By Patrick Heller, Advisor, Natural Resource Governance Institute
State-owned enterprises (SOEs) sit at the centre of economic decision-making in many countries worldwide. They are responsible for driving forward major industries, delivering important services to citizens and managing large streams of public revenue.
Some SOEs have thrived, but many suffer from commercial and governance challenges, as articulated by the OECD in its Guidelines on Corporate Governance of State-Owned Enterprisesand State-Owned Enterprises and Corruption. SOEs in the oil and gas sector have proven particularly prone to governance challenges. The OECD’s recent survey of SOE officials and board members identified oil and gas as the sector most prone to corrupt practices, with 60% of respondents indicating that they had witnessed corrupt or irregular practices in the last three years.
The impact of this corruption can be huge, as demonstrated by high-profile controversies with oil SOEs from Brazil to Nigeria to South Sudan. National oil companies play an outsized role in the national economies of oil-dependent countries, serve as gatekeepers for access to resources by private companies and have major influence on political processes.
One of the biggest contributors to the governance challenges surrounding these SOEs is a lack of transparency and rigorous benchmarking. Reporting by extractive SOEs to citizens and oversight bodies has traditionally been spotty at best. The 2017 Resource Governance Index showed that only nine of the 74 oil and mining SOEs researched exhibited a “good” score on transparency and governance practices.
This lack of transparency and data makes it hard for citizens and oversight bodies to hold companies accountable for their management of public resources. It also harms SOEs, by muddying the waters of what constitutes success and perpetuating public mistrust.
At last year’s OECD Global Anti-Corruption & Integrity Forum, I had the privilege of appearing on a panel discussing these accountability challenges facing SOEs and their government shareholders. The problem is far from solved, and many SOEs remain distressingly opaque. But as I return to Paris for the 2019 Forum, I am happy to report that there has been important progress on several fronts.
The OECD’s own draft Anti-Corruption and Integrity Guidelines for State-Owned Enterprises, recently circulated for public comment, are an important step. The draft Guidelines provide important details to supplement existing OECD guidance, including on government-company reporting and benchmarking, public disclosure systems to bring SOEs up to the standards of listed companies and enhancing systems for internal reporting of corruption concerns.
Last month in Ukraine, the board of the Extractive Industries Transparency Initiative (EITI) agreed on enhanced rules on SOE governance as part of the revisions to the global EITI Standard. SOEs in EITI-participating countries will now be expected to disclose their audited financial statements and detailed reporting related to the details of sales contracts that they sign with trading companies that purchase their oil. The IMF’s recently-revised resource revenue management pillar of its Fiscal Transparency Code also devotes special attention to the importance of transparency among extractive state-owned enterprises.
In the work of the Natural Resource Governance Institute (NRGI) across a large number of oil and mining countries, we have worked with many SOE executives and government leaders who are enthusiastic about modernizing their approaches to public reporting, building on the lessons learned in our Guide to Extractive Sector State-Owned Enterprise Disclosures.
Of course, getting more information in the public domain is just the beginning. Making good use of the data to enhance governance and performance requires another big step. Even when companies have made public information available, it has often been difficult for regulators, legislators and public interest groups to use it, particularly because it has been difficult to compare the data that are accessible with equivalent metrics from other, similar companies.
Here, too, there is progress to report. Working groups organised under the auspices of OECD, EITI, and the New Petroleum Producers Discussion Group are promoting sharing of information and experiences on how to benchmark company performance.
In order to facilitate cross-country learning and better benchmarking, NRGI has built a global National Oil Company Database, to be launched in the coming weeks. I’ll be sharing a sneak preview of the database at the Integrity Forum, in a session on New Perspectives on Evidence-Based Integrity Policies.
The database provides information on the production, assets, revenues, spending, tax payments and performance of more than 70 NOCs worldwide, from 2011 – 2017. We think it can serve as an important tool for governments, SOEs, journalists, researchers and activists as they work to help these companies fulfill their promise and reduce corruption risk, including by:
- Providing a stronger base for comparative benchmarking, by looking at a company’s data on various measures – from how much it is spending for each barrel it produces to the size of its debts – in comparison to other, similarly-situated state-owned companies.
- Supporting better-informed policymaking on the rules governing the share of revenues that a company has to pay to the state via taxes, dividends and other transfers. Over-taxing a national oil company can starve the company of funds needed to execute its commercial mandate; under-taxing it can put public money at risk and reduce the oil sector’s contributions to national development objectives. Many governments have lacked a comparative framework against which to judge how much is too much; the database will inform these critical decisions.
- Highlighting the need and opportunity for continued clarity and consistency in SOE reporting on key variables, which will enhance the ability of government and other stakeholders to drive the public interest.
Governance of oil-sector SOEs has too often been evidence-poor. The complexity – and the importance – of these companies’ missions means that a change in this paradigm is critical. We believe that the upcoming NRGI database and the broader emerging set of changes in norms and practice – both at a global level and within individual countries – has the potential to accelerate this change.