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Interview
Last Updated: 07/28/2003
Global Witness
Joe Schumacher

Joe Schumacher is in conversation with Erin Wakes and Gavin Heyman of Global Witness, a London and New York based NGO concerned with the ethical use of natural resources, particularly in the extractive industries. Much of their work focuses on highlighting corruption and promoting transparency in accounting practises. Much of the discussion reveals a success story: the Extractive Industries Transparency Initiative. For the work of Global Witness see http://www.globalwitness.org/


JS: Global Witness has been at the forefront of the multi NGO, 'Publish what
you pay campaign'. What is the 'publish what you pay campaign' about?

GW: The first phase of the 'publish what you pay' is to get companies to
disclose all payments they make to Governments. The second phase is to get
Governments to disclose their earnings, then we'd have both sides of the
coin. Having this we could check up using a double book keeping system. In
terms of Governments we think there should be joined up thinking in terms
of international aid, for multi-national and bilateral donors, so that any
aid assessment should have this good governance transparency criteria
attached to it. That's in line with international agreements, such as the
Cotonou agreement. Also export credit guarantee agencies and  insurance
for big projects with in the extractive industry should be subject to
quite firm transparency criteria for any insurers.

JS: How did the EITI (Extractive Industries Transparency Initiative) come about?

GW: The EITI was the British government's response to the 'Publish what you
pay' campaign. The NGO's involved in the Publish what you pay campaign
have been working on this since last June, just before the Johannesburg
summit. Then in August the cabinet office came to us and we suggested this
whole issue of revenue transparency. They were interested, as the PM was
looking for opportunities in these kinds of issues to work on. So he came
out and stated 'he wanted to convene a dialogue about the issue of revenue
transparency post Johannesburg; bringing together oil, gas and mining
companies, NGO's, the 'publish what you pay' campaign, and relevant host
and home country governments around the table. This was then called the
Extraction Industry transparency Initiative and it met for the first time
in February this year. It got all the big players in the industry around
the table, certainly in the oil, gas and mining sector and then a lot of
host country governments started to get involved. So for example Nigeria,
Azbadijan, Angola and so on. And, it's lead to this voluntary approach to
publication

JS: Were the negotiations tough?

GW: The negotiations have been going on since last September. Tony Blair
launched the idea at the Johannesburg summit. Then there were various
negotiations and meetings. The EITI had already done a lot of work on for
example, how you would report, when you would report, what information and
to whom: the actual nitty gritty of the reporting template.
          It was officially launched, last month, on the 17th of June. You can get
copies of Tony Blair's speech. We would say this is an incredibly tough
question. The whole issue of Iraq for example, and the transparent
management of the oil wealth in Iraq and its use for the development of
the Iraqi people, and Tony Blair did specifically mention Iraq in his
speech. That's an area in which we would like to see implementation, in
the future, of the EITI principles.

JS: Is the EITI agreement the first time Governments, NGO's and companies have
been bought together on this issue?

GW: Yeah it's a great basis, a great first step basically.

JS: So full credit to the British Government?

GW: Yeah, except we would like to see a mandatory framework rather than the
voluntary solution that seems to be on the table at the moment, we would
like a more specific action plan. But it is a good start. There are going
to be some pilot countries.

JS: Are any Governments agreeable to having a mandatory framework for EITI?

GW: I imagine some Governments would, in the North its standard practice, so
we don't see what the problem is with having the same kind of tax
disclosure criteria in the North as in the South. This mainly focuses on
companies so were thinking it would be done through stock market listings
for example and you'd have the same reporting requirements that exist in
the North for oil producing countries and where extractive industry
companies operate.

JS: What rationale do these big companies give for not accepting these
transparency measures?

GW: I think a lot of the companies are in favour of this as they don't want to
operate in a high cost environment, and I don't think lack of transparency
is in their interest in that there is a commercial risk for them in being
associated with corruption or misappropriation of state revenues. But one
of the main problems are the gagging clauses that exist in contracts at
the moment so that if there going to compete for contracts and governments
threaten to cancel contracts if they disclose then that's a very big
disincentive. This is why we think EITI has to be mandatory and universal,
a level playing field for all companies basically. Then Companies can't be
penalised by governments

JS: Such as BP in Angola?

GW: Yes. BP said they would like to introduce disclosure into their accounting
system in Angola. But BP kind of jumped the gun in a sense. When BP said
they wanted to publish and disclose the Angolan Government through the
state Oil company Sonangol threatened them with cancelling their contract
and they copied the letter to all the other oil companies in the country.
That's the issue. Whereas if disclosure were just a regulatory requirement
then no company could be penalised and you would actually be rewarding
good practise.

JS: Is there still resistance from some companies, particularly US, to
abandoning confidentiality clauses?

GW: No, some large US companies are saying that contracts are sacrosanct
and so on. And we're saying that doesn't matter as you wouldn't be
breaking contracts if it was required by law.

JS: And this is this type of disclosure already the norm in the developed
world?

GW: Yes. Though there's no need to sign these types of agreements in the
Northern countries, not in the same way. But in the south they sign these
production share agreements stipulating companies can't release
information unless you're required to by the applicable regulation of law,
which of course don't exist.

JS: Are there any other reasons other than confidentiality and the ideology of
contract integrity?

GW: I think it's partly ideological- in that if you attach such stipulations
on stock market listings, some companies view that this could lead to
other developments. They don't want this, because for example then you
might start attaching climate change riders and so on. It says in one of
the letters we got from Chevron, 'If we do this we'd have to do everything
everyone else asks of us'. So there is an element of ideology in opposing
mandatory transparency.

JS: So it's nothing as sinister as fat cats wanting to protect their riches?

GW: Oh yeah, that's totally an element to. There are loads of different
reasons. If you're a small company operating in Equatorial Guinea and no
where else in the world you don't want to alert everybody to how lucrative
your concession is, possibly because you won it through side payments. You
pay a consultant who then kicks the money to the PM. This is what happened
in Kazakhstan. You saw what the US companies did to get in there. That's
the whole Khazikigate scandal which is currently the largest foreign corruption practises investigation in the US.

With all these issues going on internationally you can't just solve the problems with one regulation. I see a number of aspects. Firstly, host country revenue streams directly. E.g. you can sign an agreement with Soningol (Angola's state oil company); Sonangol gets money directly from that as it gets a share of the oil profits. Now if you require companies to publish what they pay, you won't have that piece of the pie. So we're saying you don't just want companies to be obliged to be transparent, though this is the majority of the revenues to these countries, but as well as that we want the World Bank, the IMF and anyone else who loans money to these countries to require transparency and the same for export credit agencies who fund much of the infrastructure developments.

JS: Where do the other big oil companies stand on this?

GW: Shell, BP, Anglo American, and BHP, a lot of them in fact, are in favour
of this. I think companies might actually go ahead and start publishing
and disclosing their payments themselves. What we also want is for this to
be on a company by company basis for disclosure. At the moment the
proposal is that it should be on an aggregate basis. So that you have just
one industry figure for all the companies operating in a country.

JS: So as to retain some degree of corporate confidentiality?

GW: We don't think that's a good idea. It's not what's happening in the North
- which is on a company by company basis. So why should it be different in
the south.

JS: You said before that Exxon was a stumbling block. Why is that? And do they
have enough lobbying influence over the current US administration to
change the expectations?

GW: Yeah, I think the resistance is coming from Exxon in particular. I think
the UK and European companies seem to be much further down the line. I
think some of the resistance is due to EITI itself; they want it to remain
a voluntary agreement. One of the reasons they cite is confidentiality.

JS: Is it possible to go from a voluntary to mandatory transparency framework?

GW: It's eminently possible because the voluntary approach won't work in the
countries you most need it to. That's our fundamental argument. If you look at the magnitude of all the revenue misappropriation scandals in Angola, Kazakhstan, Equatorial Guinea and elsewhere. All those countries have a vested interest in not doing anything, so unless it's mandatory those countries are not going to improve.
The EITI is really useful in countries just starting out in the extractive industry, such as East Timor, Sao Tome and so on. In those cases with EITI assisting there will be enough levers to institute an international approach to the issue of transparency. Everyone agrees on the principles stating, 'We are concerned about this issue and we want to move forward: we recognise the importance of double entry book-keeping and good governance of those revenues'. But the EITI is predicated on the host country wanting to be transparent.


JS: Who's going to supply the pressure to ensure it does move from a voluntary
system to a mandatory one?

GW: It would have to be up to us NGO's to create that. The key is that for the
first time we have a coherent and vital set of international principles to
govern conduct in the extraction industry to do with transparency issues,
that's never existed before. The Core principle is that information should
be in the public domain. Now our argument is that, if you actually require
companies to make payments public, they don't lose. If you catch everyone
at once it's a level playing field.


JS: So is there a gathering momentum?

GW: Yes, definitely, that's what we hope. But pressure has to maintained

JS: Do you mean publicity, pressure from Government?

GW: All those things. I think it's important to support efforts in producer
countries because there is concern over this issue in the countries
affected.

JS: Though could it be said this issue is not well known by the public.

GW: I think good governance is. If you think of it in pragmatic terms - tax
payers money being used properly. The classic case of Angola. We estimate
four to five billion dollars have gone missing over the last four years.
Compare that to the 200 million dollars in food aid the UN raised to feed
displaced refugees over the same period. We're saying to these governments, "Well if you want aid, and these countries are resource rich, why should Northern tax payers be spent"

JS: Are these transparency measures going to change regimes behaviour?

GW: That's what we hope

JS: I mean if a corrupt regime is determined to steal then there going to do
it up front or if necessary through more opaque methods?

GW: If you have proper disclosure mechanisms and transparency then at least
civil society could have a chance to hold them to account. Leaders
wouldn't be able to steal freely.

JS: They still would though wouldn't they. Aren't there lots of cases of
Authoritarian regimes pillaging their country and every ones known about
it?

GW: Except there not transparent governments I wouldn't think. That's the
whole point. I think transparency is at the heart of the good governance
and democratic agenda. If you have open and public disclosure then
accountability follows. Transparency brings accountability with it.

JS: When did this push for transparency and joined up thinking begin?

GW: I think the attraction of 'publish what you pay' is that it is a
relatively simple idea to implement. You don't need a complicated
international treaty. Through stock market listing regulations it could be
quite easily implemented. There's a heightened awareness in the business
community of corporate responsibility issues. They have a stake and a
responsibility to sustainable development in producer countries. Its not
just damage to their reputation that these companies risk, it's also loss
of profits as well. If you look at Nigeria, the oil companies in the Niger
Delta, as the classic case. Social unrest has been going on there for
decades and it doesn't look like its going to abate. Extractive industries
are just absolutely critical for lots of developing countries. They
require investment on the part of companies so it's in companies'
interests to have stability. I think you can only get stability if there's
social justice.

JS: Do you think there would be tangible benefits to these developing
countries fairly immediately if the EITI agreement, as you hope it will
be, were to be activated?

GW: Yes. Definitely. We're not saying this is going to solve everything. This
is a very specific campaign. And that's partly why I think it's
successful. We're not a developmental organisation. We don't do the
long-term development projects like Oxfam. That's not our brief.

JS: In which countries is EITI going to be tried out first?

GW: Pilot schemes are planned in countries such as East Timor, Azbadajn, and
possibly Nigeria and Trinidad and Tobago and possibly three or four mining
countries such as Ghana and Sierra Leone.

JS: Voluntary?

GW: Yes, there the better countries, either starting out or wanting to attract
business. By being good they hope to attract business by having the right
kind of profile. If you're a country like Ghana, an African success story,
you want to be seen to be following the right path, respectability. Also
to keep on the right side of the donors. In some countries like Sierra
Leone, the UK Government is pretty much running the country. Azerbaijan
really wants to get a pipeline built, by signing up to EITI it shows a
commitment to serious development, and that the pipeline will be a valid
infrastructure for a long time.

JS: So in the participating pilot scheme countries the International companies
have agreed to abide by the EITI?

GW: It's kind of a bit more complicated than that. The trouble with the EITI
is, if you're a company and you don't want to disclose you can actually
block the government under the current agreement. You can say this is
commercially sensitive, we don't want to disclose. Because the way the
agreement is structured you can't release any information if the other
party doesn't want you to. In reality if the Government wanted the
information publicly available the company would be stupid to object. If
however the government was being lame and wanted to get off the hook it
could use a company's objection to stop EITI. Of course in reality they
didn't want to disclose in the first place and are using that as a
political get out.
             The key thing is that the USA and France have been pulling in different
directions over EITI. The US stance is that it isn't really an issue for
our companies at all, it's only an issue for government to government
dialogue, and of course we, the US government are in this kind of dialogue
all the time. Though in reality this means nothing of the sort. Whereas
the French stance is that it's nothing to do with government, it's all to
do with companies and we have no say over what our companies do aboard,
it's up to them. IF their breaking the law, they will be caught and
sanctioned. Now the French Government turned around at the EITI and said
we like this, we've signed the Evian agreement, and we want to move
forward we're going to reach out to Francophone Africa to help the British
with this agreement, which is very positive. That also fits in with the
French multinationals trying to improve their image, 'Total', 'Fina', and
'Elf' have all had a bad reputation and now they're trying to do something
about that.
             With the American companies: what's basically at issue is that the driving
political modus operandi at the moment is access to resources for the US
administration. Its one of the key things that they need for the American
economy to keep growing as fast as it does. They want to particularly want
to work with those countries that are outside OPEC. They want the widest
possible international access to resources. Africa is good as the US has
such clout they can muscle into markets with a minimum of fuss and also
African oil is close geographically and its high quality.
If you look at Equitorial Guinea it's incredibly lucrative for the oil
companies to be there, and if you compare to Angola where the Angolans get
about 40% of the profit from the oil in Equatorial Guinea its something
like between 10 and 20%. Also there's the issue of oil backed loans, which
they say they don't do. The Equatorial Guinean Government doesn't have any
accounting mechanisms to track oil funds, so whenever it doesn't have any
money it goes to the oil companies and asks to borrow a bit, the companies
go oh sure, how much do you want, 50 a 100 million, though usually it's a
small amount, a few million, just for instant things the government
decides to do. Then the companies will charge it at credit card interest
rates, and deduct it at the source. So in fact it works out to be so cheap
and lucrative to work in those countries,

JS: No wonder companies don't want to change the status quo.


GW: Yeah there are a lot of vested interests.


Joe Schumacher is currently a roving reporter for the Peace and Conflict Monitor.


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