Bad Governance Could Poison Oil Money

IPI Executive Director Alison Bethel McKenzie believes that in the wrongs hands, oil money can be a "bad thing"

A major debate that ensued at the just ended Oil, Gas and Media Conference, organized and hosted by the International Press Institute in Baku, Azerbaijan, was governments’ use of revenues generated from the energy (oil, gas) sector.

Discussing the topic “My Country is Oil Rich, so Why Am I So Poor?” delegates and panelists at the conference called for the judicious use of oil revenue by states to avoid oil revenues becoming poisonous to the survival of the state and its people.

One of the panelists, Robert J. Weiner, professor of International Business, Public Policy and Public Administration at the George Washington University, believes that oil money becomes poisonous to the growth and development of a society once a society is already firmly grounded in bad governance.

His call for fiscal prudence of oil revenue on the part of governments so as to make the natural resource a blessing instead of a curse to the citizenry was further buttressed by the Executive Director of the International Press Institute, Alison Bethel McKenzie.  During an interview with this writer, she said, “Oil can be a good thing because it can provide a lot of social services the people need. But in the wrong hands, obviously, it can be a bad thing. I think the good governance is a huge, huge issue. Unless you have people who know how to manage or bring in people who can manage the wealth, then it doesn’t matter how much oil you have or how much it’s worth because in the end, it will be sort of a curse. I think when these sorts of natural resources like oil, diamonds are found, people go crazy. They see it and they want it for themselves; they don’t want to distribute it. And this is the problem, because everyone should benefit from oil.”

In the Liberian context, the emerging oil industry in the country has been met with a lot of optimism from the citizenry. However, the main issue to date is, as to how the oil revenues are to be shared to attain benefits to all stake holders in the country. Already, global concession watchdog, Global Witness, has raised the red flag over Liberia’s national oil company’s handling of oil revenues. Immediately following the announcement by Africa Petroleum of the discovery of crude oil in commercial quantity off-shore Liberia, Global Witness warned that if the Liberian Government does decide that it wants to maintain its national oil company, NOCAL, the government must determine how much control the company should exercise over revenues generated by the sector.

It said if this discovery results in production, the country’s oil sector could be a major source of revenue. “However,” the global concession watchdog observed, “under Liberia’s current law a large percentage of this new revenue will be received by the state owned National Oil Company, an institution with a history corruption and fiscal mismanagement.  In other countries with a history of poor governance, allowing a national oil company unfettered control over oil revenues has resulted in corruption, budgetary uncertainty and massive waste.”

Global Witness then advised that “to minimize opportunities for corruption, the principle of transparency must be built into the operations of NOCAL, the international oil companies and the Ministry of Finance. To best ensure NOCAL operates accountably, the government should establish clear criteria by which the company’s board of directors is appointed. In laying out these criteria, the government should balance corporate efficiency with the need to allow high levels of public scrutiny. Criteria could include: commercial competence and integrity; political independence; public accountability, including membership of a representative from civil society. It is also essential that the process of revenue collection and audits be transparent and regular.”

It may be recalled that in September 2011, Global Witness and the Liberian Oil and Gas Initiative published a report titled: Curse or Cure? How oil can boost or break Liberia’s post-war recovery. In this report, Global Witness described NOCAL’s problems with corruption and low capacity. The report also outlined a series of recommendations, calling for a reformed law requiring better vetting of companies and improved transparency, social and environmental provisions. Above all, the report argued that if it finds oil, Liberia will only benefit if the sector is reformed through a comprehensive and transparent process that includes representatives of Liberia’s civil society.

In fact, UK-based Financial Times reporter, Tom Burgis, believes that Liberia “will definitely need a strong revenue management law that sets strictly the rules on how oil revenue is managed.”

For his part, Kenyan journalist Ochieng Rapuro, managing editor at the Nation Media Group, told this writer in an interview that oil revenue impact on the fate of a country is double-edged: having an economical as well as a political side. Using Azerbaijan as a case in point, Rapuro recommended that oil revenues be deposited in a state sovereign fund, which, he believes ensures generational equity in the distribution of oil wealth. “Then it is progressively channeled into other sectors of the economy. Otherwise, political fight over the oil revenues could be very destructive. Economically, it could cause inflation and kill other sectors of the economy because everybody is concentrating on the oil.”

At the same time, the conference delegates cautioned the governments against over-reliance on oil to the detriment of other sectors of the economy.

“When states rely on only one product as their sole source of income generation, if that fails, it becomes a disaster. Look at what happened in Detroit, Michigan. Basically, all their eggs were in one basket, which was the auto industry. When the auto industry changed and had to adapt, so many people lost their jobs. And it is not just the people who work in that industry. It is a ripple effect because there were people who supported the people who worked in that industry. So the best economy is one that is diversified and that uses the talents of all its people,” added IPI Executive Director McKenzie.

More than 170 delegates from 27 countries, the vast majority of whom cover the oil and gas industry in their respective countries or globally, converged in Baku, the capital of Azerbaijan beginning September 17, to participate in the IPI organized “Oil, Gas & Media Conference.”

The conference also focused on how investigative reporting can lead to big answers, transparency and accountability in the oil and gas sector. The opening ceremony, which graced by top Azerbaijani government officials and private sector dignitaries, was immediately followed by a panel discussion on “Oil and Press Freedom – Rig over Troubled Waters?”

In the lead-up to the conference IPI had been heavily questioned over its decision to host the event in Azerbaijan, a country widely criticized for its human rights and press freedom records. In an interview with local media following the opening session, IPI said it would continue to bring concerns about jailed journalists to the attention of the Aliyev administration. 

In a meeting with IPI yesterday, government officials confirmed that five of eight journalists reportedly in jail have been released from custody. The other three, they argue, are not journalists. IPI reiterated its concern over the jailing and pre-trial detention of journalists and condemned the alleged brief detainment of two journalists working for Reporters’ Freedom and Safety (IRFS) who were covering a protest in front of the Presidential Administration.