• Business and corruption

Business and corruption

This paper offers an initial exploration of the topic of grand corruption in the regulation of oil. It focuses primarily on the roles of host governments, private oil companies and donor governments, besides the increasingly dominant role of state-owned, national oil companies in addressing the problem.

The authors say that addressing grand corruption in oil regulation is extremely important for drawing welfare benefits from oil resources. There are no easy solutions, however, and donor governments, their oil producing counterparts and other actors, such as private firms, must engage in difficult political dialogue if progress is to be made.

Forces that may prevent corruption from being adequately addressed include the growing influence and power of national oil companies and the associated fusion between politics and oil

The paper concludes that the attempts to address corruption are more likely to bear fruit where donor governments have determined clear objectives for their engagement with producers and firms, which separate commercial and aid interests.

Though voluntary initiatives and capacity building programmes are important for addressing corruption, the authors suggest, they should not replace establishment of formal state-sponsored regulations.

Some other specific recommendations include:

• promoting formal procedures for regulation at each stage of petroleum operations should be the underlying aim for donor strategies to address corruption
• over time, a sound regulatory system should be developed that reflects the nuances of the oil sector in a specific country
• particular attention should be paid to prequalification procedures, the criteria for licence awards, the renegotiation of contracts, and the drafting of Field Development Plans, all of which are at high risk from corrupt practices
• specific oil-related regulations should be coupled with enforced transparency via the enactment of access to information laws, close monitoring of decision-making processes and the opening up of markets via reform of public procurement systems

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