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Africa: Tracing the Oil Money
AfricaFocus Bulletin
September 16, 2014 (140916)
(Reposted from sources cited below)
Editor's Note
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
++++++++++++++++++++++end 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, Switzerlandbased
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.
...
AfricaFocus Bulletin is an independent electronic
publication providing reposted commentary and analysis on
African issues, with a particular focus on U.S. and
international policies. AfricaFocus Bulletin is edited by
William Minter.
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