A controversy over allegations of corruption in the oil industry, which broke last week in Ghana, shows the need for much greater openness in the way in which companies gain access to the oil reserves of developing countries.
The Financial Times reported on 8th January that U.S. and Ghanaian authorities are investigating corruption allegations involving Kosmos Energy, a Texas-based firm with a contract to operate the Jubilee oil field, and its local partner E.O. Group.
Ghanaian officials suspect, according to the newspaper, that E.O. Group "used its access to officials in the former government to gain a hold on the offshore oil block and win more favourable terms for itself and Kosmos." The newspaper also says that Ghana is preparing to file charges against E.O Group. Kosmos has said that allegations of wrongdoing against it are "untrue and unsubstantiated."
The wider picture is that the discovery of the Jubilee field could turn Ghana into a new oil producer. Both U.S. oil giant Exxon Mobil and China National Offshore Petroleum Corporation want to get their hands on a stake in the field. Their wrestling match for Ghana's newfound oil wealth is a microcosm of a competition for access to resources amongst Western and Asian oil and mining firms that is playing out across the developing world.
Global Witness does not take a particular view on the Kosmos case in itself. Indeed, it may well be the case that these allegations are incorrect. But the story shows how any hint of murkiness, or of secret connections between oil investors and government officials, automatically leads to suspicions of corruption. And looking at other countries in the region, suspicion is a reasonable response.
In neighbouring Nigeria, for example, it is an open secret that the allocation of oil rights has been used by rulers in the past to reward their cronies. Ghanaians are acutely aware that far from growing out of poverty on its oil wealth, Nigeria has been nearly wrecked by corruption and misrule.
And further down the Gulf of Guinea is Angola, a country with a reputation for severe corruption which Global Witness has been reporting on for the last decade. Sonangol, the state oil company, has pre-qualified a large number of private companies (most of them little-known) to bid for minority shares in Angolan oil exploitation licences. Global Witness reported last August that one of these private companies had a shareholder with the same name as Sonangol's chairman (who declined to answer questions about it).
President Obama pointedly chose Ghana over Nigeria for his first African visit as Head of State. He made much of Ghana's relatively low levels of corruption and his speech to Ghana's parliament contained advice to the continent's other leaders (and perhaps an encoded message to the Ghanaians): "no country is going to create wealth if its leaders exploit the economy to enrich themselves ... No person wants to live in a society where the rule of law gives way to the rule of brutality and bribery."
Citizens need to be confident that the award of oil rights in their country is not leading to corruption and the diversion of public wealth into the pockets of the few. So what's needed is for much more openness in the way that oil deals are negotiated. Companies' ultimate owners and sources of funds must be known, bidding processes need to be open and rigorously rule bound, and independent overseers and concerned citizens must be able to monitor the bidding. International oil companies should be required to carry out stringent due diligence on their local partners to make sure that the latter are not conspiring with corrupt officials.
Unless this happens, the scramble between the world's biggest economies for access to the oil and minerals of poor countries is going to lead to a predictable outcome - more corruption, more poverty, more instability and suffering. Later this year, Global Witness will publish a major new report, recommending new rules to reduce the risk of corruption in the award of oil and mining rights to companies. Watch this space...
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Contact Diarmid O'Sullivan on 0207 4925820