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Sixty-six countries struggling with governance of oil, gas and mining sectors


Sixty-six countries struggling with governance of oil, gas and mining sectors

Sixty-six countries struggling with governance of oil, gas and mining sectors
Photo credit: George Osodi | Bloomberg

New index shows promise in some developing countries, but raises alarms over sovereign wealth funds and citizens’ freedom to hold governments to account

The majority of governments inadequately govern their oil, gas and mining sectors, according to the 2017 Resource Governance Index. Sixty-six countries were found to be weak, poor or failing in their governance of extractive industries. Less than 20 percent of the 81 countries assessed achieved good or satisfactory overall ratings.

The cross-country study of extractives governance, released yesterday by the Natural Resource Governance Institute (NRGI), is the most comprehensive of its kind to date. It is based on new research into how countries’ governance affects their potential to realize value and manage revenues from their resources. It also incorporates existing assessments of countries’ “enabling environments” – a measure of how well citizens can access and use information, freely work together to voice their concerns and hold their governments to account, and of the quality of institutions in the areas of administration, rule of law and corruption control.

Index data show that Norway exhibits the best governance of natural resources, followed closely by Chile, the United Kingdom and Canada in the top-most “good” performance category. Eritrea exhibits the worst resource governance and receives a failing grade in the index, with Turkmenistan, Libya, Sudan and Equatorial Guinea among others also rated failing. Some middle-income countries – such as Colombia, Indonesia, Ghana, Mongolia, Peru, Mexico and Botswana – achieve good or satisfactory overall ratings. Burkina Faso places highest among the low-income countries studied; its mining sector ranks 20th overall.

“Good governance of extractive industries is a fundamental step out of poverty for the 1.8 billion poor citizens living in the 81 countries we assessed in the Resource Governance Index,” said Daniel Kaufmann, NRGI president and CEO. “It is encouraging that dozens of countries are adopting extractives laws and regulations, but often these are not matched by meaningful action in practice.”

The gap between law and practice is larger in countries where corruption is systemic, the index found. This gap occurs in many policy areas of extractive industries – including environmental and social impacts, and the sharing of resource revenues by national governments with local authorities – and is particularly problematic for communities living near extraction sites.

The index also assesses the governance and transparency of sovereign wealth funds in 33 countries. Colombia’s Savings and Stabilization Fund is the best-governed of the assessed funds, followed by the Ghana Stabilization Fund. The Qatar Investment Authority, with USD 330 billion in assets, and Nigeria’s Excess Crude Account were found to be the worst-governed funds. At least $1.5 trillion is currently managed by the 11 sovereign wealth funds NRGI researchers rated as failing.

Chile’s Codelco state mining company was listed as the best-governed of 74 extractive sector stateowned enterprises that were assessed for their disclosures and corporate governance. The Oil and Natural Gas Corporation of India came second. Forty-eight countries’ state-owned companies received unsatisfactory ratings. The index identifies weak governance in the China National Petroleum Company, and finds failing governance in the Abu Dhabi National Oil Company, the Gabon Oil Company, Turkmengas and Saudi Aramco.

“The Resource Governance Index shows us that if they are to contribute to their countries’ development, state-owned enterprises require serious reform,” said Ernesto Zedillo, former president of Mexico and chair of NRGI’s board of directors. “But effective governance of the oil, gas and mining sectors is not an insurmountable challenge – the index provides many examples of developing countries defying expectations and stereotypes.”

In recommendations released with the data, NRGI calls upon governments to support key transparency measures (including compliance with open data standards) and for them to adopt and implement laws requiring the disclosure of the identities of the true beneficiaries of oil and mining companies.

NRGI also calls for a reversal of the trend toward closing civic space in many resource-rich countries. “Where freedoms of citizens and journalists are under attack, governance of the extractives sector is fundamentally impaired,” said Kaufmann. “Access to information on contracts, revenues, state companies and sovereign wealth funds is only valuable when citizens can hold authorities and companies to account.”

Nigeria (oil and gas)

Nigeria scores 42 of 100 points and ranks 55th among 89 assessments in the 2017 Resource Governance Index (RGI). It has the largest oil and gas reserves in sub-Saharan Africa with an estimated 37 billion barrels of oil and 188 trillion cubic feet of gas. Nigeria is one of the world’s most resource-dependent countries – oil and gas contributed the majority of government revenues and constituted 90 percent of Nigeria’s exports in 2015. Nigeria also has the largest population on the African continent, so the oil and gas sector’s governance issues impact the wellbeing of a large number of people. Governance challenges are present throughout the extractive decision chain. Value is lost particularly in licensing and in the Nigerian National Petroleum Corporation’s (NNPC) sales of government oil, as well as when revenues from oil and gas are shared and saved. Furthermore, a history of scandals involving top officials and the NNPC has plagued the sector and drawn public attention to corruption and asset recovery. Given NNPC’s central role in all stages of the decision chain, improving governance of the state-owned enterprise (SOE) is crucial.

Index summary results

Improving transparency could help mitigate Nigeria’s failures in licensing

Licensing is the weakest link in Nigeria’s value realization component, with a score of 17 of 100, placing it 77th among 89 country licensing assessments. This score and ranking reflect high levels of opacity in key areas of decision-making, including qualification of companies, process rules and disclosure of terms.

The Nigerian government does not regularly publicly disclose government officials’ financial interests in the extractive sector or the identities of beneficial owners of extractive companies, though it has made some early commitments to do so with the Extractive Industries Transparency Initiative (EITI) and the Open Government Partnership (OGP). The government has committed to disclosing all oil, gas and mining contracts in its “seven big wins” policy strategy and as part of its OGP action plan, but thus far, it has not disclosed contracts.

Despite some progress in transparency of revenue collection over the past five years, tracking payments from oil and gas companies remains challenging. According to Nigeria’s 2014 EITI data, just over half of public revenues from oil and gas were distributed to the federal government and the rest were shared between the state and local governments. In terms of revenue sharing, Nigeria ranks 11th, alongside the United States (Gulf of Mexico) and Ecuador. The public lacks access to audited information on revenue flows to lower levels of government, and this contributes to the gap between the quality of the legal framework and actual implementation.

State-owned enterprise governance

Despite some improvements in transparency, NNPC’s performance and accountability challenges persist

NNPC, the largest SOE on the continent, achieves a poor governance score of 44 of 100. The corporation mainly scores well on indicators that measure elements of transparency required by EITI reporting, such as transfers to government and production volume disclosure. NNPC has recently strengthened some of its reporting practices, particularly for high-level financial data. However, the company does not disclose detailed annual reports on its finances, despite top officials having made a commitment to do so. Little information is publicly available, particularly concerning some of NNPC’s least efficient and most questionable activities, notably earnings by its subsidiaries, the costs of its operations and its significant spending on non-commercial activities. Government agencies and external auditors have disputed NNPC’s interpretation of rules set in the constitution and the NNPC Act governing monetary transfers between NNPC and the government. Officials exercise significant discretion around how NNPC sells the government’s share of oil production – for example, when selecting buyers, pricing exports or transferring sales proceeds to the government.

Sovereign wealth fund governance

Nigeria performs poorly in oversight of key revenue collection, sharing and savings practices

Nigeria’s Excess Crude Account (ECA) is the most poorly governed sovereign wealth fund assessed by the index, ranking last alongside the Qatari Investment Authority. The government discloses almost none of the rules or practices governing deposits, withdrawals or investments of the ECA. Nigeria also has other natural resource funds, some of which are more transparent than the ECA. As the largest fund by asset balance, the ECA constitutes a vast governance concern at the end of the oil sector value chain.

What is the RGI?

The 2017 RGI assesses how 81 resource-rich countries govern their oil, gas and mineral wealth. The index composite score is made up of three components. Two measure key characteristics of the extractives sector – value realization and revenue management – and a third captures the broader context of governance – the enabling environment. These three overarching dimensions of governance consist of 14 sub-components, which comprise 51 indicators, which are calculated by aggregating 133 questions.

Independent researchers, overseen by NRGI, in each of the 81 countries completed a questionnaire to gather primary data on value realization and revenue management. For the third component, the RGI draws on external data from over 20 international organizations. The assessment covers the period 2015-2016.

Full results from the Resource Governance Index are available here.


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