A global industry inevitably finds itself conducting business with dubious people in unsavory places. The world has no shortage of either. The oil and gas industry, because of the large projects it conducts with national governments and the enormous wealth those projects create, attracts more than its share of characters whose only motivation is fast and easy money.
It should come as no surprise, therefore, that the oil industry receives special attention in Transparency International's latest Corruption Perceptions Index (CPI), published Oct. 20 in London. TI Chairman Peter Eigen, in a statement accompanying release of his group's 10th annual index, called the payment of kickbacks to secure oil tenders "a practice that has blighted the oil industry in transition and postwar economies."
The index
The CPI ranks countries according to composite views about their corruption—which TI defines as "the abuse of public office for private gain"—in the public sector. The index consolidates findings of surveys by financial institutions, academic groups, research firms, and other organizations. Countries receive scores of 1-10, with 1 being most corrupt.
Oil and gas producing countries don't fare well in the ranking. Scoring below 3 in the new ranking are Iran (2.9), Romania (2.9), India (2.8), Russia (2.8), Algeria (2.7), Papua New Guinea (2.6), Philippines (2.6), Viet Nam (2.6), Argentina (2.5), Libya (2.5), Ecuador (2.4), Yemen (2.3), Congo (Brazzaville) (2.3), Uzbekistan (2.3), Venezuela (2.3), Bolivia (2.2), Guatemala (2.2), Kazakhstan (2.2), Sudan (2.2), Ukraine (2.2), Cameroon (2.1), Iraq (2.1), Pakistan (2.1), Angola (2.0), Congo (former Zaire) (2.0), Ivory Coast (2.0), Indonesia (2.0), Turkmenistan (2.2), Azerbaijan (1.9), Myanmar (1.7), and Nigeria (1.6).
In many of these countries, Eigen said, "public contracting in the oil sector is plagued by revenues vanishing into the pockets of western oil executives, middlemen, and local officials."
This is no glittering endorsement of international activity by oil and gas companies. The legitimacy of work by foreigners to develop a country's natural resources derives greatly from the degree to which the host country benefits as a result. A country can't benefit when the proceeds enrich mainly an elite few.
TI estimates that bribery in government procurement in all industries totals at least $400 billion/year worldwide. This diversion of wealth obstructs efforts to alleviate poverty in poor countries but isn't confined to them. "Corruption in large-scale public projects is a daunting obstacle to sustainable development and results in a major loss of public funds needed for education, healthcare, and poverty alleviation, both in developed and developing countries," Eigen said.
With their industry so near the center of this difficult problem, oil and gas companies need to make eradication of corruption a priority. It's not easy. Resisting corruption can mean alienating officials with authority to permit or deny work. Companies must resist anyway. Permission to work lacks value when the work, if founded in bribes and kickbacks, lacks legitimacy.
TI offers suggestions. With publication of the new CPI, it repeated its call on western governments to make oil companies publish what they pay in fees, royalties, and other disbursements to host governments and national oil companies. This would be a difficult step. But it's necessary.
TI Vice-Chair Rosa Indés Ospina Robledo also urged international investors and governments to ensure transparency in public procurement by inserting no-bribery clauses in agreements for all major projects. "Tough sanctions are needed against companies caught bribing, including forfeit of the contract and black-listing from future bidding," she said in Bogota the day TI released the new CPI.
Award criteria
TI said tenders should include objective award criteria and public disclosure of the tendering process. Noncompetitive bidding should be kept to a minimum and explained and recorded when used. And public contracting should be subject to oversight by independent agencies. Ospina Robledo further urged companies from countries in the Organization for Economic Cooperation and Development to fulfill their obligations under the group's antibribery convention. "With the spread of antibribery legislation, corporate governance, and anticorruption compliance codes," she said, "managers have no excuse for paying bribes."
Oil companies should improve conditions wherever they work. That's impossible when corruption taints their activity. Fighting corruption will jeopardize a deal here and there. Because of all that's at stake, however, avoiding the fight is little better than paying bribes.
