Guyana has to ensure its oil and gas local content policy promotes robust oversight of the sector given the potential loopholes for corruption that have been evidenced in other developing countries, according to Canada-based University Professor and Georgetown Chamber of Commerce and Industry (GCCI) Advisor Dr. Nazim Baluch.
On the background of research and reports from Transparency International, Global Witness and other watchdog bodies, which show that the oil and gas sector has the highest incidence of corruption of all sectors and is among those that have incurred the most significant penalties, Baluch said that empowering civil society and the public to have access to information is integral to ensuring transparency.
“Effective monitoring relies on access to information, and a lack of transparency can be a challenge for both government and civil society monitoring efforts. Transparency is central to monitoring for at least two reasons: It is a condition for effective monitoring; and it creates incentives for all stakeholders (government, companies and communities) to play by the rules. Within government, not sharing information across departments in the executive branch can hamper monitoring. For other branches of government, particularly parliament, lack of access to critical information inhibits credible monitoring. And for civil society, access to contracts, environmental impact assessments (EIAs), work plans, revenue collection figures and other ongoing project information is essential to monitoring efforts but is often lacking,” Baluch wrote in the GCCI’s 2019 Business Guyana magazine.
He added that governments and companies should publish all essential information for monitoring OGM [oil and gas mining] projects, including concession agreements – containing contracts, permits or licenses; laws and regulations; project-specific assessments and reports, including EIAs, work programmes, social impact assessments and local development plans; and ongoing data on implementation and monitoring, including production figures, tax and royalty payments, and inspection report.
Head of the Department of Energy Dr. Mark Bynoe has said that this country’s Local Content Policy has been completed. Bynoe has said after that it was completed it would be the subject of consultations with the private sector and other stakeholders.
Baluch said that Local Content Policies (LCPs) often fail to meet national expectations. For them to be impactful, he said, the public and all stakeholders must work together as they build capacity and keep ridged oversight of the sector since it is in local content that “significant corruption opportunities” are shown.
“Local Content (LC) is seen as a key tool to help developing countries to reap, in a sustainable manner, the economic and social benefits from their natural resources. Yet, if not implemented and managed carefully and if not subjected to public scrutiny, LC can also offer significant corruption opportunities,” he stated.
“Available reports indicate that many of the corruption challenges faced by developing resource-rich countries also influence and have an impact on LCPs. Within this framework, measures that are usually adopted to curb corruption within the public administration, such as enhancing transparency in decision-making, establishing clear and transparent procurement rules, providing access to public documents, and strengthening oversight, are also instrumental to prevent and curb corruption in LC. Companies in the oil and gas sector operate in a high-pressure environment where the potential payoffs from successful ventures are considerable. Con-versely, delays or downtime in the value chain have the potential to significantly erode the bottom line. This pressure can create an imbalance between compliance and operations, and has the potential to induce activities that may be corruptive and misaligned with corporate policies,” he added.
Some of the key bribery and corruption risk areas for the sector, Baluch points out, are due to the high levels of expenditure involved in oil and gas projects.
Additionally, he noted that main corruption risks in LCPs in the oil and gas sector also include: favouritism and conflict of interest; undue influence by international oil and gas companies; political interference and discretionary power of public officials in enforcing LC rules; fronting and use of shell companies; and nepotism and cronyism in the hiring of local staff. All of these he said, arise from a lack of transparency and a lack of people empowerment to hold government to account.
“In several resource-rich developing countries, the linkages developed are often shallow in breadth and depth and more akin to lip service. Although most stakeholders agree that monitoring and enforcement are essential to ensuring that Oil, Gas and Mining (OGM) projects proceed in accordance with the legal framework; and thus, that the risks and opportunities of OGM projects are distributed appropriately—these important activities are often neglected. Deficiencies in capacity, transparency and government monitoring incentives all contribute to insufficient monitoring and enforcement activities. While all countries confront capacity, transparency and incentives challenges, they may be pronounced in different places at different moments in time,” he posited.
“But wherever and whenever they exist, they should not be considered in isolation. Instead, these challenges operate together, and they must all be confronted to enable effective monitoring. Similarly, government and civil society monitoring should not be looked at in isolation but rather as mutually enforcing and beneficial activities,” he added.
Lack of capacity
But capacity building, according to Baluch, is not an easy task as there are many matrixes that influence how that capacity is built. He said that, perhaps, the most obvious challenge to monitoring is lack of capacity.
“Capacity is not just a matter of training or the wealth of the state. It reflects politics and priorities as well as other factors that contribute to sustainable, effective governance. In this way, capacity challenges are linked with incentives: until those in power have the incentives to devote resources to improving capacity for monitoring and enforcement, the challenges are unlikely to improve,” he said.
Baluch pointed out that quite often, governments lack the capacity to inspect, audit and review companies’ operations over the typically very long life of the project.
“First and foremost, they do not have enough staff to complete the necessary monitoring. Beyond that basic challenge, they may also lack the skills, technology, vehicles and financial resources to conduct that monitoring effectively. Even when skills and technology are available, bad policies or weak overall governance can make it impossible to plan and budget for appropriate monitoring,” he said.
Underscoring that key to safeguarding against politician influence in the sector was the political value of discretion, since strong systems curtail the discretion of individuals, he said that the control of resource-rich countries, especially poorer ones, over the resource sector is one of the most politically valuable assets available and therefore leaders hesitate to relinquish this discretionary control to process or to bureaucrats, in case they need to be able to manipulate its operations in the future.
Noting that in some countries some public officials have private interests in the OGM sector, he said that those persons would tend to favour companies that are controlled by themselves, their friends and family, or their political allies. “Monitoring the costs of subcontracts, for example, can be undermined if the official has an interest in a certain subcontractor receiving a valuable (and possibly inflated) contract,” he explained.
He added, “Another personal conflict of interest can arise when mid-rank officials create a bottleneck through a reporting or approval process, establish themselves as the gatekeeper, and collect a “rent” from companies to conduct this otherwise smooth function. The prevalence of this ‘bottlenecking’ in pursuit of rent extraction is endemic in least developed countries (LDCs). LC compliance is one example: Companies must get sign-off, and they must pay or otherwise reward the gatekeeper to get it. The incentive for the gatekeeper becomes capturing the rent rather than enforcing the rules.”
The oil and gas companies also have an ethical role in mitigating corruption risks and should proactively do so by implementing an effective anti-corruption compliance programme, Baluch said.
Citing a 2013 Ernst and Young report, Baluch noted, “Anti-corruption mechanisms adopted in LC in the oil and gas sector include: Anti-corruption clauses such as drafted by the International Chamber of Commerce (ICC) to be included in contracts; Establishment of independent oversight bodies to review LC implementation; Clear and transparent procurement laws that guarantee fairness; Requirements to disclose beneficial ownership to ensure that LC contracts do not circumvent LCRs; and Publication of contracts and information regarding the implementation of LC rules.”
“Other anti-corruption mechanisms should include: the adoption of rules regulating conflicts of interest, revolving door, and gifts and entertainment; mandatory requirements for public officials and senior executives of state-owned enterprises to regularly declare their assets; the adoption of access to information laws and rules opening the decision-making process, particularly ensuring civil society participation and oversight in the negotiation of oil agreements.”
