Africa: Tracing the Oil Money

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• Africa
• Angola
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• Cameroon
• Central Africa
• Chad
• Congo-Brazzaville
• Corruption
• Cote d'Ivoire
• East Africa
• Equatorial Guinea
• Europe and Africa
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• Ghana
• Nigeria
• Petroleum
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• South Sudan
• West Africa

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 -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, Switzerland based 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.