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Greater Social Responsibiltiy in the Oil Sector?

August 04, 2004

Exploring for oil in developing countries breaks the borders of traditional business economy. In recent years the demand has been that oil companies must take greater social responsibility. Currently, the actors are seeking new forms of co-operation.

-We think increased co-operation between oil companies and multi-lateral organisations can enhance more responsible administration of oil income in the new oil provinces." says researcher Leiv Lunde of Econ, who recently participated in the research project "The oil companies and the new petroleum provinces: ethics, trade and politics" under the PETROPOL programme in the Research Council of Norway.

The background for the project is that a large part of the new commercially interesting oil resources that the large oil companies want to explore are found in conflict-filled countries with unstable and non-democratic governments. At the same time, there is an increasing concern for how the new oil wealth will impact these regimes. Experience from several new petroleum provinces show that quick oil income can produce negative social evolution - the so called "wealth paradox". This involves oil income that creates a power-elite and is spent in ways that are not beneficial to the majority of society.

-To take social responsibility means to think about the legal regulations for the market and the economy within each country. The reason that the companies want to be socially responsible is that they hope that oil development will lead to more positive results on economy and politics of the countries in question, and generally make the government in each producing country as well as international critics more positive towards what the oil companies are doing."

Lunde suggests that social responsibility so far to a great extent has been focused in the areas where companies themselves have control. Typically, oil companies believe that in developing countries that social responsibility relates to the local population's advantage in such areas as jobs, training and education.

In the last few years, several organizations have urged oil companies to expand the horizons for social responsibility to include national issues and challenges that are connected to the development of the petroleum sector. Corruption and lack of institutional development, unclear practices in connection with national budgets and national accounting, use of oil money for military purposes rather than social, breach of human rights - are among the key areas Lunde emphasises.

Some organisations go so as far as to blame the oil companies for this disparity, because it is the taxes and fees from these activities that lays the foundation of the governments' priorities and focus. This puts the companies in a less advantageous light and they need to correct the picture and show that their activities add to a positive development of society.

But to place the responsibility for this on the oil companies is troubling for several reasons. One cannot, for example, expect an oil company to have the necessary expertise to advise the government in the establishment of an acceptable budget processes or better political priorities.

When British Petroleum (BP) in 2001 wanted to publish the different payments made to the Angolan government, it was threatened with withdrawal of concessions."

The project concluded that there are many interesting aspects to this type of co-operation, and that most talked about example - the Chad-Cameroon project - via the multi-lateral organisations gives the global society a channel that otherwise would not have access to influencing the oil countries' maintenance of the oil wealth.

-We still have one basic challenge, namely that all external actors have big problems to influence the way that some countries' governments maintain the large oil income.

Research Council of Norway, The