Piloting a way to oil sales transparency

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Ghana is showing the way to bring more transparency to the selling and buying of crude oil, transactions that bring governments and companies billions of dollars every year. Ghana EITI has recently published on its website (see here) the results of a pilot project to enhance transparency of oil sales in the country.  We, Engaged Consulting and Michael Barron Consulting, carried out the pilot project.

The report shows that it is feasible to collect, reconcile and disclose more detail on oil sales than is normally available in public.  The report also demonstrates that a lot can be learned even from a limited pilot project.  The project looked at crude oil sales conducted by the state-owned oil company GNPC over the three years 2015, 2016 and 2017.  This was oil that GNPC receives as its production share and payment in kind from operators.  GNPC then sells this oil to international companies who export to global markets.

So, why is this sort of transparency important?  On the one hand it provides citizens with insights into how these high-value commodity trades are effected, and comfort that there is a good governance in place. But it also provides demonstrable comfort to those looking to invest in or trade with resource rich countries that they are doing business in a responsible and transparent manner. It makes good commercial sense.

The main aim of the pilot was to prove the feasibility of bringing greater transparency to the state’s oil sales. However, it also demonstrated that it can be straightforward to identify certain systematic faults in the oil sales process.

The project involved collecting oil sales data from various sources, including the buyer and the seller, and performing a reconciliation. We reached the conclusion that there were no systematic faults in the oil sales process.  The reconciliation process showed no significant discrepancies between the data provided by GNPC and that provided by the buyers as well as the data from other stakeholders including the customs authority and the state oil fund. More generally, this form of reconciliation process would flag any significant issues early on in the process.

There are countries, some implementing EITI and others outside the initiative, looking to improve transparency around their crude oil sales (and sales of gas and minerals). This Ghana project can provide valuable lessons.

  • Reconciliation is more valuable than just publication. GNPC has published high-level oil sales data for some time, but the real value of such a project comes through more detailed analysis and reconciliation.
  • It is important to get agreement from all the relevant stakeholders on the benefits of increased transparency and how to achieve it. We had a high degree of co-operation from GNPC, the buyers and other stakeholders.
  • A well-defined and manageable scope is also crucial. Ghana chose to limit the pilot project to GNPC’s oil sales for the most recent three years.  While there were calls (and a continuing desire) to extend the project to private sector oil sellers and other minerals, there are clear advantages to starting small and building in stages. This allows challenges to be identified and scalable solutions put in place.

    More information about Engaged Consulting and Michael Barron Consulting can be found here:
    Engaged Consulting
    Michael Barron Consulting

So, what did the pilot project involve?  We collected data on crude oil sales from GNPC and the buyers, information from the customs authority and state oil fund, details of the beneficial owners of the buyers and supporting contextual information on the regulation of the oil sector in Ghana.   We then reconciled the data and investigated any discrepancies.  In addition, we held two workshops in Accra and met with relevant stakeholders.  The information included details of the volume of oil in each cargo, the formula used to calculate the price, the price achieved, the ship used to export the oil and its intended destination.  The information collected also included confirmation that payment was received for each cargo, that the sum received was as expected and the date on which the funds were received.

There is growing worldwide pressure for more transparency in the trading of crude oil, natural gas and other minerals, especially in relation to state-owned companies.  These transactions often raise more revenue than taxation on the extractive sector.

Ghana has demonstrated that a straightforward exercise can improve transparency in a reasonably short timeframe.

Government and companies need to act to:

  • Improve visibility around state-owned commodities.
  • Demonstrate that good governance through transparency.

Mitigate reputational risk, and capture the opportunities for companies involved in the extraction or trading of commodities, and their host governments.

More information about Engaged Consulting and Michael Barron Consulting can be found here:

Engaged Consulting

Michael Barron Consulting

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