Has Corruption affected the Contractual Relationships between U.S. Oil & Gas Companies with Emerging Markets in West Africa (Nigeria and Liberia)
Posted: December 22nd, 2022
Has Corruption affected the Contractual Relationships between U.S. Oil & Gas Companies with Emerging Markets in West Africa (Nigeria and Liberia)
Table of Content
Abstract
List of Tables
List of Figures
List of Abbreviations
Literature Related Definitions
Acknowledgements
Introduction
The Key Concepts
The Motive to Conduct the Study
Questions to be Answered
Thesis Statement
Dissertation’s Methodology
Dissertation’s Structure
Chapter 1 – Historical Background
Adopting the Leasing Act
Discovery of Oil and Gas in Africa in the beginning of the 20th Century
The Rush for Oil and Gas Firms in West Africa in the Last 4 Decades
Chapter 2 – Corruption Risk Areas in the Oil and Gas Sector
Procurement
Bid and tender process
Customs
Licenses and permits
Joint ventures
Misappropriation of assets
Cash-based economies
People and culture
Expatriate staff and contractors
Chapter 3 – Corruption Risks Places in the Contractual Relations between US NOCs and Nigeria & Liberia: Compliance Pressure Points
Motives for Investing in Nigeria and Liberia
Political and Legal Infrastructure
Frequent Contact with Foreign Government Officials
Daunting Local Regulatory and Operational Requirements
Heavy Reliance on Third Parties
Heavy Projects with Many Business Partners
U.S.’s Consideration and Dealing with Corruption Risks
Identifying and Knowing the Circumstances Prior to the Contractual Relation
The Capacity of the Contract Parties
The Imposed Responsibilities and Rights
Addressing and Identifying the Risks Places
Chapter 4 – The position of the anti-Corruption Legislations, International Organizations, and Indictors
The Efficiency of the FCPA
Efforts to Tackle Corruption
Limitations
Gaps
Efficiency of the Anti-Corruption Legislations in Liberia and Nigeria
Efforts to Tackle Corruption
Limitations
Gaps
Role of the UNCAC
Role of the African Organization
African Union
APPA (Association of Oil & Gas Producers in Africa)
Reliability of International Indicators
Transparency Index
Worldwide Governance Indicators
Bribery Payer Index (BPI) Indicators
Conclusion
Summarizing the overall argument
Answering the research question/s
Discussing implications
References
Appendix
Abstract
The study explores how corrupt practices and dealings have affected the contractual coordination between the United States oil and gas corporations with emerging markets in West Africa, specifically in Nigeria and Liberia. The dissertation first looks at the historical aspect of the research, which provides a concrete foundation for understanding the drivers for global investment in oil and gas firms in America and in West Africa.
List of Tables
List of Figures
List of Abbreviations
ABAC – Anti-bribery and anti-corruption
BPI – Bribe payers index
DOI – Department of the Interior
FCPA – Foreign Corrupt Practices Act
FDI – Foreign direct investment
TI – Transparency Index
WGI – Worldwide Governance Indicators
Literature Related Definitions
Acknowledgements
I show my thankfulness and gratitude to the university and the department where I belong for offering the precious academic aid, insight, and suggestions in the completion of the research. The directives helped to better the report and to make it more impactful. The issued guidelines provided light to make the study much detailed, appealing, and thought-provoking. My sincere thanks go to my tutor and supervisor for the immense professional assistance regarding the realization of the study. I also show my uttermost gratitude to all my family members and colleagues, who encouraged me, offering the necessary emotional and psychological support during the tough times.
Has Corruption affected the Contractual Relationships between U.S. Oil & Gas Companies with Emerging Markets in West Africa (Nigeria and Liberia)
Introduction
The Key Concepts
- Corruption: Illegal or dishonest practice or behavior, especially by influential people such as police officers or state officials.
- Improper act on the part of a person in authority through acts that is immoral, illegitimate, and not compatible with ethical measures.
- Emerging market: a market, usually in a less developed economy that is just starting to grow.
- Contractual relationship: A lawful relationship or association between two or more contracting sides instigated by an offer, acceptance of the proposed offer, and valid or legal consideration of the offer.
The Motive to Conduct the Study
The primary motive of the study is to explore how corruption and bribery has impacted on the relationships between American oil and gas firms with emerging markets in West Africa, specifically Nigeria and Liberia. The study also seeks to evaluate the historical background surrounding the production of oil and gas in the U.S. and West Africa. The study seeks to evaluate the highly corruption risk areas in the oil and gas sector, with special attention on procurement services, bidding and tendering, customs practices, licensing and permits, partnerships, improper use of assets, cash-based economies, people and culture, and expatriate employees and contractors. Also, the motivation to conduct the study is to look at the relationship between American NOCs and Nigeria and Liberia while paying particular attention to the factors attracting U.S. investors to the emerging markets. Furthermore, the study seeks to elaborate how America responds to such threats, and the effectiveness of regulations and measures put in place to prevent inappropriate deeds. Finally, the study aims at showing the level of transparency in the findings of various oversight groups handling corruption-related issues.
Questions to be Answered
- Has corruption affected the contractual relationships between U.S. oil & gas companies with emerging markets in West Africa (Nigeria and Liberia)?
- Are certain areas in the oil and gas sector highly susceptible corruption?
- Why do American oil and gas firms find it attractive to invest in West Africa, especially in Nigeria and Liberia?
- What are the attempts by Americans to overcome the risks?
- What is the role of the African-connected organizations in recognizing and fighting corruption?
- To what extent has regulations and measures helped to contain bribery and corruption in the oil and gas sector in emerging markets?
Thesis Statement
A lot of effort is still required to fight corruption, which is fast getting its way through business relationships between U.S. oil and gas corporations and the governments in emerging markets in West Africa; otherwise one side will end up using the other.
Dissertation’s Methodology
The methodology used to complete the dissertation is the legal-economic approach to attain the practical and theoretical needs and essence of the study. The approach basically looks at how corporations strive to achieve their economic wants while functioning based on a set of laws and regulations. The study also employs the comparative analysis approach to make it easy to compare and contrast the legislative enforcements in the U.S., Nigeria, and Liberia and to understand how the nations differ based on the legislations put in place to regulate extraction and selling of oil and gas. More essentially, the study employs a multi-disciplinary approach, which entails borrowing from a number of schools of thought to acquire a wide understanding of the topic.
Dissertation’s Structure
The dissertation includes an introduction, four chapters focusing on different elements, and a conclusion. The introductory section offers the background information regarding the entire paper to give readers clear insight on what to expect throughout the study. The introductory section also provides the objectives and illustrates the methodology used to carry out the study. The study then transits to the body section, which comprises of four chapters. Chapter 1 provides a historical view regarding the production of oil and gas in the U.S. and in West Africa, and highlights on the subsequent scramble for oil in West Africa during the last four decades of the 20th century. Chapter 2 elaborates the areas in the oil and gas sector that are highly prone to corruption, while Chapter 3 sensitizes on the factors attracting American corporations to invest in Nigeria and Liberia. Chapter 3 also describes how America strives to combat the challenges facing the oil and gas sector in West Africa. Chapter 4 expounds on the state of anti-corruption legislations, international organizations, and different indicators such as TI, WGI, and BPI. The conclusion gives an overall summary of the report, answers the research questions, and discusses the implications.
Chapter 1 – Historical Background
Adopting the Leasing Act
The development of the Mineral Leasing Act (1920) is perceived as a milestone in regulating the extraction of oil and gas, as well as other vital minerals. The federal law regulates and authorizes issuance of public lands for extracting deposits of natural gas, petroleum, coal in addition to other hydrocarbons, as well as sodium, potassium, sulfur, and phosphates in the U.S. The Organic Act (1897) provided guidance before the establishment of the Mineral Leasing Act, and which was responsible for the formation of the National Forest System, and the NPSA (National Park Service Act) of 1916.
At the initial phases of the 20th century, the extensive oil reserves of the U.S., particularly in the Western region, rested largely undeveloped and unexplored. Even though California was ranked the fifth-largest state in petroleum production, the entire region only added nearly 9% of the country’s oil supplies. During this period, the General Mining Act (1872) permitted citizens to limitlessly compete for minerals on public lands and permitted an explorer to put claims to both the surrounding land and minerals for development purposes. The policy that adopted an open-access approach promoted a major oil scramble in the West, and in 1909 George Smith who served as Director as U.S. Geological Survey warned Richard Ballinger (the Secretary of Interior) that oil reserves were being claimed so rapidly they would not be available within the next few months. Ballinger shared the matter with President William Taft (1857-1930) who quickly set up the initial U.S. oil reserve through an executive order on September 1909, removing about 3,042,000 acres of public lands in Wyoming and California from further claims, and reserving the oil for utilization by the American Navy. Congress verified the President’s directive through the passing of the Pickett Act (1910), and the Supreme Court further ratified Taft’s authority to remove public lands from use in U.S. v. Midwest Oil Co. (1915). Following these happenings, Congress enforced the Mineral Leasing Act of 1920, which created a structure for leasing and development for mining prospects on lands owned by the state.
The Mineral Leasing Act, which is administered by the Bureau of Land Management (BLM), which is a branch of the Department of the Interior (DOI), provides a number of functions that changed the extraction of oil and leasing of public lands. The Act permits entry onto public lands to explore minerals with authorization from the state, and allows drilling and withdrawal of minerals with permission of the government. The Act permits the state to manage the exploitation and exploration of leasable minerals, and allows the government to get compensation from the lessee for the benefit of removing minerals on federal-owned public lands. BLM is in charge of evaluating the sites for potential developments and offers leases depending on whoever gives the highest bonus at the time of bidding.
Discovery of Oil and Gas in Africa in the beginning of the 20th Century
Throughout the history of the human race, energy has been a primary enabler of living measures, and to survive during the agrarian period, people combusted wood for cooking and warmth. Other than the use of wood as a building material, wood continued to be the main provider of fuel for many centuries. The introduction of the initial steam engine, at the initial phase of the 18th century, portended the change from an agrarian to an industrial structure. Steam engines could be run by either coal or wood, but coal became the preferable source of fuel and it set way for explosive growth in the measure of industrialization. About half-ton of coal emitted four times as much energy as similar amount of wood and was less costly to generate, and despite its bulkiness, it proved easier to distribute. The locomotives fired by coal largely lowered the cost and time of movement, while steam ships moved through water bodies. Indeed the machines run by coal allowed breakthroughs in production while easing physical toil.
The beginning of the 20th century marked significant transformation in the use of fuel with more people advocating for the use of oil arguing that it is less harmful to the environment. Other than the discovery of oil in China in 600 B.C, and in Pennsylvania in 1859, oil production in Africa was first witnessed in Nigeria where exploration dates back to 1904 when the Nigerian Bitumen Corporation carried exploratory works in the nation, but the company’s operations ceased at the onset of WWI. Whitehall Petroleum and D’Arcy Exploration Company were given the mandate to continue with exploration and refining practices in Nigeria in 1923, and later companies such as British Petroleum and Shell join in the venture. Liberia, however, discovered very late (about 2012) that it has rich resources of oil, and is now embarking on exploration and extraction.
Today, Africa is regarded the fastest developing source of energy, standing for 117.482 billion barrels of crude oil or 9.50% of the globe’s reserves at the latter parts of 2007. Africa in 2007 produced about 10317.7 thousand barrels of crude oil every day or 12.4% of the globe’s total production.[1] All over the continent, West Africa continues to be the beehive of exploration operations because of the Gulf of Guinea being filled with a lot of (billions) of barrels of oil reserves. At least 275 new wells had been indentified in West Africa alone since 2000.
The Rush for Oil and Gas Firms in West Africa in the Last 4 Decades
Comparing the Middle East and Africa, the latter has a relatively smaller share of the globe’s petroleum deposits; nearly 9.5% of world’s reserves compared with the 61.6% for the Middle East. Nonetheless, the leading consumers of oil in the world have showed extraordinary desire in the development of reserves in Africa, particularly during the last four decades of the 20th century. Even though oil was discovered in Africa at the beginnings of the 20th century, the 1980s and the 1990s witnessed major oil price fluctuations, which prompted much political transformations within and outside Africa, and which promoted a reduction in the global prices of oil.[2] During the same time, international corporations showed new interest and demand for petroleum products in West Africa, with some paying close attention on the Liberian and Nigerian oil and gas. Soon after it was evident West Africa has much deposits of oil and gas, some of the globe’s leading oil-consuming countries such as the U.S., China, and the Western nations started to gain interest in the exploration of the oil reserves, with some such as America and China leasing vast deposits for whatever exploration space that became available, as well as invested hugely in pipeline, loading equipment, drilling devices, and other infrastructure aiding production.[3] Actually, the oil rush in Africa during the last four decades of the 20th century adopted the nature of a gold rush, with leading firms from across the globe competing fiercely with each other for reach to appealing deposits. President Bush developed structures to aid the production of oil and gas in West Africa to cover for the reduction back at home, and this was accompanied by the development of policies to regulate extraction and importation of African oil. Bush’s administration in its attempts to acquire additional supplies of oil put much effort to heighten the role of American energy companies in African production.
The rush for oil and gas companies in West Africa had both positive and negative repercussions. The producing nations saw new opportunities for wealth, but also had to deal with the escalating disagreement regarding the disbursement of revenue from the natural resources. Other than the production of foreign revenue, the exploration and rush for oil and gas in West Africa during the last four decades of the 20th century improved the extraction processes, and also boosted internal security in the African nations where political and security instability largely interfered with such kind of investment.
Chapter 2 – Corruption Risk Areas in the Oil and Gas Sector
The international scale and nature of the oil and gas industry, and the intricacy of the contractual and working relationships with venture partners, governments, suppliers, and other contractors, make adherence to anti-bribery and anti-corruption regulations something that need significant management attention, particularly in emerging nations such as Nigeria and Liberia. Indeed, corruption and bribery are becoming a pressing concern for corporations in these two nations, and company leaders and organizations operating in the oil and gas sector are among those that have experienced the most devastating effects.[4] A study by Transparency International through its Bribe Payers Index report reveals that corporations in the oil and gas industry as being viewed to be more likely to give or take bribe than those in other industries. The following section highlights some of the key areas that are likely to experience corrupt dealings in the gas and oil sector.
Procurement
Procurement is a chief bribery and corruption risk area for the sector in Nigeria and Liberia due to the high amount of expenditure entailed in oil and gas initiatives. Companies operating in the sector may be tempted to indulge in corrupt dealings while partaking in different procurement services. Often, there is desire for corporations to give contracts to local operators, and this could emanate from the interior locations of activities, mandated state requirements, or a dedication to support local communities.[5] Whatever the reasons, such contracts are usually lucrative and highly desired for by local firms, thus creating a scenario where the risks of corruption, bribery, and fraud are high. The idea of sole-supplier sourcing whereby companies in the oil and gas industry tend to acquire materials from a sole supplier seem to be gaining favor in an area where competitive tendering has established its root. Whereas this type of contract may appear flawless from the outside, such relationships harbor so many conflicts of interest, and in situations where appropriate mechanisms do not exist to manage the contract, the firm may incur huge financial losses. It is during such tough times that Nigerian and Liberian companies are attracted to corrupt dealings.
Nigerian and Liberian corporations must watch out for the splitting of orders when carrying out procurement activities because such areas present great risks for corrupt practices. Even though the splitting of orders is usually carried out with good intent to avoid the bureaucratic internal regulations or to achieve the business goals, the act can conceal deceitful undertakings, which usually include corruption. It is also vital to consider a situation where corporations hire third parties to carry out procurement services for the company because such contracts are usually susceptible to improper deals and firms may find themselves in situations that breach the law. Furthermore, corporations with remote operations such as the ones in Nigeria and Liberia are highly likely to encounter hardships when monitoring procurement activities. Mostly, these sites are not linked to the company’s electronic controls and systems, which constrain the leadership’s control.[6] Geographic seclusion as it happens with many emerging markets such as Nigeria and Liberia is also likely to affect audit monitoring thereby forming avenues for corruption and fraud.
Bid and tender process
Because many corporations in the extractive sector in Nigeria and Liberia are under the ownership of the government, service providers in the area need to be very cautious when bidding their contracts. A number of FCPA violations have emanated from such service givers issuing bribes to hasten tender processes with companies owned by the state.[7] The firms offering services must also watch out for the risks that come with receiving gifts and other offers issued to officials from state-owned corporations, and the appropriateness and openness of such, particularly when contemplating bidding or tendering.
Customs
Ineffective customs regulations in Nigeria and Liberia have a significant effect on the ability of a gas or oil site to carry out its operations appropriately. Usually the delays encountered with custom processes can have adverse financial effects to companies; for instance, workforce and machinery may already be mobilized, but may not function appropriately as they await vital apparatus to pass through the custom processes. Sometimes, the intense pressure to attain the anticipated outcome and adhere to the set timelines can formulate a heightened risk of corrupt deals and bribery.[8] Furthermore, companies serving in the oil and gas sector are highly vulnerable when commencing their operations because they have to acquire drilling equipment from foreign nations as well as other vital equipment. In emerging markets such as Nigeria and Liberia, customs clearance can be exposed to some fees and unrestricted processes. Custom officers, therefore, can exercise powers the way they want and demand for bribes to carry out the duties assigned to them. Actually, facilitation fees or payments can be so common in emerging markets, and organizations might find it necessary to look into this area in the course of business. Nonetheless, these payments are regarded in a different ways under the various ABAC legislations and could be termed unlawful under some jurisdictions such as the UK Bribery Act. As a result of these constraints, firms in many instances often indulge third-party officers with localized insight to help with importation. Companies, however, need to be cautious when monitoring the operations of the third parties, as they may be liable for their inappropriate undertakings under the ABAC regulation.
Licenses and permits
Political unrests in the Middle East and North Africa, the increased oil prices, and the subsequent increase in state-owned oil firms have prompted many governments that have a lot of resources to place much oversight over the sector, more so where foreign investors are engaged, with the purpose of heightening royalty revenues and tax. Consequently, oil and gas corporations are subject to every rising levels of state regulation and supervision. State permits and licenses in Nigeria and Liberia are vital to the activities of a firm in the oil and gas industry.[9] Other than engaging with officials from the local government to retain and secure residences, permits are often needed for other operations, such as construction, drilling, and the utilization of state-owned facilities. Additionally, corporations will be evaluated in areas such as safety, health, community development initiatives, social effects, and environment, thus prompting many companies to bribe the officers who let improper practices to prevail. The problem is more pressing in emerging markets such as Nigeria and Liberia where corporations may be exposed to state officers asking for bribes in return for these licenses or permits. Where highly profitable deals are in question, firms may come under intense pressure to bribe highly-placed politicians in order to retain the contracts. Furthermore, taxes and other payments could be diverted from government bank accounts to personal investors working for the state.[10] It is essential to remember that bribes do not only include the payments issued to entities or individuals, but may also be indirect in nature whereby contributions are made to charity groups, scholarly funds, development funds set up to benefit state officials either directly or indirectly. Such may appear in themselves to be valid remittances, thereby making it difficult for the firms to recognize unacceptable payments.
Joint ventures
Usually, corporations in the oil and gas industry in Nigeria and Liberia get into joint ventures with other firms, state-owned facilities, or foreign governments. The joint ventures in many instances would select government officers to be part of the board of governors or directors to safeguard the state’s interest. Such structures can heighten the risks of real or perceived conflicts of interests and harm the company’s reputation. Nigerian and Liberian firms can also find themselves liable for the roles of partners in the partnership who could carry out their operations independently. Operators, therefore, should be keen on how corrupt practices in this area could impact on business undertakings.
Misappropriation of assets
Oil and gas firms have extensive and valuable assets existing as consumables and inventory that can be of significance to others, and that may be at risk of theft or utilized as bribe. Mostly, the highest volumes of leakages happen through the siphoning of fuel and other materials utilized in day-to-day activities. Whereas the portion used to allure others may appear to be insignificant, the measures in which they can be misused can have detrimental effects on the bottom line of a venture. The consumable resources are typically scare or unaffordable for local communities in emerging markets such as Nigeria and Liberia. The local workers in these emerging markets could be wooed to misuse the assets, as they can either be utilized in daily activities or sold on premium basis, and sometimes during financial instability, the resources might be used to propagate bribery. For instance, the Liberian and Nigerian state may strike a deal with service providers that they feed state vehicles with fuel for a given period.[11] Sometimes, vital spares are restrained to allow continued operations of a site, and the inappropriate use of such assets or thefts that occur during such times can cause downtime and affect financial outcome.
Cash-Based Economies
Typically, oil and gas providers, especially in emerging markets such as Nigeria and Liberia, largely rely on cash to pay local salaries, suppliers, as well as to cater for other ancillary expenditures. Such forms of transactions are in many situations difficult to validate, and workers may be required to formulate their own documentations to sustain expenditure. The banking and financial systems in many emerging markets and not only Nigeria and Liberia are still developing, which make it hard for companies to practice digital transactions. The firms in this area need to be aware of the risks cash presents as it can facilitate bribery and corruption, or promote payment to government agencies and officials. More often, cash moving through these sites is not prone to vigorous documentation regulations and there may be inadequate restrictions to ensure it is utilized for the required purpose.
People and Culture
Teams stationed on the sites in Nigeria and Liberia are usually acquired by mixing local and foreign workers to achieve productivity, and to avoid selling the brand as being ethnical in its activities. The qualifications, competence, and well as the social variations that on-site interactions create, can expose oil and gas firms to escalated compliance issues, thus pushing them into corrupt dealings.[12] Companies operating these emerging markets, therefore, need to be very careful how social interactions among people and the cultural variations subject the firm to improper practices.
Expatriate Staff and Contractors
The differences in cultures among the expatriates serving on-site in Nigeria and Liberia can generate untold conflicts of interests. Very little exist to separate between workers and contractor crew, and the realms of personal relations and business are open to distortion. Contractors can usually hold higher positions while signifying no real link to the firm. Such a scenario can escalate the risk of abuse, as they may have a higher likelihood to deviate from corporate policies and directives.[13] Expatriate employees usually work with a large measure of independence and responsibility, offering them with the chance to engage in inappropriate acts. Quite often, the procedures and policies on-site in emerging markets such as Nigeria and Liberia are less strictly enforced or are newly enforced allowing expatriates to develop their own ways of acting, and this can cause situations that defy controls, either knowingly for personal benefit or through a genuine urge to make the operations more prosperous.
Chapter 3 – Corruption Risks Places in the Contractual Relations between US NOCs and Nigeria & Liberia: Compliance Pressure Points
Motives for Investing in Nigeria and Liberia
American national oil companies usually consider certain factors that would favor them before diversifying their operations into a particular foreign market. Such firms seek to expand to areas where they would get easy access and is the main reason why they seek to enter Nigeria and Liberia, which are some of the nations with large oil reserves in West Africa. The analysis below presents some of the chief factors motivating American NOCs to explore the region;
Political and Legal Infrastructure
Nigeria and Liberia are similar in their political structures in the way both nations experience instability, particularly during heightened political unrests. Unfortunately, the poor political structures affect the development of suitable infrastructure that would help to combat bribery and corruption.[14] Such political instability and lack of suitable legal infrastructure largely increase risks in investment, and lower the number of potential foreign investors. Americans, however, take advantage of the political instability to show its interest in the vast oil reserves in these two nations, knowing that it might face little resistance entering the emerging markets. Apparently, the political issues and incompetent legal infrastructures in the two nations emerge due to almost similar reasons, just as it happen with other emerging markets in Africa facing similar constraints. The idea of presidentialism where power is concentrated on the hands of one person derail sharing of ideas, and affect engagement of stakeholders in making sound decisions. The political leadership in both nations also present a situation where tenders are offered based on friendship and personal favors rather than on merit. Americans on their part, see the mix-up as an avenue for entering the markets with the main objective of securing more extraction points.
Frequent Contact with Foreign Government Officials
Reports indicate that oil and gas companies in Nigeria and Liberia largely link with foreign governments to carry on with their operations, and could partly be attributed to the incompetent leadership and strategies in the African states. The oil sector in Nigeria contributes about 9.62% of the GDP falling several steps behind agriculture which contributes the highest (21.65%). Still the revenue from petroleum and related products is high and can be of significant importance to the nation. Contrary to services and agriculture sectors, the oil industry is dominated by foreign companies, and as it happens the foreign companies take away so much profit to their respective nations. Nigerians and Liberians are in frequent contact with foreign governments with the hope of benefiting from advanced technology, manpower, and most importantly financial aid. Developed nations on their part, come in with their financial prowess believing that they would get easy access to invest in Nigeria and Liberia. Furthermore, the frequent contact with foreign government officials create the impression that the African firms are willing to work with foreigners, which is more appealing to groups interested in FDI.
Daunting Local Regulatory and Operational Requirements
Even though laws and regulations exist to guide extraction and selling of oil and gas, firms in Nigeria and Liberia mostly do not adhere to the daunting directives and operational requirements. The main legislation regulating the extraction of oil and natural gas in Nigeria is the Petroleum Act of 2004. The legislation regulates and governs the production, exploration, and distribution of petroleum and related products across the country. The legislation permits the Minister of Petroleum to issue licenses necessary for oil prospecting, exploration, and mining, and to give licenses for petroleum importation, refining, storage, and sale. The Minister as authorized by the law has powers to determine the prices of petroleum in Nigeria, and to restrain all petroleum and related products in the event of a catastrophe such as a war. Unfortunately, the Minister usually misuses their powers to favor certain groups, which make it hard for some operators to adhere to local regulations. The fraudulent dealings surrounding operations in this area live operators with no option but to offer bribe to avoid harsh penalties or heavy burden. The same applies to Liberia where regardless of the existence of the New Minerals and Mining Law, many operators do not seem to comply due to the unclear descriptions in some clauses, and because of some regulations that appear to be difficult for local companies to embrace, including remittance of taxes. American investors take the opportunity of improper and daunting legislations to come in with the hope that their vast experience in oil production as well as policy creation will be highly welcomed.
Heavy Reliance on Third Parties
The inability to carry out multiple activities, or lack of adequate resources push Nigerian and Liberian firms in the oil and gas sector to rely on third parties, a situation which motivates Americans to invest in these regions. Companies in the oil and gas sector in Nigeria and Liberia happen to depend on third parties to facilitate procurements operations, especially when they lack the appropriate mechanisms to carry out such practices in a way that matches international standards. Such companies in the emerging markets also tend to rely on third parties to carry out other operations in the supply chain, and facilitate importation and exportation. Such firms due to the high cost of operations in the sector also rely on third parties for financial support with the hope of advancing various operations. Usually, American operators in the sector present themselves as suitable teammates who are ready to assist in any particular area. American investors in the sector, for example, usually offer procurement services for firms in Nigeria and Liberia, and through the advanced technology they apply, it becomes easy to achieve the anticipated results, thus appealing to more Western third parties.
Heavy Projects with Many Business Partners
It is common in the oil and gas sector in Nigeria, Liberia, and other parts of the world to engage in major projects that would require some partners to achieve the anticipated outcome. Completing such heavy projects in corrupt nations such as Nigeria and Liberia is usually difficult let alone the absence of political stability, which derail the attempts to develop projects in the right manner. American investors feel that coming in at this point may offer them the chance to invest in the African nations, especially when they offer financial support and manpower to facilitate the completion of such projects. American investors also feel that it would be easier to venture into the two West African nations because of the technological superiority, which usually appeal to groups with inferior approaches.
U.S.’s Consideration and Dealing with Corruption Risks
America understands how the prevalent corruption as well as other risks could affect its services in the emerging markets in West Africa, and is striving to adopt mechanisms that would help it deal with the issues.
Identifying and Knowing the Circumstances Prior to the Contractual Relation
Sparing enough time to identify and understand the nature of the risk is important to creating an effective anti-corruption program that usually helps America deal with the issues it experiences in emerging markets such as Nigeria and Liberia. The U.S. investors moving into other nations usually take time to recognize and evaluate the risks that would help to carry out operations without much impediment, and usually carrying out thorough risk assessment to be in a position to show that it utilized the required acre in evaluating risks, should unpredicted issues emanate. Americans in many situations adopt a risk assessment plan that pays attention on the real risks placed by the nature of the corporation’s activities, the level of business with state entities, its utilization of agents and other intermediaries such as customs agents and freight forwarders, the nations where it carries out business, the regulatory factors among others. Usually, many firms identify the policies and controls the company has in place to deal with the corruption risks as well as other problems and evaluate the effectiveness in dealing with such issues in foreign markets. It is only after such an evaluation that the corporations create plans for anti-corruption framework reactive to the present troubles and current regulations in emerging markets. Even though the risk evaluation process may differ from one company to the other, the procedures American corporations usually embrace entail the collection and analysis of information, largely through the collection of documents, financial analysis, and interviews. Some companies even employ more detailed risk evaluation processes, which entail testing transactions that can be performed in high-risk areas and at the corporate level.
The Capacity of the Contract Parties
American companies serving in the oil and gas sector usually evaluate the capacity of the contracting teams as a mechanism of dealing with the possible risks that could promote corrupt dealings.
The Imposed Responsibilities and Rights
American corporations in the oil and gas sector striving to enter emerging markets in West Africa tend to consider the imposed responsibilities and rights of the groups they work with in the foreign markets.
Addressing and Identifying the Risks Places
Knowing and evaluating the high-risk places seem to be a suitable approach Americans firms employ to deal with the factors that affect their interaction with Nigerian and Liberian firms due to corruption.
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