Is that what bribery really means?

The opponents of fracking often claim that the British Government is “bribing” local communities to accept fracking in their area by promising them a share of the money paid to the government by the companies concerned. Bribery is a pretty emotive term and it seems to be used in ignorance of the substantial academic literature about the best methods of alleviating the so-called “resource curse” the impact of the successful exploitation of reserves of oil, gas, gold, iron, diamonds etc.

That literature suggests that direct payments to individuals and communities is one of the most radical and satisfactory ways of enabling those people most immediately affected  to benefit from payments to government made by companies in the extractive industries. Indeed, in 2005/6 the Provincial Government of Alberta, Canada, started sending an annual cheque to every citizen, to represent their share of the benefits of oil. The Government of Alaska does something similar, paying half the money into an Oil Fund for future generations and distributing the other half to residents of the state, thus giving them a stake in the development of the industry.

In the oil industry, the companies originally paid royalties to the government of the country where they were operating in return for their concession. This was on the understanding that the Government would also keep the peace and, perhaps, spend some of the money on projects designed to benefit the population. This system of paying money into the national budget worked well enough when the concession was in the desert, in an area with few, if any, inhabitants, who might have a privileged claim on the budget. Projects at the national level would benefit all inhabitants equally.

More serious problems emerged when the concession was in an inhabited area eg the Delta in Nigeria, where the local population suffered the inconveniences associated with resource extraction (pipeline leaks etc.) without seeing any of the benefits of payments made at a national level, especially when some of those payments went straight into the pockets of corrupt politicians.

Thus companies were forced to address the major issue of the equitable distribution of oil revenues between the state as a whole and the immediate producing area. An obvious response was to make some payments at the sub-governmental level. But sub-national elites are not necessarily less corrupt than national elites. Furthermore it is far from easy to negotiate a satisfactory percentage split or to define a “production area”. Indeed, those immediately outside any defined production area may well have a heightened sense of grievance.

All this by way of saying that the optimal distribution of the revenues associated with the extractive industries is a major issue. The problems will vary according to whether there are any local inhabitants, off-shore oilfields for example, or when the land tenure system gives all the mineral rights directly to those who own the land. But the literature tells us that the key is accountability and transparency. We have to know what the deal is. How we describe it is another matter.

Coincidentally, Mary Dejevsky, in a recent Guardian article, opined as follows:-

“A very British response to the idea [of direct payments] has been that direct payments would be tantamount to bribery. But direct payments seem to me preferable to a contribution that gets dissipated in council budgets, or to nothing at all.”

By | 2017-07-06T13:32:32+00:00 October 27th, 2016|Oil & Gas|Comments Off on Is that what bribery really means?