THE sometimes murky payments made by oil majors to the governments of developing countries such as Angola, Iran, Kazakhstan, Libya and Nigeria are set to come into the open following an initiative led by Karina Litvack of fund managers Isis Asset Management, formerly Friends Ivory & Sime.
The governments of these countries have a habit of demanding “signature” payments before granting firms such as BP, Shell, Exxon, ChevronTexaco, Statoil and Total permission to explore for, or pump out, oil.
The payments, which can stretch into the millions of dollars, are part of a complex web of deals made by oil and mining firms to developing nations in exchange for drilling and mineral rights. The payments are often undisclosed, which means proceeds are often squirrelled into the Swiss bank accounts of ruling elites, or perhaps used to fund illegal conflicts.
The severity of the problem was highlighted when the US Securities & Exchange Commission launched a formal investigation into allegations that a Halliburton subsidiary was involved in paying bribes of $180 million to secure a natural gas project in Nigeria. Other partners in the project were Technip of France, ENI of Italy and Japan Gasoline Corp but Halliburton refers to the consortium as TSKJ.
The allegations centre on a $4bn Nigerian natural gas plant built in the 1990s. The bribes were allegedly made to Nigerian officials.
Halliburton, formerly led by US vice-president Dick Cheney said that TSKJ and other similarly owned entities have entered into contracts to build and expand the liquified natural gas project for Nigeria LNG Ltd, which is owned by the Nigerian National Petroleum Corp, Shell Gaqs BV, Total affiliate Cleag and Agip.
Isis, which has majored in socially-responsible investment, is playing a key part in bringing these sort of payments into the open.
Once they are shifted into the public domain, Isis claims there is a far greater chance they will be used for legitimate ends more likely to benefit the local economy. Over the past two years, Isis has assembled a consortium of more than 60 asset management firms — including Fidelity, Hermes, Insight, Morley, Schroders and State Street — representing assets of $7 trillion in assets under management.
Karina Litvack on how investors can prevent oil firms from making corrupt payments
Karina Litvack, Isis’s head of governance and socially responsible investment, says: “Oil firms that do start preaching to governments lose out, as there are always another 12 companies competing for every contract. Being an investor group — and as owners of extractive companies — we’re able to push the boat out further than the companies can themselves.”
The group has put together a statement backing the Extractive Industries Transparency Initiative, launched by the UK government last June.
The EITI , whose impetus came came from currency speculator-turned philanthropist George Soros,and was launched by prime minister Tont Blair in 2001, brings governments, firms and financial institutions together with investors with a view to lifting the veil on covert payments.
The group’s most recent coup came when it persuaded the government of Angola to open up about the $300m in payments it has received from the US oil giant ChevronTexaco, as part of a deal to extend Chevron’s outstanding rights to the shallow-water oil and gas field known as Block Zero in the northern province of Cabind to 2030. Angola’s finance minister, José Pedro de Morais, disclosed the amount of the ChevronTexaco payment to Angolan media last month.
“Angola is one of the most recalcitrant governments,” says Karina Litvack. “Finally we have a breach in the dam. Unlike Nigeria, Ghana and Azerbaijan Angola has previously resisted calls for greater transparency. By publicly announcing the amounts it will be collecting from ChevronTexaco, the government has opened itself to the scrutiny of its citizens and set a new standard for transparency in its public accounts.
“As investors, we believe that poor transparency regarding such payments creates the worst possible kind of business environment. Undisclosed payments for extraction rights on natural resources are widely blamed for fuelling corruption, political instability and human rights abuses in many developing countries with wealth failing to filter down to the wider population.”
What is Karina Litvack’s next target? She says she will be seeking to persuade technology players such as Dell, Hewlett-Packard and IBM to put together common systems for the disposal of redundant computer equipment. “In the past these firms have been irresponsible, but this was largely out of naivete. They had no idea how quickly their equipment would become obsolete.”
Copyright SMG Sunday Newspapers Ltd 2004
This article was published in the Sunday Herald on 20 June 2004