Business and Poverty Leadership

Programme:
BP Experience in EITI: Azerbaijan Case Study

Khatira Iskender, Corporate Responsibility Policy Advisor

University of Cambridge
15 November, 2006
Outline of presentation

• Role of ‘Good Governance’

• Importance of ‘Good Governance’ to BP
business
• Relevance of Transparency
• Dimensions of Transparency
• EITI to date: Azerbaijan Case Study
• Lessons learned and challenges
• Looking ahead

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 Role of ‘Good Governance’

• Over the lifetime of a typical major oil or gas project the share of revenues
that goes to the government works out at around 80% of the total value of
resources
• When governance is good, these can generate large revenues to foster
economic growth and reduce poverty. Good Governance has multiple
features:
− Clear and stable laws and regulations
− Rule of Law
− High level of capacity and skills in government
− Fiscal monetary and budget discipline
− Open dialog between government and civil society
− Healthy business environment
− Transparency
• When governance is weak, they may instead cause serious challenges and
risks. These challenges and risks are multi dimensional:
− More poverty, corruption, and conflict – the so called “resource curse
− Inflation and currency overvaluation
− Damage to competitive industries and employment
• To seize the opportunity, the government has to transform state-held oil and 3
 Importance of ‘Good Governance’ to BP
business:
• Companies such as BP have a legitimate and genuine desire to
see these revenues managed well in a transparent manner,
because:
− Substantial and growing proportion of our activity is based in
countries whose economies are heavily, and in some cases
overwhelmingly, dependent on oil and gas revenues;
− In the absence of good ‘revenue management’ and transparency the
impact of the ‘resource curse’ imposes costs on our business;
• − Transparency and good governance reflect BP’s values:
BP is committed to the principle of transparency, in the belief that improving accountability in the societies
where we operate strengthens governance and reduces corruption, conflict, and poverty. This is good for
society, and good for business. It reflects responsible business.
• BP believes that transparency of industry payments to government is only one part of promoting good
governance, and should be viewed primarily as a means to ensure sound revenue management and consequent
poverty reduction. Revenue outflows are as important as revenue inflows, to achieve this purpose.
• BP strongly supports individual company disclosure in those countries identified by the EITI, where revenue
management is a critical development issue and our presence has a major impact.
• BP will work in partnership with our host governments, industry partners and civil society towards mutually
acceptable mechanisms for reporting.

ow the government manages resource revenues is

rictly none of our business.
But it is in our interests that they seize the opportunities and avoid the risks.
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Relevance of transparency

• Transparency is one of the fundamental building blocks of

Good Governance
• Transparency:
− Increases accountability and reduces the risk of waste
and corruption
− Fosters democratic debate
− Improves macroeconomic management
− Enhances access to finance

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Dimensions of transparency

• Transparency has many dimensions

− Revenues
− Expenditures
− Policies
− Laws and regulations
− Administration
− Applies to all sectors
• EITI focuses on EI resource revenue transparency as a
manageable and meaningful starting point

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EITI to date

• Launched by PM Blair Johannesburg 2002

• Escalating engagement of stakeholders
• Emerging consensus on principles, objectives and criteria
• Accelerating in-country uptake
• Global traction
• Accelerating TA support (EITI Trust Fund)
• Support of Norwegian and German governments for future
management of EITI

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Stakeholder engagement

• Implementing governments: 20-plus in Africa, Latin

America, Asia
• Donor governments: UK, Norway, Germany, Netherlands, …
US, France…
• Industry: BP, ExxonMobil, Chevron Texaco, Shell, Total,
Statoil, Norsk Hydro… OGP, API
• NGOs: CRS, HRW, Publish What You Pay, Global Witness,
Open Society, National NGOs
• Lenders and Investors: F&C Management Group
• IFIs: World Bank, IMF, EBRD…

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EITI: BP role and contribution

• Early and active support of EITI and Secretariat

• Focus point of contact to the government, oil companies
and NGOs for the negotiations and implementation of EITI
in Azerbaijan
• Capacity building support to civil society
• Putting transparency in larger governance context
• Country programmes
• Member of EITI International Advisory Group (IAG)
• The group has been working throughout 2006 to make
recommendations on three main areas:
• incentives for stakeholders to encourage
implementation
• methods of validation and
• the future governance of EITI
• Close coordination with a multi-stakeholder group 9
 BP operated activities in Azerbaijan

1998 - 2022 Gross Production

Novorossiysk Russia 1400

1200
1000
Kazakhstan
800
Black Sea NER

mbd
Pipeline Grozny 600
400
200
0
1998 2002 2006 2010 2014 2018 2022

Block WER
3534 Pipeline Georgia
Explorat Tbilisi
ion Caspian Sea
Supsa
Turkmenistan
Sangach
South al ACG Oil
BTC Pipeline Terminal Baku Production &
Oil Caucasus
Pipeline Gas Development
Azerbaijan
Shah Deniz
Gas
Erzurum Developmen
Turkey t
Inam
1998 - 2022 Gross Production Explorat
ion Alov
400
Exploration
350
300
250
mbd

200
Ceyhan 150
100
50
Iran
d.
Me ea 0
S 1998 2002 2006 2010 2014 2018 2022

Syria Iraq
0 100 200 300 km

10
Azerbaijan Oil and Gas Revenues

18000
$50/bbl
16000
$40/bbl
14000
$30/bbl
12000
Azerbaijan
10000
$ million

GDP 2004

8000

6000

4000

2000

0
08

10

16

26
04

12

14

18

20

22

28

30
06

24
20

20

20
20

20

20

20

20

20

20

20

20

20

20
Forecast State Revenues from ACG, BTC and SD Stage 1/SCP
~$106bn at $30/bbl ~$160bn at $40/bbl ~$210bn at $50/bbl
….including profit oil, tax, bonuses

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 EITI in Azerbaijan: history and milestones

• Commitment to EITI in early 2003

• The Azerbaijan National Committee on EITI led by the State Oil Fund
established in November 2003
• NGO Coalition for EITI established mid-2004
• MoU signed between government, companies and NGO Coalition and
reporting process established in November 2004
• International audit firm selected in December 2004
• First EITI report published in March 2005
• Launched EITI web site in 2005
• Nominated member of IAG in 2005
• Piloted the draft Validation process in February 2006
• Hosted the forth IAG meeting in Baku in April 2006
• NGO Coalition hosted the Baku International Conference on EITI in April
2006
• Shared experience and lessons learned with Kazakhstan, Georgia and
others in 2006
• Nominated member of EITI Board in 2006

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Looking ahead

• Preparations for preparations for fifth report have

commenced

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 EITI Azerbaijan

Incentives and drivers

• Financing for BTC and SCP projects
• Effort by government to improve reputation on corruption
• Championed at top level: President, Executive Director of State Oil Fund
• Competent civil society institution

Outputs
• MoU between all parties
• Regular reports that compare aggregated figures for companies and government by
payment type, e.g. royalties, taxes, production share
• Investigation and explanation of discrepancies by audit company
• Increased public debate on use of oil revenues

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EITI Azerbaijan: Lessons learned and
Challenges
• State oil company figures included but not audited
• Aggregated or disaggregated data?
• Massive increase in oil revenues in 2005 and 2006. GDP
growth 27% on 2005, but….
• Managing public expectations will be difficult
• Need to increase public debate on revenues outside of
Baku

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 Thank you!!
Comments? Questions?

Please see the websites:

www.bp.com/caspian
for BP Azerbaijan sustainability reports

www.oilfund.az/search.php?get=EITI
for EITI Azerbaijan reports

www.eititransparency
for EITI country updates and forward plans

Khatira M Iskender, BP plc

iskendkm@bp.com

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