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Making Oil Transparent

from New York Times Editorial Department, July 6, 2003

It is a widely noted paradox that striking oil can be disastrous for a poor country. In Nigeria, Sudan, Angola, Venezuela and many other places, oil and gas have brought corruption and strife. Some of the reasons, such as oil's distorting effects on exchange rates, trade balances and credit, are hard to combat. But around the world, governments and oil companies are beginning to embrace a simple change that can help: strip the secrecy from the deals.

Most constitutions say that a country's natural resources belong to its citizens, but in very few poor countries can people find out how much foreign companies pay to exploit those resources or how the proceeds are spent. The result is corruption. Huge criminal cases are exposing possible bribes paid for the benefit of Mobil in Kazakhstan, and by Elf of France in various African countries. According to the British organization Global Witness, which has led the campaign to open the oil books, in Angola a billion dollars in oil revenue — a quarter of the state's income — disappears every year. In Nigeria, the public belief that oil companies participate in corruption has helped turn the oil-producing Niger Delta region into a battleground where companies face sabotage, kidnappings and shutdowns.

These scandals, and the growing realization that instability makes long-term oil production risky, are encouraging companies to abandon secrecy. Last year, the British government started the Extractive Industries Transparency Initiative, which seeks to persuade companies to disclose voluntarily their payments to resource-rich countries. Pushed in large part by their investors, most oil, gas and mining companies have said they support it.

BP, formerly British Petroleum, has come the furthest. It posted its production-sharing agreement with Azerbaijan on a Web site — a first. It also disclosed signing payments it made in Angola and announced it would disclose other payments. That brought a letter from the Angolan state oil company threatening to expel BP if it did so, with copies sent to other oil companies.

One problem with taking these initiatives further is that companies are reluctant to go solo. A promising solution comes from the Publish What You Pay campaign, run by Global Witness and other nongovernmental organizations. It asks stock exchanges to require listed oil and gas companies to publish an annual single figure for the total net payments they make to each country where they work. The campaign also wants international accounting organizations to increase their standards for disclosure, which would cover many state oil companies not publicly traded. The United States government — so far absent on this issue — should endorse this campaign. It would give companies a tool to resist paying huge bribes and to breach confidentiality agreements they have signed with corrupt governments. It would also help ensure that oil and gas revenues are used to create more prosperous and stable societies.