An important mechanism of accountability is the periodic auditing of the oil fund. An oil revenue management law should specify the accounting method or methods the oil fund should follow and require all activity of the oil account to be audited annually by an independent internationally recognized accounting firm that utilizes internationally accepted accounting methods, selected by open and public procurement. The law should also require that audits, any back-up papers, and special reports be presented to governmental agencies and be made public. Moreover, any governmental agencies subject to the annual audits may be allowed to comment on them and pose any pertinent questions as such agencies see fit.
To the extent that a body of the local government has the power and responsibility to audit state accounts, such an institution should also be required by the law to conduct an audit of the oil account activity. For example, the national oil account should be subject to a dual audit requirement, with mandatory annual audits by the country’s Auditor General and by the international accounting firm audit. In Chad, this internal audit is a responsibility of the General Accounting Office of the Supreme Court. In Canada, the Alberta Heritage Savings Trust fund is audited by the Auditor General. Similarly, Norway’s oil fund is also audited by the country’s office of the Auditor General.
Reporting requirements should also be established. The country’s oversight board and each governmental agency involved in the production, compilation, processing, or receipt of data or other information relating to oil revenue should be required to report periodically to the government and to the public. In varying levels, all revenue management laws contain reporting and reporting disclosure requirements.
Private Rights of Action/Judicial Controls
Any law must be clear as to who has standing to seek judicial enforcement of activity under the law, enforcement that could include the right to injunctive or mandamus relief. To strengthen public oversight further, some consideration should be given to private or citizens’ rights of action to enforce compliance with the requirements of the oil revenue management law. The use of private litigation to enforce public rights is just beginning to emerge in developing countries, but it is a significant potential source of control over unlawful government action (Baydo et al. 2004).
Legal sanctions such as those against bribery, abuse of office, and dereliction of duty may be directly applicable to actions under the petroleum law, but if not, the petroleum law will have to address these issues.
The local oil revenue management law must prescribe a range of penalties applicable to violations of the law, including fines, imprisonment, the disgorgement of any monies and reversion of any improper advantages obtained, and, in some cases, the nullification of contractual agreements and documents. Penalties could also include reprimands and warnings, removal from office in the case of public officials, temporary or permanent loss of contractual rights, termination of contracts, non-imprisonment sentences, etc. Penalties may also include fines, expatriation or expulsion of foreign residents, deemed aggravation of relevant crime or misdemeanour, and imprisonment in appropriate cases. In addition, the local oil revenue law should provide for enhanced penalties for both misdemeanours and criminal cases (Bell and Faria 2007).
Transparency – Scope of Public Information
The requirement of transparency and the establishment of mechanisms that ensure such transparency are critical in any oil revenue management law. As a general rule, all oil revenue-related information should be made public. Any law should provide a non-exhaustive list of items subject to transparency, and the parties responsible for making each piece of information public.
Among many international efforts to foster and strengthen transparency in natural resource management are the Natural Resource Governance Institute and the “Extractive Industries Transparency Initiative” (EITI) campaigns, both of which support transparency of resource revenues through the disclosure of information on natural resource-related payments made by private companies to resource exporting governments, among others. Also, of particular note and value is the International Monetary Fund (IMF) Guide on Resource Revenue Transparency published in 2005.
A special issue with respect to the publication of payment data is whether such information should be available on an individual company basis or should be aggregated. In countries with mature institutions, individual company data may be available, but in many developing countries there is no such disclosure. While aggregate data may be the best information available in some countries, civil society or parliamentarians cannot use such data to compare directly payment data reported by the government with payments reported by the companies.
The local Oil Revenue Law may take the preferred approach and mandates public access to individual payment data rather than to summaries or aggregations of information. Further, there could be a national declaration of principles, which requires public disclosure of individual company data and of contracts by the governing authority and the companies. One of the advantages of having direct public web access to the records of the custodial account is that payment information is available on a disaggregated basis and, without any intervention or discretionary action by the government, that all of the information can be made available to other branches of the government, civil society, and interested international groups.
A separate issue is the publication of all oil-related contracts. Although governmental oil contracts have traditionally been kept confidential in the developing world, that is not the practice in advanced democracies. Moreover, the most recent practice even in developing countries is moving toward disclosure. For instance, the local oil revenue management law could require disclosure and public access to “all contracts relating to the participation of the State or any enterprise or entity owned or controlled in whole or in part by the State, the scope of which directly or indirectly concerns activities related to Oil Resources or Oil Revenues.”
Making contracts public ensures the integrity of bidding and negotiations, which in turn ensures that awards are made competitively and are consistent with whatever rules have been laid down. Without the transparency of contractual agreements, it is impossible for civil society or interested members of parliament to ensure that contracts are enforced, and payments made accordingly. Making contracts public when they are entered makes possible full public oversight of those agreements that will be central to the political economy of the country in the future and is the only way to give such contracting full political legitimacy. This legitimacy is important not only for the citizenry but also for the companies because it provides protection against political second-guessing when exploration prospects turn out favourably. Secrecy may protect the negotiators (government and private), but no one has identified a governmental interest in keeping agreements private. The contracts themselves are shared among industry partners; it is only the public that is excluded if they are kept confidential.
Sometimes in order not to make contracts or payments public, companies rely on confidentiality clauses and assert that it is the government that prevents them from making such information public. However, the government can and should, in the exercise of its own sovereign power, determine that such information shall be publicly disclosed. Certainly, a self-imposed confidentiality argument has no weight in the debate on a forward-looking law.
Any exceptions to the disclosure requirements should be very narrowly drawn. The local oil revenue management law could specifically allow the withholding of information only if it is classified as confidential by law or treaty, and it puts the burden of claiming confidentiality on the proponent. The local law must protect proprietary information from disclosure, but specifically prohibits making any payment information confidential. For instance, the Timorese petroleum fund law, on the other hand, has a general exception for confidential information without defining it. It also permits the government to use a number of other justifications for preventing the release of data. Although certain of the exceptions might make sense in principle, they are drawn so generally that a determined government could use them to prevent almost any meaningful disclosure.
Public Information Office
A requirement that information be made public necessitates supporting infrastructure that may not already be in place. For instance, there needs to be some form of a central, adequately financed depository, as well as a public information office where such information is readily available. In many cases, one could use existing institutions. Alternatively, one could set up a new office particularly for oil-related information. For example, an office could be created under the auspices of the National Assembly to serve as a depository for oil-related information.
It is important to have access to complete, readable, and comprehensible physical copies in the local language. This access should include not only reports in summarised and understandable form but also access to the underlying data so that independent checks can be made.
Responsibility for Disclosing Information
An oil revenue management law could reinforce a transparency regime by requiring private parties to publicly disclose governmental contracts and oil-related payments. This would provide an independent check on government reports and would help ensure that such information is available even if the government fails to carry out its obligations to make such information public. The local oil revenue management law should require disclosure by both the government and the payer. The oil law further enforces such mandatory disclosure by requiring that the obligation to disclose agreements be included in all oil resource contracts either explicitly or by operation of law.