Corruption charges show need for reform in oil and gas sector.

James Morrissey is a researcher on extractive industries and governance at Oxfam America.

I was in Tanzania last month as what may turn out to be a major corruption scandal in the country’s history was coming to light. Contained in these events and international headlines are lessons about the importance of a broad good governance agenda in managing the oil and gas industries.

Two senior members of Tanzania’s Petroleum Development Corporation were arrested for failing to meet a deadline imposed by Parliament for releasing the details of all 26 of the contracts, or Production Sharing Agreements, that Tanzania has signed with oil and gas companies, including: ExxonMobil, Shell, Norway’s Statoil and the UK’s BG Group and Ophir. While the arrests made international headlines, the two were released hours later on grounds that their arrests were not suitably authorized.

How about a little context?

With policies and laws still being formulated, Tanzania’s emerging oil and gas industry is largely governed by the 26 Production Sharing Agreements, signed by a range of companies that, to date, have not been released to the public.

Public concern over the fairness of these agreements was ignited in July this year when a 2012 addendum to a 2007 Production Sharing Agreement between Statoil and the Tanzanian government was leaked to the public. Its revelations included the fact that the split of “profit gas” between the Tanzanian government and Statoil was between 20% and 30% lower than what was described in model contracts.

Parliament didn’t respond to the leak, but public interest ballooned when a blogger translated the implications of the addendum into understandable terms for citizens in Tanzania: This 20-30% difference could result in Tanzania losing hundreds of millions of dollars. Put another way, the increased revenue to the Norwegian government from this deal could be more than twice the total of Norwegian aid given to Tanzanian since independence. (The Natural Resource Governance Institute’s analysis of the leaked contract concluded that the contract was “not out of line with international standards for a country that had no proven offshore reserves of natural gas at the time when the original contract was signed” but acknowledged that there were limitations to their review, including “continued secrecy around the full PSA itself.” NRGI also did not disclose its own economic model.)

Momentum around this issue built quickly. With the public raising questions about both the fairness of the other 25 agreements, and about the capacity of the Tanzania Petroleum Development Corporation (TPDC) to negotiate such deals. Lurking in the background were concerns about political will and the possibility of corruption.

Public outcry finally sparked a political reaction. The National Assembly’s Clerk ordered that TPDC disclose all 26 contracts to the Parliamentary Oversight Panel by November 3. TPDC resisted this directive, saying that the contracts could not be made public as they were governed by confidentiality clauses. When the November 3 deadline came and went, the Parliamentary Committee on Public Accounts ordered the arrest of both the acting Director General and the board chairman of TPDC.

While many people may feel outraged at the ongoing lack of transparency and the impunity of TPDC officials, this entire process has ignited calls from politicians, the general public and civil society , for increased transparency in Tanzania’s oil and gas sector.

The drama contains 3 important lessons

The following lessons pertain to the importance of a broader approach to good governance, including the maintenance of space for civil society.

Transparency is fundamental: A clear message from Tanzania’s recent experience is that transparency is fundamental to ensuring that natural resources are managed in the public interest. At the moment it remains unclear whether the deal between Statoil and the Tanzanian government is a fair one. Without access to the original profit sharing agreement, the economic modeling on which the oil contract is based, as well as documentation detailing the bidding process, we simply cannot answer that question. But without transparent access to similar information for the other 25 contracts, there can be no public discussion at all on whether those deals are fair. There growing international momentum for “open contracting”. Many countries, such as Peru, disclose all of their oil and gas agreements, and the World Bank’s private sector lending arm, the IFC, requires contract disclosure for extractive projects it finances. One oil company, Kosmos Energy, has disclosed its contracts wherever it operates, while Tullow has disclosed its agreements in Ghana and has stated its preference to disclose wherever it does business. Many mining companies also support contract disclosure. Finally, Oxfam, the World Bank, Transparency International and others back the new Open Contracting Partnership.

The public is interested: Despite the complexity and large amounts of technical content in the debates on managing oil and gas revenues, the Tanzanian public is hungry for information on the topic. Arguments that there is no need to publish these technical documents because the public is not interested are clearly wrong. Tanzania remains one of the poorest countries in the world, ranking 159th out of 187 countries in the Human Development Index. If managed well and invested in pro-poor growth related to agriculture, education and health, people certainly understand that future gas revenues could support inclusive development and poverty reduction.

Space for civil society is crucial: Despite the fact that parliamentary actors in Tanzania eventually acted to demand access to the profit sharing agreements, the initial leak generated almost no political response. It was only after an active member of civil society published a story that public attention flared up. It was after this that politicians decided to respond, and the global media picked up the story. Space for civil society groups is therefore fundamental for ensuring that issues of natural resource management are effectively policed and for enabling the public to engage around this topic. This process cannot be left solely to elected politicians, appointed officials and the established media.

These events in Tanzania illustrate the importance of civil society, transparency, and active citizenship and the need for companies, such as Statoil, to take public and proactive steps to encourage contract disclosure. Countries like Tanzania, as well as neighbors Kenya, Uganda and Mozambique,  have the potential to become major energy producers, but also face poverty and inequality, need these structures in place even more – millions of people are depending on governments, activists and institutions to get it right.

Editor’s Note: Two of the hyperlinks originally included in this blog post referred to another case in Tanzania. These have been corrected.