Access to information pivotal to civil society oversight of oil sector – Oxfam

Apr 15, 2022 News

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Kaieteur News – One of the major recommendations offered by the British founded Oxfam confederation in addressing transparency and public accountability in the oil and gas sector, is governments respecting the rights of citizens to play a role, and thus furnishing them with information that allows them to do that.

The group of some 21 charitable organisations which fights injustice and poverty globally has highlighted in its 2018 report: Examining the crude details: Government audits of oil and gas project cost to maximize Revenue Collection, that one major way developing oil and gas producing nations can encourage better oversight of its petroleum audits is by sharing pertinent information with its public.
The group had conducted case studies of oil producing nations; the Republic of Congo, Uganda, Ghana, Kenya and Peru and found that because of a lack of information sharing, the countries were unable to utilize its civil society to aid government in handling its cost oil audits.
In Guyana, civil society groups have implored government to share certain information regarding the oil and gas sector but these have not been forthcoming. To better understand the costs associated with the new sector, questions have been asked about various expenses Guyana may have to pay as cost oil, especially since authorities have insisted that audit capabilities are not available in-house.
The Oxfam study has nonetheless identified several challenges to effective petroleum cost auditing in the case countries. They said that the findings can also be relevant to other developing petroleum-producing countries where transparency and public accountability are absent with respect to cost auditing. The information available publicly does not always provide a sufficient basis by which to judge how governments are using their cost-auditing rights, the report highlighted. Unless a case goes to court, citizens usually have no idea whether a government is auditing costs or what the results might be.
As such supreme audit institutions (SAIs), national legislatures, independent commissions, and Extractive Industries Transparency Initiative (EITI) multi-stakeholder groups are deemed relevant to potentially review cost-auditing practices. Another difficulty in oil and gas oversight is the ability to obtain data to benchmark petroleum costs, the report said. Reporting requirements are unclear or incomplete, preventing governments from accessing certain information from companies.
The Oxfam report highlighted further government’s delay in audits, especially when short timespans are set. In the case of Guyana, the country has two years to audit oil and gas expenses. However, seven years after announcing its first oil find, Guyana is still unable to properly verify and audit sector expenses. Around US$10b has been lost and the timespan for another US$9b will be up next month. The Oxfam showed that there is a tendency to prioritize auditing only after oil is flowing, long after development of the oil field has started. By that time, the government’s audit rights may have expired and companies’ legal obligation to keep records may have run out.
Auditors also lack sector-specific knowledge and expertise, Oxfam noted. They said the lack of regular risk assessment relating to the petroleum sector reflects tax authorities’ limited appreciation of the special characteristics of the industry. Despite this gap, the study pointed out that some of the case countries had not outsource audit assistance which would have been partly paid by the oil companies as per contractual agreement. Guyana has however given up its right to access certain taxes from oil companies. As such millions of dollars in taxes have been forgone.
Cost audit rights are often dispersed across multiple government agencies, sometimes with conflicting mandates. Inadequate coordination inevitably leads to duplication of effort and uncertainty for investors with respect to the final determination of gross income. Oxfam said, this is an issue civil society may look out for.
To ensure an effective response in addressing some of the matters highlighted above, the Oxfam study offers that as a part of transparency, audit activities must be publicly disclosed along with their results. “Strengthen the capacity of oversight actors to monitor the government’s use of cost audit rights. A transparent and accountable audit process is a precondition for effective cost auditing; without this, it is impossible to determine whether governments are fulfilling their responsibility to protect petroleum revenues.”
The study said that steps must be taken to increase the information available to verify and appraise petroleum costs. Innovative ways to exchange anonymised cost information between petroleum producers should be explored as a means of increasing benchmark data. Civil society may also want to ensure that audit time limits and record-keeping requirements are long enough and that costs are audited as soon as possible. The development of technical expertise and sector-specific knowledge to detect and mitigate cost overstatement in the petroleum sector should be very important to developing oil-producing nations Oxfam noted. “An informed, risk-based approach to auditing is especially important for resource-constrained countries, to ensure that limited human and financial resources are judiciously invested.”
Reviewing and strengthen legal controls on petroleum costs are also important. Oxfam suggested that carefully designed laws that determine the treatment or eligibility of costs should be developed so that auditors have the necessary legal tools to protect government revenues.

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