Oil discovery in many countries in the world is associated with corrupt governments and stagnant economies, instead of fostering positive economic and governance outcomes for its citizens. This phenomenon, commonly known as the “resource curse,” is demonstrated by the fact that, of the 20 countries whose economies are more than 10 percent dependent on oil revenues, very few are democracies.
While petro-states earn a windfall from the natural resource, it’s hard to determine what the revenue does and where it is invested. This has been made especially difficult by the culture of secrecy exercised by some states that too often masks corruption in government.
A Sunlight analysis of international open data surveys concludes that of the 20 nations that the International Energy Agency identifies as the world’s top oil producers, most release very little open data. Only six of these top oil producers are members of the Extractives Industry Transparency Initiative (EITI), which provides public access to information related to countries’ oil production, contracts and oil revenues. As a result, it is especially hard for citizens to get the information they need to hold oil-rich states accountable for their use of national resources.
In addition, we noted that, on average, the better each country on the list scored on open data surveys, the less corrupt it was perceived to be, according to Transparency International’s Corruption Perception Index. Oil-rich countries which do not share data about their government’s practices prevent people from being able to engage in ways which promote meaningful reform in general governance, let alone in the notoriously challenging extractives sector. While this correlation does not tell us whether improving data access will improve the public perception of government corruption, logic suggests that it would be an excellent start.
Oil-rich countries often hide critical information about the oil industry and open data policies in these countries can and should play a role in helping to provide transparency and accountability. It many instances is has become impossible to track revenue payments and other information accurately.
When citizens are better informed, they will be able to hold their governments and representatives accountable. When governments are held publicly accountable, officials are less likely to seek private benefit and will hopefully instead seek the best possible deal for the country as a whole.
Oil data is scarce in some of the world’s top producers
Saudi Arabia has the world’s largest oil reserves, which are generally estimated at 266 billion barrels and will likely last for at least 70 years at the current average production rate. However, despite the fact that this data represents the most significant revenue stream for Saudi Arabia, specific data on oil are state secrets known only to a small group of insiders. Because Saudi Arabian estimates to a large extent are kept secret, data availability is assumed and not verifiable.
For decades, oil proceeds have been enriching the numerous royals of the realm, providing lavish social benefits to the rest of the population (and thereby averting popular unrest of the Arab Spring variety), and financing the ultra-conservative Wahhabi clergy so as to ensure its loyalty to the regime, amongst other uses. However, in this oil-rich country, where economists estimate the state-owned Saudi Aramco is worth $10 trillion (more than 10 times the value of Apple, Inc.), four million of the country’s native Saudis live on less than $530 month. It’s impossible to know precisely how many Saudis live in poverty because the state also discloses little official data about its poorest citizens.
With the culture of secrecy and inadequate information on oil estimates and revenue, it becomes hard for citizens to appreciate what exactly the oil windfall does for the kingdom. The secrecy connected to Saudi oil production not only creates a data gap, but also breeds grounds for corruption and manipulation at the expense of the citizens.
In 2011, Venezuelan oil exports generated approximately $61 billion for the country. By June 2016, the population was hunger stricken; grocery stores were out of food; hospitals were out of medicine; and there was violence in the streets. Because most of Venezuela’s oil is produced by the state-owned oil company Petróleos de Venezuela (PDVSA), profits were controlled by the government. Without decent budget transparency, it’s hard to know exactly how Venezuela is spending oil revenues. According to the International Budget Project, the country currently ranks last in budget transparency out of all Latin American states.
Venezuela has exported oil since the 16th century, but things changed when former President Hugo Chávez came to power in 1999. According to the Economist, “[Chávez] started squeezing even more money out of [PDVSA]. By 2000 investment had fallen to $2.5 billion.” To justify this, Chávez alleged that PDVSA hid its profits from the government and used his government authority to restaff the firm with unqualified members of his family. Under the influence of the president, the company became more secretive, and deregistered its refining subsidiary, Citgo, at the Securities and Exchange Commission in the U.S. This means that Chávez, as the owner of Citgo, would determine what kind of information or oil data to release without opposition or confrontation from the U.S. government.
With the lack of transparency, it is easy for corruption to grow. In the nation’s natural resources sector, companies report paying bribes in return for favorable treatment or expedited processing. According to the World Bank Governance Indicators for 2015, Venezuela’s percentile rank for control of corruption was just 5.77 percent, and it ranked 162 out of 179 countries on Transparency International’s Corruption Perceptions Index.
Oil governance in petro-states is often based on the appointment of close allies or family members to key industry positions. This has the effect of both ensuring government control over the industry, and in many cases personally enriching the leaders. For example, in Russia the management of Gazprom and Rosneft — the state-controlled natural gas and oil companies — is indistinguishable from the senior leadership in the Kremlin, with both groups answering to President Vladimir Putin.
But not all oil wealth leads to corrupt, autocratic governance. In Norway, the government’s commitment to transparency in oil related matters has led the country to benefit from its oil resource. Norway ranks high on governance and transparency indicators, and has led the global effort to increase transparency in natural-resource economies. In 2010, it was the first country in the Organization for Economic Cooperation and Development to publish its oil-revenue figures as part of the aforementioned EITI. It has also responsibly administered its sovereign wealth fund to provide for future generations through creating an impressive $550 billion government pension fund.
Implications of oil ownership for open data
Whether oil-exporting countries are able to collect revenue from royalties collected from private producers, such as international oil companies, or whether these states operate their own nationalized oil companies or para-state corporations, it is ultimately the state that determines the means by which benefits from the windfall of revenues are distributed.
When money comes into, is released by, or is overseen by national governments, it is essential for those governments to make it available as open data. Open data means that this information should be available online, in useful formats, for anyone to freely access, use, modify and share for any purpose. However, oil rich governments, government agencies and corporations come up with a number of excuses to hoard their data rather than unlock it to the public. Governments refuse to publish information about oil deals using arguments relating to confidentiality and a misguided fear of data misuse.
The EITI and the broader open data movement — represented by the Open Data Barometer, the Open Data Index, and the Open Company Data Index — help to show whether people have access to basic oil resources information.
The EITI provides a platform for countries to share a standard set of data to inform public understanding about oil production and who benefits from it. Countries in compliance with the EITI share data on extractives-relevant contracts and licenses, production, revenue collection, revenue allocation, and social and economic spending. In collecting and sharing this information, the initiative aims to support governance improvements. Where states provide this data to the EITI, it is made available for download in a public Google drive.
When we look at the countries producing the most oil, it is useful to see which ones have made their data accessible so far – as well as which ones have not. The following chart provides information drawn from the EITI as well as the Web Foundation’s Open Data Barometer, the Open Knowledge Open Data Index and OpenCorporates’ Open Company Data Index. To provide a basis of comparison in order to see how this data availability relates to perceptions of corruption within a country, we have also provided each country’s ranking on the Transparency International Corruption Perception Index (CPI). (For the CPI, the higher the score, the more that country’s governance is perceived to be “clean” and free of corruption.)
The charts reveal that many of the world’s leading oil producers fail to provide significant amounts of open data that could provide the public with insights into the way the country was using its oil and its revenues. Additionally, there is an imperfect but nonetheless visible relationship between countries’ score on providing open government data and the national perception of corruption within the government. For oil-rich countries that do not provide the public with good access to government data, a failure of transparency leads to a perception that the country could be rife with corrupt practices. Thus, many of the world’s top 20 oil-producing countries are not only among the least transparent countries, but also seen as some of the most corrupt countries.
The “resource curse” of failed transparency does not affect all oil-producing countries, however. Norway ranks fifth on the list of the most transparent nations at the same time being the world’s 15th biggest oil-producing country. Norway’s oil and gas boom started in the late 1960s and since then, the nation has become known for its bold energy strategy and policies. With good transparency practices, the state participates directly in the petroleum sector as an investor and reaps all the associated rewards; this ensures that the net cash flow contributes to long-term and secure revenue to Norway.
The Norwegian government owns significant stakes in the international oil giant, Statoil, in addition to its state-owned company, Petoro. Most importantly, the revenues generated by state from oil and gas have allowed the country to not only eliminate its debt but also to create an impressive $550 billion government pension fund one of the biggest in the world. In Norway, government and citizen partnership in oil and gas is greatly valued, which has translated into a strengthening of the country’s transparency, people’s trust in their government and open oil. These practices resonate positively in Norway: In 2015, it led the UN human development index in life expectancy and quality of life.
It is important to note that the surveys’ measurement of open data does not completely map onto the question of whether countries are transparent about their oil-related decisions and financial flows. Canada provides a surprising mixed case. The country is ranked sixth globally in the energy and mining sectors, and scores highly on international open data surveys — but until this year has failed to demonstrate that general attitude towards transparency in connection with its extractives data. Canada does not participate in the EITI, and has not domestically provided details about its oil companies’ revenues, despite years of advocacy from the international community. (Due to the finalization of Canada’s Extractive Sector Transparency Measures Act, to be fully implemented by 2017, this appears like it will finally change.) Compare this with Norway, which lives up to its commitment to promote transparency in extractive industries through EITI leadership, or how the U.S. requires its extractives industries to provide specific details about revenues to the U.S. Securities and Exchange Commission.
The aim of open data initiatives is to improve information sharing by the government, but a lot of key information on oil remains unpublished. This includes detailed expenses — public expenditures on goods and services from oil revenue — which is necessary to evaluate transparency and establish trust with the citizens. While EITI reports reveal that countries like the Republic of the Congo are leading in disclosure of oil data, the same reports note that revenues received from the sale of oil for domestic consumption are not disclosed. This could mean that open data and disclosure in some countries is closer to “transparency theater” than transparency practice: Despite some disclosure, citizens will not be able to access, understand and use the information they really need for properly evaluating their national oil programs.
Who owns my nation’s oil?
Money from oil and gas can help lift countries out of poverty in much of the developing world. Properly managed, it could build schools, hospitals, roads and reduce dependency on international aid. But all too often, the revenue goes missing because deals are done behind closed doors, allowing small numbers of corrupt elites to profit at the expense of ordinary citizens. The influence of foreign companies and problematic approaches to oil deals hinder accountability in the countries providing the energy resource. By making international deals without public oversight, the leaders of oil-rich countries are in danger of abusing their power at the expense of the citizens, all in the name of the oil gains.
Data quality can also fall victim to political corruption. When companies use illegal methods like bribery and war to meet commercial goals in oil-producing countries, data produced by the foreign companies and countries could also be falsified or doctored to meet their interests.
In order to guarantee oil ownership and control, some foreign companies influence the laws of oil-producing countries, trying to make the best of the existing rules and practices while strategically trying to stretch and ultimately replace them with new ones. The strategic game aims at changing the rules, as each player will be always looking for ways that improve them in its favor. In the 1928 Red Line Agreement, major British and U.S. oil companies sought to manage the world oil economy through a series of agreements between 1928 and 1934 that allocated markets, fixed prices, eliminated competition and avoided duplication of facilities.
Iraq’s Constitution of 2005, greatly influenced by U.S. advisers, contains language that guarantees a major role for foreign companies. In Iraq’s Status of Forces Agreement, the declaration commits Iraq to facilitate and encourage the flow of foreign investments to Iraq, especially American investments, offering them privileged access to some of the world’s largest oil reserves.
Fixing the problem
Contractual decisions, oil related information, profits accrued and expenditures continue to be litigated only by a chosen few, including foreign investors, and not seen before or after in the public eye.
The EITI was launched by the U.K. government with objectives of disclosing and reconciling extractive industries revenues paid to and received by governments (taxes, royalties and signature bonuses), and to promote and strengthen the multi-stakeholder dialogue approach.
The EITI is based on principles of:
- Publish what you pay — oil, gas, and mining companies disclosing the revenue payments they make to governments;
- Publish what you earn — governments disclosing the revenues they receive from extractive companies; and
- Publish what you spend — governments publishing their budget expenditures.
As of June 2014, the EITI consisted of 27 compliant countries and 17 candidate countries. However, several countries, like Algeria, Angola, Libya and Sudan, have shown no sign of interest in joining the EITI. Others have strongly resisted EITI membership because they consider their own transparency rules as sufficient or even more effective (like India and South Africa). Others perceive the EITI as a hypocritical initiative by wealthy western and northern countries, which impose their rules on developing countries (like Zimbabwe) while not exposing their own industry to these rules. The big gaps in EITI membership have raised some doubts about the EITI’s transformative power for the most corrupt countries and open data in oil governance.
Having been legislated with the 2007 EITI Act, Nigeria strengthened transparency with far-reaching industry audits of the oil and gas sector (financial, production and process). An audit of the sector from 1999 to 2008 uncovered U.S. $9.8 billion outstanding recoverable revenues, some of which the government was able to recover. However, it’s important to note that EITI’s success in any given country rests on the political commitment by leaders and engagement with all relevant stakeholders to maintain the pressure for transparency and accountability.
Some skeptics complain that EITI data remains buried in documents and locked in PDFs, which presents a missed opportunity. This prevents data from being understood within the country and other jurisdictions, thereby compromising the ability of EITI data to play a role in budget discussions, national debates as well as raising possible questions about data reliability.
Though there is no single solution, all these steps together will help build the civic trust. Open data policies focused on oil-intense nations can enable citizens to hold their governments to account for the use of energy revenues, in turn increasing a government’s legitimacy and credibility.
Countries rich in oil often have a hard time using the money that flows from their natural resource in a way that benefits their entire population. By providing details about oil companies and their contracts and deals; information about oil revenues and expenditures made from those revenues; and other relevant information, those countries could leverage public oversight to change that. In addition, by providing more detailed data about the key decisions, transactions and outputs of the national oil program, these countries could come to be seen as more transparent and accountable by their populations, reducing the perception of corruption and boosting public trust. Participating in the EITI offers one good way to make this happen, but it is not a complete solution. By refusing to provide the data, however, oil-rich countries demonstrate that the “resource curse” also extends to their countries’ exclusion from the growing world of data-sharing governance.