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any anti-corruption and transparency initiatives and can be even
more important than the role of the media (Rose-Ackermann 1999,
167“71). Watchdog groups such as Transparency International or
Kazakhstan Revenue Watch have a crucial role to play in monitor-
ing and disseminating information, ensuring that larger develop-
ment goals are pursued, influencing policy and training local civil
society groups to understand the relevant issues. Civil society
engagement can have tangible development outcomes. It has been
reported that the budget allocation for public services (including
anti-poverty programmes) in Indonesia™s capital Jakarta increased
from 30 per cent to 68 per cent in the period 2000“4, as a direct result
of civil society budget advocacy initiatives (Shultz 2004).
Timing. Experience suggests that once extractive export revenues
*

start flowing, ˜governments find it difficult to avoid a diversion
from development projects to spending for political advantage™
(Bell et al. 2004). Once the government begins to receive oil and
gas revenues, third parties such as the World Bank and EITI lose
much of their bargaining power in persuading host governments to
adopt principles of good governance and transparency (Frynas and
Paulo 2007; Gould and Winters 2007). Therefore, the potential
development benefits of transparency can be maximised if transpar-
ency measures are adopted before the start of extractive operations. In
Azerbaijan and in Chad (see above) the revenue management ini-
tiatives were established before the start of the actual oil boom, at a
time when external actors had greater bargaining power.
The governance challenge 149
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Therefore, transparency initiatives are unlikely to be successful in
autocratic regimes, which do not allow a free press and a free civil
society. As one author wrote in summary, ˜the success stories in
resource revenue management have occurred where there is visionary
political leadership that understands the need for explicit policies for
economic management and accountability and where civil society
and the media have the capacity to press for good governance of
resource wealth™ (Shankleman 2006).
One of the six EITI criteria stipulates that civil society organisa-
tions are involved from the outset. However, EITI cannot change the
fact that most EITI-implementing countries, such as Azerbaijan or
Equatorial Guinea, simply do not have free media or a free civil
society.
Table 6.3 demonstrates that most oil-producing countries lack the
necessary preconditions for the success of transparency. The table lists
the thirty largest oil-producing nations in the world and indicates
which countries have ˜political and civil freedom™ and ˜media free-
dom™, using the 2007 rankings by Freedom House “ an international
organisation that compiles ˜freedom™ rankings every year. Out of
twenty-four oil-producing countries in the developing world, only
five “ Mexico, Brazil, Indonesia, India and Argentina “ have political
and civil freedom, while a number of other countries are classified as
˜partly free™. Of these twenty-four countries, not a single one has a
genuinely free press. Out of seven EITI participants listed in Table 6.3,
not a single country has a genuinely free civil society or free press,
while a few countries such as Nigeria are classified as ˜partly free™.
The six largest oil-producing nations from the developed world “
the United States, Canada, Norway, the United Kingdom, Australia
and Denmark “ have both a free civil society and a free press. Indeed,
previous studies that found positive effects of transparency have often
focused on developed countries (Alt and Lassen 2006a,b; Besley and
Prat 2006). In contrast, all EITI participants are developing countries,
and there is no research to demonstrate that the EITI actually helped
150 Beyond Corporate Social Responsibility
*




table 6.3: Civil liberties and media freedom in largest oil-producing countries
in 2007

Oil production (thousand EITI Political and Media
Country barrels per day) participant civil freedom freedom
United States + +
6,895
Canada + +
3,041
Norway + +
2,968
United + +
1,809
Kingdom
Australia + +
554
Denmark + +
377
Saudi Arabia 11,114
Russia 9,552
Iran 4,267
Mexico + ±
3,760
China 3,627
Venezuela ±
2,937
United Arab 2,751
Emirates
Kuwait ± ±
2,643
Nigeria + ± ±
2,580
Algeria 2,016
Iraq 1,833
Libya 1,751
Brazil + ±
1,715
Kazakhstan +
1,356
Angola 1,233
Indonesia + ±
1,128
Qatar 1,045
The governance challenge 151
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table 6.3: (cont.)

Oil production (thousand EITI Political and Media
Country barrels per day) participant civil freedom freedom
India + ±
784
Oman 779
Malaysia ±
767
Argentina + ±
725
Egypt 696
Colombia ± ±
554
Ecuador ± ±
541
Syria 458
Azerbaijan +
452
Yemen + ±
426
Vietnam 398
Equatorial +
356
Guinea
Sudan 355
Thailand ±
265
Republic of + ±
246
the Congo
Gabon + ±
234
Brunei 206
Notes: + free
± partly free
Sources: BP Statistical Review of World Energy 2007; Freedom House ˜Freedom in
the World 2007™ and ˜Freedom of the Press 2007™ surveys at www.freedomhouse.org
(accessed 20 March 2008).

to bring any positive political, economic and social benefits to mem-
ber countries (see the following section).
By implication, the optimism over the adoption of transparency
initiatives by developing countries is, at best, exaggerated and, at
152 Beyond Corporate Social Responsibility
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worst, misguided. The preconditions for the success of the EITI are
simply not present in countries such as Azerbaijan and Equatorial
Guinea. Indeed, more than five years since the launch of the EITI,
not a single country has so far complied with the EITI validation; in
the words of the EITI itself, ˜no country has been formally validated
against the EITI indicators™ (EITI website at www.eitransparency.org/
compliantcountries, accessed 31 March 2008).
The World Bank-led Revenue Management Program in Chad
mentioned earlier ultimately failed. While the programme yielded
some economic and social benefits, academic research has demon-
strated that it fell far short of the expected outcomes (Gould and
Winters 2007; Kojucharov 2007; Pegg 2006). From the start, it
became clear that the programme had shortcomings, and the
Chadian Government was able to divert some earmarked funds
towards other purposes. In 2006, Chad™s agreement with the World
Bank was renegotiated and watered down, and the ˜Future
Generations Fund™ was scrapped, as President Idriss Deby demanded
more access to the country™s oil revenues in order to purchase weap-
ons for use against his enemies. There have been suggestions that the
actions of oil companies further undermined the World Bank™s
efforts; after threats from the Chadian Government in 2006, the US
company Chevron and the Malaysian company Petronas agreed to
pay undisclosed sums to the government which escaped the Revenue
Management Program. Finally, the World Bank withdrew from the
Revenue Management Program in September 2008, stating that
˜Regrettably, it became evident that the arrangements that had
underpinned the Bank™s involvement in the Chad/Cameroon pipe-
line project were not working™ (World Bank 2008).
A frequently cited reason for the problems of the World Bank
programme in Chad was timing. On the one hand, Chad™s government
had more bargaining power in 2006 than in 2003 thanks to the inflow
of oil revenues; thus, it was in a position to renegotiate previous
agreements. On the other hand, the World Bank failed to effectively
The governance challenge 153
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create the mechanisms for overseeing the use of oil revenues (including
a strong and well-resourced oversight committee) before the start of
oil production in 2003. While World Bank officials emphasised the
importance of ˜sequencing™ (which means encouraging capacity-
building before allowing oil infrastructure construction), pipeline con-
struction already started four months after project approval, and oil
production started one year ahead of schedule. In effect, neither the
project oversight committee nor Chad™s government institutions were
effectively prepared for the inflow of oil revenues, nor were the rules for
handling oil revenues effectively established. One observer noted in
2007: ˜Nearly seven years into the project and four years since the first
batch of oil exports, Chad, the World Bank, and the oil consortium are
still trying to negotiate the rules and mechanisms for calculating and
distributing oil revenues™ (quoted in Kojucharov 2007, 488).
In more general terms, the problem of timing implies that third
parties such as the World Bank and the EITI have even less leverage
in established oil-producing countries compared with Chad. In estab-
lished oil-producing countries (particularly in those countries under-
going an oil boom), the government is less dependent on external aid
and loans, it can obtain oil-backed loans from international banks
and it can obtain unconditional loans and aid from new actors,
including the government of China. In other words, the government
can escape externally imposed conditions by the World Bank and
other third parties. As the author of this book has previously argued, it
is no coincidence that many oil-producing countries managed to defy
the International Monetary Fund and the World Bank in different
ways for a long time; for instance, the oil boom radically improved the
bargaining power of Equatorial Guinea, and President Obiang was
able to resist calls by the IMF for major macro-economic reforms as a
result (Frynas 2004).
In addition to the three conditions of success identified above, the
EITI initiative has inherent limitations, which we shall discuss in the
next section.
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Limitations of the EITI

Notwithstanding the existing conditions for success, the design and
remit of the EITI also have inherent limitations. Above all, the EITI
focuses on revenues, not spending.
Effective EITI implementation helps to reveal how much a govern-
ment has earned from oil and gas, but this does not necessarily help to
increase the accountability of government spending. For instance,
while the Economist Intelligence Unit praised the accountability of
SOFAZ (the revenue savings fund in Azerbaijan), it pointed out:
˜International financial institutions have expressed concern that,
although management of SOFAZ has proved relatively transparent,
that accountability is lost once the funds are transferred for use into
the state budget™ (Economist Intelligence Unit 2006, 26). In the
words of one recent study on Azerbaijan, ˜The main weakness of
EITI is the lack of reporting and monitoring of the government™s
spending of oil revenues™ (Gulbrandsen and Moe 2007, 822).
Existing empirical evidence on the positive effects of transparency
relates to how the money is spent, not how it is earned. All of the
positive effects of transparency mentioned earlier “ ranging from
increased foreign investments to decreased corruption in the health

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