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‘Booksprint’ sets out to throw light on oil contracts

Image: Open Oil contracts book

Written by a global team for a global readership

A book published this month by the Berlin-based Open Oil consultancy group aims to shine a light on the production sharing contracts—known in Uganda as production sharing agreements (PSAs)—that lie at the heart of the multi-trillion dollar global oil industry.

“Contract transparency is the next stage of the transparency movement” writes Open Oil founder, Johnny West, in a foreword to the book, which can be downloaded free of charge from the Open Oil website.  Part of Mr. West’s foreword is re-published below.

Transparency in the oil industry has been greatly advanced by campaigns such as Publish What You Pay and the Extractive Industries Transparency Initiative, West told Oil in Uganda.  However, he points out, the overwhelming majority of contracts between governments and oil companies remain secret, even though these agreements have profound consequences for hundreds of millions of citizens in dozens of oil producing countries.

In Uganda, citizens have campaigned vigorously—yet, so far, without success—to have production sharing agreements made public.

‘Oil Contracts: How to Read and Understand Them’ is intended to help journalists, civil activists, public servants and politicians to learn the language, structure and typical terms of production sharing contracts.  It draws on detailed examples from several contracts that have been published.

Even if other oil deals remain secret, readers of the book will be better equipped to understand the oil industry and put penetrating questions to their own governments.

The book was jointly written by a team of oil industry experts and commentators from around the world, including Ugandan researcher and Oil in Uganda Editorial Advisory Group member, Lynn Turyatemba.

The authors gathered in Germany to put their knowledge and experience together in a workshop process known as a ‘booksprint.’  They produced a 226 page document in just five days.

Open Oil describes the book as a ‘living document’ that will be continuously updated and revised.

Also planned are ‘local’ versions tailored to specific regions or countries.

Wiki Uganda

In a further effort to encourage sharing of knowledge and information about the oil industry, Open Oil’s web platform has this year established a ‘wiki’ section with ‘almanacs’ on nine oil producing countries, from Colombia to Ghana and Syria.

Uganda is now set to join to the list of countries covered.

Based on the original Wikipedia concept and style, these country-specific almanacs are authored and edited by volunteer contributors who post material on all aspects of oil exploration and production.

In Uganda, Open Oil will partner with journalists from the Uganda Radio Network to establish an oil-related ‘almanac.’

Open Oil’s Amrit Naresh will visit Kampala shortly to kick-start the initiative.  He emphasises that, whilst Uganda Radio Network are the main partners in the launch stage, the idea is to develop a wider community of Ugandan writers and editors who, in the Wikipedia tradition, will add to and collaboratively edit the content.

Report by NY

The article below is excerpted from the foreword to Oil Contracts: How to Read and Understand Them

CONTRACT TRANSPARENCY IS NEXT STAGE OF TRANSPARENCY MOVEMENT

by Johnny West

From now until the time you finish this sentence, another 5,000 barrels of oil will have come out of the ground. Or 10,000 barrels by the end of this one, worth about a million dollars on world markets today.

Suppose we created a World Oil Production Index (WOPI) to measure that money.  WOPI would surpass the GDP of the Democratic Republic of Congo, a country of 70 million people, in a day and a half, and the entire annual aid budget to Africa in four days.

It is petroleum contracts that express how this money is split and who makes what profits, just as it is the contracts that determine who manages operations and how issues such as the environment, local economic development, and community rights are dealt with. The share price of ExxonMobil, the question of who carries responsibility for catastrophic spills or blow-outs, whether Uganda will be able to stop importing petrol, and how much it costs to heat and light millions of homes . . . these are issues which depend directly on clauses in the contracts signed between the governments of the world and the oil companies.

For most of the 150 years of oil production, these contracts have remained hidden, nested in a broader secrecy that surrounded all aspects of the industry.  Governments claimed national security prerogatives, companies said commercial sensitivity precluded making them available. But the last few years have seen the emergence of the idea that these contracts are of such high public interest that they transcend normal considerations of confidentiality in business, and should be published.

A few governments and companies have published contracts. Academic institutions such as the University of Dundee in the UK and NGOs such as the USA-based Revenue Watch Institute are just now beginning to collect the contracts that are in the public domain into databases searchable over the Internet.

Contract transparency is the natural next stage of the transparency movement.

The initiatives which began in the 1990s around concerns over the ‘Resource Curse,’ leading to the creation of the Extractive Industries Transparency Initiative in 2002, have succeeded in opening up a public conversation. Governments and companies now acknowledge the importance of openness and ethical business. CSR was born to counter ‘Blood Diamonds.’

But there is as yet little systematic public understanding of how these titanic industries actually work. Activists and journalists sometimes penetrate dark corners and uncover kickbacks and secret deals, and occasionally trigger a public outcry that effects change. But public suspicion remains high around the world, fuelled largely by this secrecy. In dozens of countries public debate continues with the main documents at the heart of this industry remaining absent.

Casual rhetoric about how “the government” or “the state” is being so secretive is not helpful because it misidentifies and actually understates the degree of dysfunctionality and asymmetry of information that can exist. This is often “deep state” stuff, belonging to a world of aides and special advisors with ill-defined roles, where the regular apparatus of the state can also be out of the loop.

In one country, senior diplomats in its foreign ministry lack the most basic understanding of the industry that generates 90 percent of its revenues and governs relations with its neighbours, with whom it shares sizeable fields. In another, the finance minister himself has been denied access to the petroleum contracts which determine how much revenue he is supposed to collect from international oil companies and others. In a third country a bid round went bad, and contracts were delayed for two years, because a phone call to clarify basic details wasn’t returned. Ministers of the economy, planning and environment are rarely consulted about how contracts can integrate into broader government policy.

And yet, because of the pioneering move to publish by some governments and companies, the chance now exists to begin to create public understanding of petroleum contracts, based on those that exist in the public domain. This book is a first attempt to rise to that opportunity.

We aim to reach at least ten thousand people around the world who may be engaged in the industry, or in governance of or transparency activism around it, but who may not have had the chance to gain professional exposure to petroleum contracts and the issues of how they are actually negotiated. We hope they will include people in the public and private sectors of 50 countries, journalists and civil servants and local business communities as well as promoting a broader understanding of the negotiating process within the companies themselves.

The sections of the book are intended to lead the non-specialist reader through a logical sequence in understanding contracts. Section One sets the stage with background context. Section Two establishes the formal parties to a petroleum contract and the normal provisions of who does what and who decides what.. Section Three, ‘The Money,’ goes to the heart of the negotiation and deals, unravelling the different revenue streams that go into constructing ever more complex financial arrangements. Then we devote two sections to subjects which are handled in contracts but often in passing and at the last minute. Section Four deals with the linkages between the petroleum industry and economic development as a whole in the producing country, as dealt with in the contract, while Section Five looks at clauses relating to health, safety and environmental protection.  Finally, in Section Six, we look at pure legal aspects, dispute and arbitration procedures.

We quote liberally from a family of petroleum contracts throughout the book that come from eight countries:  Afghanistan, Azerbaijan, Brazil, Ghana, Indonesia, Iraq, Libya and Timor Leste. They were selected to represent various structures in contracts, stages of development of petroleum industry and most of all because they are in the public domain. Other contracts are referred to from time to time.

The writers of this book are: Peter Eigen, founder of Transparency International and founding chair of EITI; Cindy Kroon from the World Bank Institute; Herbert Mcleod from Sierra Leone; Susan Maples, Office of the Legal Adviser to Liberian President Ellen Johnson Sirleaf; Nurlan Mustafayev from the legal affairs department at SOCAR, Azerbaijan’s state oil company; Jay Park, a lawyer from Norton Rose; Geoff Peters; Nadine Stiller from the German agency for international cooperation GIZ; Lynn Turyatemba from the NGO International Alert in Uganda; Johnny West, founder of the OpenOil consultancy; and Sebastian Winkler, Director Europe for Global Footprint Network. All work on the book was pro bono or mandated by the organisations we work for.

We want this book to be the start of a broader public conversation about petroleum contracts. It will be a living document, subject to constant critique on the web and periodic review. Anyone can download it at any time, print and adapt it.

We aim for the book to become the basis for localised versions which take a look at petroleum contracts country by country. There is no reason why, three years from now, there shouldn’t be, for every country in the world with a petroleum industry (or hoping to develop one), an editorially independent and technically informed book put together by a group of sympathetic but objective professionals from a range of disciplines which analyses that country’s core contracts, available to the public free of charge.

It is our belief that even though these contracts were not written with the public in mind, with a little effort they can be understood to a level which enables real, mature and informed public discussion. We hope that after reading this book you will agree.