Gaps in Oil, Gas and Mining Governance Reveal Energy Transition and Corruption Risks
9 December 2021
Some countries show improved resource governance; climate-related financial risks remain opaque
9 December 2021—Scores for governance of oil, gas and mining have generally improved over the past five years across 18 assessed countries, according to the 2021 Resource Governance Index. However researchers warned that the challenges of pandemic recovery and the climate crisis require governments in resource-rich countries to accelerate the pace of reform to meet citizens’ needs.
The conclusion comes in a new analysis from the Natural Resource Governance Institute (NRGI) and follows the release of country-specific assessments over the last six months.
“A well-governed and just transition to a low-carbon future is a development imperative for the billion people living in poverty in resource-rich developing countries, and a climate imperative for the entire planet,” said NRGI president and CEO Suneeta Kaimal. “We cannot take our eyes off of resource governance at this critical juncture.”
“We have found that in many countries, reform-minded officials and civil society advocates compelled governments to disclose more of the contracts they signed with extractive companies, and more information on extractive production, export values and payments to governments,” Kaimal added.
Such advances in transparency were much needed, but don’t go far enough in contexts where implementation of laws lagged, NRGI’s researchers suggested. They said that countries strengthened both the legal frameworks governing the extractive industries as well as their implementation, but noted that the gaps between policy and actual practice nonetheless grew wider during the period of study.
Citizen engagement is fundamental to a just and equitable energy transition, the report’s authors argued. However, they said that lack of information on oil price forecasts and demand scenarios, national oil company spending, and emissions prevents citizens from knowing when authorities make “risky bets” on fossil fuel extraction. Such moves may not be economically viable amid the move to sustainable energy. Just four of the 12 national oil companies assessed (Azerbaijan’s SOCAR, Colombia’s Ecopetrol, Ghana’s GNPC and Mexico’s Pemex) had published data within the preceding two years showing their expenditure on exploration. Reporting on expenditure on costly development of new projects was even worse, with only Ghana’s GNPC disclosing disaggregated project development data.
Mining governance was also highlighted. “Several countries with important reserves of critical minerals needed for green technologies aren’t prepared to benefit from the coming boom,” said Erica Westenberg, director of governance programs at NRGI. “Efforts to strengthen critical mineral supply chains should prioritize addressing governance and corruption challenges in producer countries, and officials in those countries should seize the moment by doubling down on resource governance.”
The index also revealed shortcomings in disclosures of the identities of extractive companies’ beneficial owners, information that NRGI says is essential for anticorruption efforts. NRGI called on both governments and companies to prioritize measures to publicly disclose companies’ beneficial owners. Governments can strengthen laws on beneficial ownership transparency by targeting corruption risks, reducing legal ambiguities and requiring public disclosure, researchers said.
NRGI also pointed to state-owned enterprises as a problem area, with many state companies lacking basic elements of corporate transparency and financial accountability. Researchers recommended that the managers of state companies strengthen integrity measures and establish clear rules and disclosures on commodity sales.
The report recommended that governments should improve resource governance by ensuring the implementation of sector laws, especially policies designed to counter corruption risks and negative local impacts associated with extraction. Authorities should also improve oversight in areas with high corruption risks, such as licensing, SOE procurement and commodity trading.
“Governments of resource-rich countries should ensure transparency and accountability on climate risks and energy transition decision-making,” said Westenberg. “We also call on authorities to protect civic space, enabling citizens to demand and shape a just and equitable energy transition through dialogue and debate. Such accountability is more important now than ever for the people in resource-rich countries to demand sustainable recovery efforts and to scrutinize how well their governments are preparing economies for a low-carbon future.”
For more information:
Natural Resource Governance Institute [email protected]
+44 (0)7823 442 954
Notes to editors:
The 2021 Resource Governance Index assesses how 18 resource-rich countries are managing their oil, gas and mineral wealth. The composite index has three components. Two measure essential characteristics of the extractive sector, namely value realization and revenue management, and the third analyzes the overall governance framework (“enabling environment”). These three overall dimensions of governance comprise 14 subcomponents with 51 indicators, which are calculated using 136 questions.