to and support for EITI;
- Push disclosure of payments by home companies to host governments for the extraction of energy resources, as previously called for by Transparency International and the Publish What You Pay (PWYP) coalition;
- Support a robust validation system to ensure that EITI is implemented effectively by both countries and companies, with active participation of civil society in all phases of its implementation;
- Commit to financial and technical assistance for governments and civil society organisations to help countries implement their EITI commitments through 2011;
- Include extractive transparency criteria in aid and debt relief programmes, and expand the EITI to emerging economies.
- Support the establishment of an adequately resourced and professional Secretariat for EITI for at least the next five years.
The bigger picture
TI supports the EITI within a broader framework of transparency, public financial accountability, disclosure and information exchange. Transparency in oil and gas, from exploration through to consumption, means greater awareness of interdependence, capacity and consumption. This has positive ramifications for social, environmental and economic concerns, such as long-term cost projections and assessing environmental impact.
Transparency International is the global civil society organisation leading the fight against corruption.
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