Inauguration of the long-awaited Chad-Cameroon pipeline on Oct. 10 gives international oil and gas companies something beyond a challenging project to cheer, however discreetly (OGJ, Oct. 6, 2003, p. 26). The financial package adopts unprecedented World Bank stipulations tracking payments to the Chadian government and steering the money toward national development.
Companies should welcome this step toward compulsory disclosure of their financial dealings with foreign governments. The contractual secrecy typical of these relationships fosters corruption, which denies host-country populations the benefits of resource development and robs work by international companies of legitimacy. In too many developing countries, obscurity and corruption are standard practice. If that doesn't change, poverty will worsen in poor countries, which will grow ever less stable and ever more hostile to foreign companies.
Ominous paradox
Corruption feeds an ominous paradox. Endowments of oil and gas are proving to be national curses rather than the blessings they should be. A thoughtful study published in June by Catholic Relief Services described the dilemma like this: "The gap between the promise of petroleum and perversity of its performance in recent times is enormous. Study after study demonstrates that, as a group, countries dependent on oil as their leading export have performed worse than they should have, given their revenue streams; and poverty within their borders has been exacerbated rather than alleviated over the past 2 decades."
Collapse of oil prices early in that period explains part of the phenomenon. But other, more important factors are at work. Revenue surges from new oil production can overwhelm and destabilize developing-country economies, especially where governments and social institutions are weak. They also tempt the desperate and greedy. The cycle is familiar: Payments shrouded in confidentiality enrich a few conveniently stationed officials, who pacify everyone else in the country with fuel subsidies. When the unlucky masses see that oil development hasn't made them any less poor, they turn against governments and the oil developers they view as complicit in economic injustice.
By itself, illumination of financial dealings between foreign oil companies and host governments won't break the cycle. Alone, it can't end corruption. It will, however, expose discrepancies between official receipts and expenditures and nudge governments toward accountability.
In most cases, oil companies can't initiate disclosure. Doing so would violate confidentiality agreements of existing contracts. And under a voluntary approach for new agreements, whether and how much to disclose would become issues of competitive advantage. Companies would not all handle voluntary reporting the same way. Corrupt governments would favor companies most willing to keep their secrets.
The ideal would be a mandatory disclosure standard applicable to everyone, internationally enforced. Such a standard would help companies keep dealings with foreign governments out of the dark tunnels that make them inadvertent parties to corruption. Rightly configured, it would provide an auditable system for tracking payments to and by host-country governments.
But the ideal is easier to envision than it would be to implement. The differing accounting requirements governing companies from various countries would be one problem. Circumstances of host countries also vary. The effort to adopt an international standard for disclosure would generate pressure to require reporting of commercial information that should remain secret. And the question of who imposes and enforces such a standard as yet has no answer.
Progress
At this point, any movement toward mandatory disclosure constitutes progress. The World Bank's innovation at the production end of the 660-mile Chad-Cameroon pipeline is one such move and, if successful, might help settle the enforcement issue. Under it, Chad's share of revenue from oil produced from three fields near Doba will go into an auditable escrow fund established by legislation. Part of the money will flow immediately to the World Bank and European Investment Bank to service debt. The rest will be apportioned to specified national uses.
The scheme isn't perfect. Catholic Relief Services points out, among other things, that it doesn't apply to transit fees due the notoriously corrupt government of Cameroon or to fields other than the first three developed in Chad. It nevertheless represents pioneering resistance to a cultural force that not only raises moral questions about international oil and gas work but also loads it with risk. It also challenges convention. When resource development aggravates poverty, something has to change.
