BY CHRONICLE STAFF
Venezuela's state oil giant PDVSA is the least transparent among leading oil companies in the region, according to a new report from Transparency International. In contrast, Mexican state oil firm Pemex is the best in the region, followed by Brazil's state oil company Petrobras. "Among national oil companies, both Petrobras and Pemex stand out," says Juanita Olaya, author of the report.
The 2008 Report on Revenue of Oil and Gas Companies, released today, looks at 42 leading national and multinational oil companies worldwide. In Latin America, it looked at the three leading national (and state-owned) oil companies, PDVSA, Pemex of Mexico and Petrobras of Brazil. The report reviewed the companies' current policies, management systems and performance of the firms on the basis of company-provided, publicly available information as well as their answers to a specific survey conducted by Transparency International.
PDVSA was not as keen to cooperate with the survey as the other two companies, according to Olaya. "In the case of Latin America, we're really happy to see that of three companies, two of them were really engaged," she says. "Petrobras and Pemex were collaborative from the beginning to the end. We hope PDVSA will start engaging us with our chapter in Venezuela more."
The report comes as there is growing concern about PDVSA's finances, Mexicans are debating whether to reform Pemex and Petrobras is seeing an unprecedented boom. Meanwhile, Pemex last year replaced PDVSA as Latin America's largest oil company, according to a Latin Business Chronicle analysis. Pemex posted 2007 revenues of $104.5 billion, an increase of 2.9 percent from 2006. Meanwhile, PDVSA posted a 3.0 percent decline in sales to $96.2 billion. Petrobras still ranks third, despite a 21.3 percent revenue increase to $87.7 billion.
However, analysts often question PDVSA's results because market observers say production is at least 25 percent less than the official 2007 average of 3.15 million barrels per day (bpd), according to Reuters. And although PDVSA reported a 15.1 percent increase in 2007 net income to $6.3 billion, those numbers contrast starkly with unaudited figures released by Venezuela's energy ministry last month showing PDVSA's profit declining by around 32 percent, Reuters reports.
“In Venezuela, there’s a lot of doubt about the oil sector,” says Mercedes de Freitas, executive director of Transparency Venezuela. “How many barrels are produced per day? How much is delivered to each market? How much does PDVSA receive from each of the companies that operate nationally? How much of PDVSA’s revenues go to the national treasury? How much is invested in the sector’s maintenance and development and how? What are the revenues from the related companies and the foreign plants? How much money, gasoline, asphalt and other things is PDVSA and the Venezuelan government giving away or providing at solidarity interest levels? There are different figures for all these questions.”
Apart from the questions about its revenues, PDVSA is also affected by the close links with the Venezuelan government, de Freitas says. “There’s no difference between PDVSA and the Venezuelan government, as is the case with other countries and their oil companies,” she says. “The president of PDVSA is the energy and oil minister…This link between the company and its direct regulating agency makes it even more important to publish all the payments that the sector makes to the state, that is revenues for the national treasury, social political payments approve by the executive and that is implemented by PDVSA directly (for example PDVAL, which handles imports, distribution and sales of food in the poor areas to mitigate the shortages of food products like milk, wheat, rice, etc).”
When it came to overall revenue transparency, PDVSA was not only worst in Latin America, but among the worst worldwide, ranking behind even Iran's NIOC and Nigeria's NNPC. It was grouped along with 12 other companies like Angolan oil company Sonangol and Congo's SNPC. The combination of famine in Angola, combined with massive oil corruption in the resource-rich country, was a major factor behind international efforts to boost transparency in the oil sector. SNPC has also been implicated in several corruption scandals.
PDVSA and the other national oil companies in this group had in common relatively absent disclosure in the areas of payments and anti-corruption programs, whether in terms of reporting on policy, management systems or performance. "Further improvement for this group requires increased reporting on all areas of revenue transparency at all levels of implementation," the report says.
However, PDVSA may take some comfort in that Transparency also ranked U.S.-based Exxon Mobil, the world's largest oil company, among the worst.
In contrast, both Pemex and Petrobras were ranked among the 13 best companies worldwide thanks to high revenue transparency. Other companies in this group included UK-based Shell, Australia-based BHP Billiton and Norway-based StatoilHydro.
The remaining 16 companies were ranked in between those with highest and lowest revenue transparency. This group included companies like the National Iranian Oil Company, Nigeria's NNPC and Spain-based Repsol YPF (which has extensive Latin America operations).
The report specifically looked at these key factors to determine revenue transparency:
• Payments (to host governments): public reporting of benefit streams paid to governments on a country-by-country basis, such as production entitlements, royalty payments, taxes, bonuses and fees.
• Operations: public reporting on a country-by-country basis of other financial information that assists in judging the scale of activities and accuracy of payment reporting, such as information regarding subsidiaries, contract details and key properties, production volumes and reserves, production costs and profits.
• Anti-corruption programs: whether a company discloses its policies or practices to stem corruption, including among other things, its whistle-blowing procedures, staff training, non-victimization practices and sanctions regime, and if disclosed, it assesses the scope of such anti-corruption policies. It also accounted for whether a company discloses information about the implementation of such policies, including information regarding the receipt of complaints and the application of sanctions in cases of prohibited conduct. It does not cover how effective a company is in handling anti-corruption cases or whether or not a company is fulfilling legal obligations under anti-corruption legislation.
• For national oil companies (NOCs) only, a fourth area looked at regulatory and procurement issues in terms of home country operations.
Transparency International did not release a ranking with the score of each company, but ranked the companies in terms of high, middle and low transparency.
Of the Latin American companies, only Pemex ranked among the best in all four categories, while Petrobras ranked among the best in three categories (all but regulatory/procurement issues, where it ranked in the middle). PDVSA ranked in the middle in two categories (payments and regulatory/procurement issues) and among the worst in the other two categories (operations and anti-corruption programs).
Repsol YPF, which was grouped among international oil companies and thus evaluated in three of the above categories, ranked in the middle in two categories (payments and anti-corruption programs) and among the worst in the category on disclosure of operations information.
The results of oil transparency are along the same lines as transparency in general in their home countries. According to the latest Corruption Perceptions Index from Transparency International, Mexico is more transparent than Brazil, which is more transparent than Venezuela. However, Olaya emphasizes that the new survey of oil company transparency does not look at corruption, but rather the disclosure of revenue and other information. "The report looks not at cases of corruption," she says. "The results reflect disclosure policies."
The new report also looked at the level of transparency in selected countries, including Brazil and Venezuela. In the case of Brazil, Shell ranked above the average country scores, while Repsol YPF ranked below. "Shell tends to perform generally better," Olaya says.
VENEZUELA: STATOIL BEST
In the case of Venezuela, StatoilHydro ranked very high above the average, while Chevron, ConocoPhillips, Italy-based ENI, Petrobras, Repsol YPF and Shell ranked above the average. However, UK-based BP, Exxon Mobil and France-based Total ranked below and China's CNPC ranked very below the country average.
"Statoil has a general policy to disclose this [information]," Olaya says. "In the case of Chevron, Conoco [and others] they do disclose some information on contract details. That’s the difference with others."
According to the report, companies can achieve revenue transparency through:
1. Public disclosure of payments to governments of benefit streams, e.g. taxes, profit oil, on a country-by-country basis.
2. Public disclosure of operations of other financial information pertaining to operations, also on a country-by-country basis, that assists in judging the scale of activities and accuracy of payment reporting, e.g. production, costs.
3. Public reporting of anti-corruption programs including the existence of anti-corruption provisions, codes of conduct and their applicability, whistle blowing procedures, and reporting on censuring malpractice.
The origins for the new report lie in the global movement to combat the so called ‘resource curse.'
"Oil and gas resources generate great wealth, but if poorly managed extractive revenues can also undermine economic growth, create incentives for rent seeking activity, heighten corruption in the public and private sectors, and may even fuel conflict," the report says. "The resulting poverty, instability and weakened rule of law are not only bad for local people, they can also damage company reputations and generate lower returns to investors."
Strengthening the accountability of decision-makers that control the extractive resources and revenues is vital, the report argues. "But such accountability is not possible without adequate information about the resources being extracted, the revenues generated, and where they flow," Transparency says. "It is necessary that this information be provided by both companies and governments to allow cross-verification."
Based on these key findings, Transparency International makes the following recommendations to improve revenue transparency:
- Oil and gas companies should proactively report in all areas relevant to revenue transparency on a county-by-country basis.
- Home governments and appropriate regulatory agencies should urgently consider introducing mandatory revenue transparency reporting for the operations of companies at home and abroad.
- Governments from oil and gas producing countries should urgently introduce regulations that require all companies operating in their territories to make public all information relevant to revenue transparency.
- Regulatory agencies and companies should improve the accessibility, comprehensiveness and comparability of reporting on all areas of revenue transparency by adopting a uniform global reporting standard.
PDVSA should start offering monthly information on its accounts, de Freitas says. “Venezuela needs a profound change in the way it permits access to the information on natural resources,” she says. "It's important that PDVSA reveals its own information to allow for public scrutiny."
Venezuela will benefit if the companies that operate in Venezuela reveal the size of payments made to the Venezuelan government, she argues. That can be done through requirements by both the home country of the oil companies and Venezuelan law, including PDVSA's own contract stipulations, de Freitas says.
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