sharing in governance of extractive industries
Some time ago I wrote about my initial bewilderment at the Azerbaijani government’s touting of its EITI record, given a personal experience of the country very much at odds with everything that the EITI stands for. Of course, the debate will always come back to the troubles of a broadly successful global mechanism overburdened with high expectations. But now, as the EITI hammers out a tighter set of rules to be finalised in Sydney in May, how far will the goal posts move? And what are the implications for access to information and broader social change in EITI ‘pioneer’ Azerbaijan?
Let’s take two palaces of culture. Both largely financed by oil revenues and both icons of booming petro-states. The first is Oslo’s $800-million Opera House, soon to the be the stage for the world’s first ‘oil opera‘. The second (set your Eurovision preconceptions aside, it’s still culture) is Baku’s Crystal Hall, costing a hotly debated $155-180 million. As I skirt round the red barriers separating me from the geometric facade of the Crystal Hall, I can’t help but draw a comparison with its counterpart in Norway. While the Oslo Opera House has been deliberately designed to allow children and skateboarders to clamber over its smooth white surfaces, the area surrounding the Crystal Hall has been a no-go area each time I have tried to worm my way in. The government of course will claim security threats, just as it does in the case of amendments to corporate disclosure legislation last year. But I can’t help be struck by the (tenuous) symbolism of such contrasting attitudes towards transparency and public access to private institutions in the two countries. The question we are left with is how far the increasingly active transparency movement in Azerbaijan has helped to reshape these attitudes? And where Azerbaijan stands in fending off the symptoms of the Resource Curse?
Pauline Jones Luong is one of the critics of conventional Resource Curse literature, arguing that oil is not in fact a curse, but that the negative outcomes seen in oil-producing states should instead be attributed to institutions, that is – who owns and controls the sector. These are also the principle sites of misuse of funds. In the case of Azerbaijan that brings us to state oil company SOCAR and sovereign wealth fund SOFAZ. The two giants are set to move into rather impressive new skyscrapers away from the overcrowded city centre – SOCAR’s growing international presence will soon be matched by a $306-million skyscraper, and new neighbour SOFAZ will occupy its own 23-storey tower down the road, one of the city’s most expensive projects at $9,000 per square metre. These two centres of power are unlikely to lose any of their clout by moving a little further from the corniche. But how do they stack up today in transparency terms?
Ask most members of civil society in Baku and they will probably grudgingly admit that SOFAZ’ claims at behaving in a transparent manner, in line with its EITI obligations on disclosure of fiscal transactions, are broadly backed up by reality. In transparency indexes such as the SWF Institute’s Linaburg-Maduell Index, the fund gets top marks. One advisor to the Finance Ministry admitted that SOFAZ is indeed “set up well institutionally and indeed very transparent”, but that ultimately it “puts a lot of faith in the President”. While the capable technocrat director Shahmar Movsumov (who sits on the EITI Board) is responsible for the day-to-day running of the Fund, it is not he who makes the key spending decisions but the President, to whom he directly reports. Aside from basic revenue collection, there are serious doubts when it comes to expenditure (outside of the scope of the EITI). Reports abound of opaque tendering procedures for the granting of a lucrative contracts for infrastructure projects. Between 2001-2012 close to $1.5 billion of funds were allocated to social infrastructure projects for the country’s 600,000 refugees from the Karabakh conflict, and investigative journalist Hijran Hamidova alleged that up to half of these funds have been siphoned off by ‘magician contractors’. SOFAZ’ lack of decision-making autonomy, during a tough election year in which President Aliyev will be looking to spend big, raises major concerns about expenditure discipline.
Now SOCAR is another story. With over 80,000 employees and rapidly expanding, the state company is an emerging giant, setting its sights set on Gazprom-like status as an economic symbol of Azerbaijan at home and abroad. It is already neighbouring Georgia’s largest taxpayer, but has designs much farther afield. In contrast to SOFAZ’ star performance on international indices, in Transparency International’s 2011 report on the ‘Transparency of Global Oil and Gas Companies’ SOCAR performed particularly badly, keeping company with the likes of Angola’s SONANGOL and Nigeria’s NNPC at the bottom of the rankings. Trading branch SOCAR Trading, established in 2008, appears particularly shady. Journalist Khadija Ismayilova describes its organisation and structure as “ambiguous to say the least.”
On the transparency front, there are a couple of potential game-changers that could impact on the image projected by Azerbaijan’s institutions. Firstly, after several months of soul-searching, the EITI has drafted a new set of rules, to be ratified at May’s global conference in Sydney. Crucially, the strategy review is aimed at making the EITI a stronger platform for wider reforms. Azerbaijan’s State Oil Fund should look carefully at the proposals on disclosure requirements for state-owned enterprises. As far as contracts are concerned, Azerbaijan had a fairly good record (before he revelation of a couple of ‘stealth contracts’, signed in 2009 behind closed doors with somewhat shifty-sounding Global Energy, rang alarm bells). But the spotlight may also be shone on the practice of exchanges between the government and state entities.
The second is the release later this year of the newest version of Revenue Watch Institute’s Transparency Index, expected to take a tougher line on the producer countries covered. In 2011 Azerbaijan placed a respectable 8th place, just trailing Peru and a few places ahead of the US. But this has not gone unnoticed by the designers of the mechanism, who are due to release the latest version of their Index in the coming months, based on a new methodology which is set to give those countries assessed a much rougher ride.
What this means for Azerbaijan is that they may have to start giving more credit to those who monitor them and hold them to account, including a relatively active civil society constituency addressing the issue. Getting permission to fly the EITI flag at official events, while an important step, does not get them off the hook. And they cannot rely on unconditional support from the EITI Board, who you sense at times might feel some discomfort over the seeming ‘alliance’ formed, as broad social change remains elusive. Ultimately the role of the Board is less cheerleader for the regime and more “exacting critic”.
Of course, these two initiatives are not the only place the goalposts are being moved. New corporate disclosure legislation on the horizon in both the US and in Europe is a game-changer globally, and it remains to be seen how any legislative changes rub up against government’s amendments to Access to Information laws, intended to restrict corporate disclosure. Or, in official terms, to “more precisely indicate the frames of journalists’ right to acqui...
The EITI has provided Azerbaijan with a crucial learning curve in participative dynamics when treating sensitive issues of mineral wealth. The debate rages on about whether the mechanism is capable of serving as a platform for broader social change in Azerbaijan. The new rules are an attempt to address this. Whichever way, it is in the Azerbaijani government’s interest to retain the EITI’s approval, particularly as SOCAR expands into global markets. But they will have to tighten up their act. From the EITI’s perspective, they will also has a battle on their hands to convince Azerbaijani civil society that their framework can contribute to broader societal goals, or a disillusioned coalition may begin to ask why they are bothering.
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