Global concession watchdog Global Witness, has warned that if the Liberian Government does decide that it wants to maintain its national oil company, NOCAL, the government must determine how much control the company should exercise over revenues generated by the sector.
Last modified on Monday, 27 February 2012 21:24
African Petroleum recently announced its discovery of oil in commercial quantity in its exploration blocks off-shore Liberia. According to Global Witness, if this discovery results in production, the country’s oil sector could be a major source of revenue. “However,” the global concession watchdog observed, “under Liberia’s current law a large percentage of this new revenue will be received by the state owned National Oil Company, an institution with a history corruption and fiscal mismanagement. In other countries with a history of poor governance, allowing a national oil company unfettered control over oil revenues has resulted in corruption, budgetary uncertainty and massive waste.”
In a statement issued over the weekend, the group explained that under Liberia’s current laws, NOCAL will receive into its own bank accounts a percentage of the revenues generated by the government’s equity share in each concession.
“Until the arrangement was changed by the 2011 Tax Law, NOCAL could also receive the government’s production share and the government’s bonuses linked to production landmarks. NOCAL is entitled to a percentage of the equity share revenues. It is a corporate partner with the international oil companies that will operate Liberia’s concessions. It will invest in these concessions and – as with any company – should enjoy a return on this investment.
“Equity share revenue represents NOCAL’s return on investment. NOCAL has far less of a claim over the other revenues that the oil sector stands to generate, however. Production share and landmark bonus revenues, much like surface area rent or income taxes, are not revenues linked to any investment by NOCAL; they are effectively taxes imposed by the government upon international oil companies for the privilege of operating in Liberia,” the global concession watchdog further explained.
As such, it continued, Liberia’s 2011 Tax Law requires that production share and landmark bonus revenues should be controlled by the government and should go directly to the government’s main consolidated fund, rather than to the national oil company.
The group added that prior to the introduction of the 2011 Tax Law, NOCAL enjoyed control over both production share and landmark bonus revenue, and it is possible that the company will seek to regain the powers it has lost.
In addition to clearly defining – and limiting – the revenue streams under NOCAL’s control, it continued, Liberia’s reformed petroleum law should also lay down clear boundaries regarding NOCAL’s remit to manage and spend the money generated.
“Clearly, if NOCAL is expected to operate as a company then it must have revenues sufficient to function. Just as important as who controls Liberia’s oil revenue is the accountability with which the money is managed. To ensure that NOCAL operates in an accountable manner, its board of directors must be professional and technically proficient.
“To minimize opportunities for corruption, the principle of transparency must be built into the operations of NOCAL, the international oil companies and the Ministry of Finance. To best ensure NOCAL operates accountably, the government should establish clear criteria by which the company’s board of directors is appointed. In laying out these criteria, the government should balance corporate efficiency with the need to allow high levels of public scrutiny. Criteria could include: commercial competence and integrity; political independence; public accountability, including membership of a representative from civil society. It is also essential that the process of revenue collection and audits be transparent and regular,” Global Witness added in its statement.
The group recommended that for Liberians to verify that oil companies, including NOCAL, are transferring all required revenues to the government, additional transparency measures should be introduced in the new petroleum law. It noted that all reports produced by the Ministry of Finance, NOCAL and international oil companies, including oil production data and reports outlined in sections A.1 and M.9 of Liberia’s Public Finance Management Regulations should be made public. Such reports should be available in detail sufficient to allow for independent verification, among many others.
It may be recalled that in September 2011, Global Witness and the Liberian Oil and Gas Initiative published a report titled: Cure? How oil can boost or break Liberia’s post-war recovery. In this report, Global Witness described NOCAL’s problems with corruption and low capacity. The report also outlined a series of recommendations, calling for a reformed law requiring better vetting of companies and improved transparency, social and environmental provisions. Above all, the report argued that, if it finds oil, Liberia will only benefit if the sector is reformed through a comprehensive and transparent process that includes representatives of Liberia’s civil society.