Africa: Tracing the Oil Money
17 September 2014
>From 2011 to 2013, the governments of [ten oil-producing African countries]
sold over 2.3 billion barrels of oil. These sales, worth more than $250
billion, equal a staggering 56 percent of their combined government
revenues. But, reveals a new report from Swiss and international
nongovernmental organizations, there is little transparency about these
sales, a quarter of which were made to littleknown Swiss trading companies.
Current efforts to ensure transparency in oil flows, such as the Extractive
Industries Transparency Initiative (
http://eiti.org/) and legislation in
Europe and the United States, have so far focused primarily on the
international oil-producing companies, such as Shell, BP, ExxonMobil, and
others, requiring them to publish information on their deals with companies
where they operate. The new report, however, highlighting an even less
transparent sector, namely that of sales by nationally owned oil companies
through giant but little-known trading companies, such as Switzerland's
Glencore, Trafigura, and Vitol, each of which has income of over $100
billion a year.
The report, published in July by the Berne Declaration, the Natural Resource
Governance Institute, and SwissAid, and excerpted below in this AfricaFocus
Bulletin, focuses on precisely these dealings. The full report is available
at
http://tinyurl.com/nh7faw2 /
http://www.resourcegovernance.org/
For talking points and previous AfricaFocus Bulletins on capital flows and
transparency, visit <
http://www.africafocus.org/intro-iff.php>
http://www.africafocus.org/intro-iff.php - Editor's Note
Big Spenders: Swiss trading companies, African oil and the risks of opacity
Alexandra Gillies, Marc Guéniat and Lorenz Kummer
July 2014
Berne Declaration / Natural Resource Governance Institute / SwissAid
http://tinyurl.com/nh7faw2 /
http://www.resourcegovernance.org/
Executive summary
The sale of crude oil by governments and their national oil companies (NOCs)
is one of the least scrutinized aspects of oil sector governance. This
report is the first detailed examination of those sales, and focuses on the
top ten oil exporting countries in sub-Saharan Africa. From 2011 to 2013,
the governments of these countries sold over 2.3 billion barrels of oil.
These sales, worth more than $250 billion, equal a staggering 56 percent of
their combined government revenues.
Swiss commodity trading companies buy a considerable share of the oil sold
by African governments. The payments made by Swiss companies generate a
significant portion of public revenues in some of the world's poorest
countries, and are subject to governance risks as they take place in
environments of weak institutions and widespread corruption. To date,
however, these important transactions have escaped oversight due to opaque
corporate practices and weak regulation.
With the aim of shedding light in this historically dark area, we gathered
information on 1,500 individual oil sales made by NOCs in sub-Saharan Africa
in the 2011--2013 period. While this sample represents a large majority of
the total, the secrecy that prevails in this part of the oil sector
prevented us from gathering comprehensive data, and the caveats to our
findings are explained in the full text of the report. Nonetheless, the
available data leaves no doubt about the vast scale of purchases by Swiss
traders. The findings indicate:
Of the 1,500 individual sales we identified, Switzerland based companies
purchased a quarter of the volumes sold by African NOCs, buying over 500
million barrels worth around $55 billion.
The amounts paid by Swiss traders to the ten African governments equal 12
percent of the governments' revenues, and are double what they received in
foreign aid.
Swiss trading companies were the largest buyers of oil from the governments
of Cameroon, Chad, Equatorial Guinea, Gabon and Nigeria.
Glencore bought 100 percent of the oil sold by Chad's government, and made
payments that we estimate were equal to 16 percent of total government
revenue in 2013.
Swiss traders Arcadia, Glencore, Trafigura and Vitol bought oil worth a
total of $2.2 billion from the government of Equatorial Guinea in
2012--payments equivalent to 36 percent of government revenue.
In Nigeria, Swiss companies bought oil worth $37 billion over the three
years, an amount equal to more than 18 percent of the national government's
revenues.
Payments of this scale that affect the development prospects of poor
countries require public oversight, which has been largely missing in most
of the scenarios described in this report. Transparency provides citizens
with a tool to hold their government to account for the management of their
country's most valuable asset. To achieve transparency, we recommend the
following:
Oil-producing governments and NOCs should adopt rules and practices that
encourage integrity in the selection of buyers and determination of the
selling price, including detailed public disclosures on how the state's
share of production is allocated and sold.
Switzerland should accept its responsibility as the world's leading
commodity trading hub and pass regulation that requires Swiss companies
producing or trading in natural resources to disclose all payments made to
governments and state-owned companies, including payments associated with
trading activities. In a 25 June 2014 report, the Swiss federal government
indicated a preference to exclude trading-related payments from future
regulation of this kind. If that position holds, the payments described in
this report would remain secret.
Other governments of jurisdictions home to commodity trading companies,
including the EU, the US and China, should include commodity trading in
their respective payment disclosure regulations.
Introduction
Oil, gas and minerals are a major source of income for many developing
countries. Among sub-Saharan Africa's resourcerich countries, rents from oil
and mining average 28 percent of GDP and make up over 77 percent of export
earnings. Many of those countries suffer from the so-called "resource
curse," exhibiting higher poverty rates, lower-quality governance and less
democracy than their non-resource rich counterparts. This remains true
despite more than a decade of high oil prices and, therefore, high revenues.
Fighting the negative impacts of the resource curse requires transparent,
accountable and effective governance across the various functions involved
in managing an oil sector. In response to this challenge, a global movement
for more transparency in the extractive industries has emerged, with a
particular focus on the transparency of payments from extractive companies
to governments in producing countries. The success of the Extractive
Industries Transparency Initiative (EITI), now implemented by 45 countries,
and the passage of mandatory reporting regulations in the US and the EU
illustrate this trend.
Despite this progress, large black holes remain. One of the biggest is the
sale of crude oil by governments and their national oil companies (NOCs).
This report sheds light on oil sales by governments and national oil
companies in the top ten oil exporting countries in sub-Saharan Africa.
Given the pioneering character of this research and the secrecy that
prevails around oil sales, our findings represent partial estimates and we
ask readers to review the caveats detailed in the next section. We hope that
this report can begin a conversation about how best to protect the interest
of citizens in the conduct of these crucial transactions.
We focus on the purchases made by Swiss commodity trading companies from
African governments. Following a decade of unprecedented growth in their
business, commodity traders are attracting greater public attention. Swiss
giants Vitol, Glencore and Trafigura each bring in annual revenues of over
$100 billion, placing them on the scale of companies like Apple and Chevron.
...
The top ten exporters are Angola, Cameroon, Chad, the Republic of Congo,
Côte d'Ivoire, Equatorial Guinea, Gabon, Ghana, Nigeria and South Sudan.
...
Examining national oil company crude sales
In many oil producing countries, the NOC receives and sells a share of oil
production. This production can come from various sources: NOCs sell oil
that they produce themselves; the oil associated with their ownership shares
in joint ventures; oil that belongs to the government by virtue of its
participation in production sharing contracts; and oil they received as
in-kind payments made by private companies to fulfill their royalty and tax
liabilities. Since all the NOCs in Africa are 100 percent government-owned,
all types of oil sold by the NOCs should be treated as public assets. NOCs
sell to domestic and foreign refineries, integrated oil companies like the
Western super- majors, and commodity traders. Depending on the financial
relationship between the NOC and the state, the sale proceeds are
transferred directly to the treasury or retained in part by the NOC. Cash
payments are not involved in other types of NOC sales, such as the swap
contracts observed in Nigeria and Angola, where the NOCs exchange crude for
refined petroleum products.
...
>From 2011 to 2013, the total value of NOC sales equaled 56 percent of
combined government revenues for sub-Saharan Africa's top ten oil producers.
Swiss oil trader deals with African governments
The following section describes the role that Swiss traders play in each of
the ten African oil-exporting countries, highlighting the activities of
individual Swiss companies and the importance of their payments to the local
economies. ...
Of the sales we uncovered, Switzerland-based companies purchased over 500
million barrels of crude worth around $55 billion. The amounts paid by Swiss
traders to the ten African governments equal 12 percent of the governments'
revenues, and are double what they received in foreign aid. Swiss trading
companies are the largest buyers of oil from the governments of Cameroon,
Chad, Equatorial Guinea, Gabon and Nigeria. In all the countries but Angola,
Swiss traders were the buyers in at least 30 percent of identified NOC sales
in one or more of the years reviewed. Glencore buys 100 percent of the oil
sold by Chad's government, and single-handedly made payments equal to 16
percent of total government revenues in 2013. In 2012, Swiss traders
Arcadia, Glencore, Trafigura and Vitol bought oil with a total value of $2.2
billion from the government of Equatorial Guinea-- payments equal to 36
percent of total government revenues. In Nigeria, Swiss companies bought oil
worth $37 billion over the three years covered in this report; that figure
is equal to more than 18 percent of the Nigerian government's revenues.
Angola is the second largest oil producer in sub- Saharan Africa, and its
powerful NOC Sonangol dominates the sector. The identified data suggests
that Sonangol exported between 750,000 and 850,000 barrels per day during
the 2011--2013 period. Chinese companies bought the most, with Indian
companies and Western super-majors like Shell, BP and ConocoPhillips
purchasing significant volumes as well. Swiss traders were also present,
buying between two and six percent of the identified Sonangol oil sales in
2011--2013. The low percentages likely result from Sonangol's explicit
effort to sell to end-users rather than traders as its own internal trading
expertise grows; in this respect, Angola is an exception within Africa. ...
While no longer dominant in Angola, Swiss traders still make significant
payments to Sonangol: in 2011, they exceeded $2 billion -- a sum greater
than the country's entire annual health budget. ...
In Cameroon, Swiss traders are leading customers of Cameroon's NOC, Société
Nationale des Hydrocarbures (SNH). While market data suggests that the
Spanish oil company Cepsa is the top single buyer of SNH oil, Swiss traders
Glencore, Gunvor and Vitol together bought around half of the crude sold by
SNH in 2013. These sales resulted in payments by Swiss companies to the
Cameroonian state of around $600 million, equal to 12 percent of 2013
government revenues. ...
The Cameroon case helps illustrate how individual sales can matter much more
to the government seller than to the trading company buyer. Identified NOC
sales data indicate that, in 2013, Glencore bought four cargos from SNH,
resulting in payments of around $400 million. For Glencore, these sales are
relatively small. The company's 2013 annual turnover of $233 billion in 2013
is nine times greater than Cameroon's entire 2012 GDP. For the Cameroonian
government, on the other hand, these four sales alone equaled one third of
its total oil and gas sector earnings, and are enough to cover its entire
national health budget.
Chad's oil sector generated 74 percent of total government revenues in 2012.
...
The Chadian government chose Swiss traders as its first buyers. ...In 2013,
Glencore acquired the exclusive rights to buy the government's share of
production following the company's commitment to invest $300 million in
developing Chad's Badila and Mangara oilfields. This arrangement resulted in
Glencore buying around $400 million worth of oil from the Chadian government
in 2013, the equivalent of 16 percent of total government revenues. ...
Like Chad, the Republic of Congo's economy depends heavily on the oil
sector, which accounts for 80 percent of government revenues. The national
oil company, Société Nationale des Pétroles du Congo (SNPC), is responsible
for marketing volumes that totaled a sizeable 151,000 barrels per day in
2011 and 126,000 in 2012. The company has a record of mismanagement and
misappropriation of public funds. For instance, in 2005, UK court
proceedings revealed that SNPC was selling oil to offshore companies
controlled by government officials including SNPC's own head. ... The
details of SNPC oil sales remain elusive. ...
We could not find any reliable data regarding the sales made by Côte
d'Ivoire's national oil company, Petroci, which is responsible for marketing
the state's oil -- volumes that reached 12,000 barrels per day in 2011. ...
In Equatorial Guinea, Swiss companies are again the largest buyers of oil
from the government. Identified data suggests that the national oil company
GEPetrol sold at least 90,000 barrels per day in 2011 and 2012. The data, as
well as press reports, indicate that a portion of the state's share of crude
is sold through an intermediary company, Stag Energy. Glencore holds shares
in an oil field with Starc Limited, a consortium that includes British
independent Stag Energy and Swiss trader Arcadia. Swiss traders bought over
40 percent of the identified volumes sold by GEPetrol in 2011, 2012 and
2013. To put this in perspective, the value of the identified oil bought by
Swiss companies in 2011 equaled at least 28 percent of the country's total
government revenues in 2011, and 36 percent in 2012. ...
In 2011 and most of 2012, the government of Gabon arranged for the Swiss
company Petrolin to market its share of production. Petrolin is a small
petroleum company founded and chaired by a former senior advisor to the
previous Gabonese president Omar Bongo. Through this arrangement, Petrolin
received the government's volumes and found buyers for the individual
cargos. ...
In early 2013, Petrolin's marketing role receded as Vitol entered into an
agreement with the newly formed Gabon Oil Company to market at least a
portion of the government's share of production. In 2013, Vitol lifted
several cargos under this arrangement, selling more than $400 million worth
of oil for the state. ...
Ghana further illustrates the trend of countries negotiating long-term
marketing arrangements with individual companies. In 2010, the Ghanaian
National Petroleum Corporation (GNPC) awarded Vitol the exclusive right to
market the state's share of production. During 2011, Vitol bought 3.9
million barrels--the entire portion of state-owned crude, which brought in
around 6 percent of total government revenues. Market data indicates that
Vitol went on to sell these cargos to Total, Sun and China Oil, fulfilling
its middleman role. However, Vitol's privileged position did not last long:
in 2012, Unipec, a subsidiary of Chinese state-owned company Sinopec, became
the sole marketer of the government's oil as part of a deal involving a $3
billion China Development Bank loan to the Ghanaian government.
In addition to the central bank, two Ghanaian oversight bodies, the Public
Interest and Accountability Commission and Ghana's EITI chapter, disclose
some volume, price and date data associated with the sale of GNPC cargos --
a commendable and necessary practice given the $100 million in public funds
at stake during each sale. However, the terms of the exclusive arrangements
with Vitol and Unipec, and the commission they earn for marketing the crude
(if any), are not available.
Nigeria's government sold over one third of its oil to Swiss traders during
the 2011--2013 period, which is an unusually high amount for producers of
its size which typically prefer to sell to refineries and other end-users.
In 2011 and 2012, Swiss companies bought almost half of the identified
export sales made by the Nigerian National Petroleum Corporation (NNPC), an
estimated $27 billion worth of crude. While this figure dropped to a little
less than one third in 2013, as Nigerian companies became bigger buyers,
Swiss companies still bought government crude worth an estimated $10
billion. ...
In South Sudan, Swiss companies Trafigura, Vitol and Arcadia have bought
government-owned oil. In 2011, the identified data suggests that sales to
the three Swiss traders totaled $1.6 billion, an amount equal to 37 percent
of South Sudan's government revenues during its first year of independence.
In 2012, a dispute over oil revenues between Sudan and South Sudan disrupted
production. During this contentious period, Trafigura generated controversy
for transporting a cargo on behalf of Sudan that South Sudan claimed to own.
This incident did not prevent the company from signing an agreement with the
government of South Sudan in March 2013 to export Dar Blend crude; we
couldn't uncover any data on the actual volumes lifted under this deal.
Vitol also reportedly benefits from an off-take agreement to export Dar
Blend, and has a project to build a small refinery in the country.
...
Our research demonstrates the highly opaque nature of national oil company
crude sales. In most countries, information and oversight are in short
supply -- few NOCs we studied publish annual reports and financial
statements, even though their sales generate a major portion of the
government budget. Industry data, when available, is highly uneven. ...
Many industry reports fail to specify the identity of the seller, which
makes it challenging to distinguish the oil sold by governments or national
oil companies from that sold by private companies. As Swiss traders expand
their upstream activities in Africa (a trend evidenced by the activities of
Glencore in Chad, Mercuria in Nigeria and Vitol in Ghana, among others), it
will become even harder to differentiate government sales from private
sales. ...On a positive note, however, the governments of Ghana and Yemen
provide some price, volume and grade data for their oil sales, showing that
this kind of reporting is feasible.
Received on Wed Sep 17 2014 - 06:38:34 EDT