Oversight actors can detect and prevent corruption in the oil, gas and mining sectors if they ask the right questions. Corruption schemes can be complex and opaque, yet clear patterns and similar signs of problematic behavior do exist across resource-rich countries.

To find these, we examined over 100 real-world cases of license or contract awards in the oil, gas and mining sectors in which accusations of corruption arose. The cases come from 49 resource-producing countries.

​Based on this work, we developed a list of 12 red flags of corruption in extractive sector license and contract awards, with real-world illustrations for each. This list can provide a concrete, practical tool for many types of actors, not least:

• Government officials who design award processes. The rules and procedures that govern award processes can help guard against the kinds of problematic behavior described in this report.
• Government officials who oversee and approve awards. These officials, who could represent regulators, ministries, national oil or mining companies or cadasters, could use the red flags list to detect certain behaviors as the award process unfolds, and avoid controversial, inefficient decisions.
• Parliamentarians and government oversight actors.Some parliaments have a formal role in approving license awards, while others they can call on the executive to answer questions about an award. Members of anticorruption commissions, national Extractive Industries Transparency Initiative (EITI) chapters, supreme audit institutions and other government bodies could also use the list in their work.
• Law enforcement officers. Domestic or foreign law enforcement officers could use the list to help organize their investigations into a suspect award process, or as a source of leads and lines of useful inquiry.
• Extractive company officials. As company executives evaluate whether to participate in an award process or whether to partner with a certain company, our red flags list can help them assess corruption risks—for example, as part of their anticorruption due diligence, risk management or compliance functions.
• Financial institution staff. Investors, including companies, banks, IFIs, and private equity firms, also need to gauge the risks of corruption from an award, and decide how and whether to finance a project.
• Civil society actors and journalists. NGO staff, campaigners, activists and reporters can use the list to probe the integrity and legality of ongoing or past award processes or individual awards. In particular, the list can help them to identify important lines of inquiry and to prioritize their scarce resources.

Download the full report on resourcegovernance.org

What royalties should companies pay? What can governments hope to earn in the future? Do the companies really need tax reductions?

​Access to contracts signed between extractive companies and governments can help answer questions like these. In many countries, however, extractive sector contracts remain closely guarded secrets and access to them has often been highly restricted, even within government. This limits the potential not only for effective citizen oversight, but also oversight from government bodies responsible for regulating parts of the industry.

Seeking answers, a group of both expert and aspiring financial modelers met in October 2016 in a rather sleepy German town to begin the work of using public domain information to dig deeper into oil and mining projects in their countries. Berlin-based OpenOil has been championing the process to improve transparency in the sector.

Contracts published
Malawians have been advocating long and hard for governments and companies to publish mining and petroleum contracts so that they might better understand the terms by which the country’s non-renewable resources are extracted.

When Malawi joined the Extractive Industries Transparency Initiative (EITI) in 2015, civil society in Malawi made sure that contract transparency was in the first work plan. Although officials at the Ministry of Natural Resources, Energy and Mining said that hard copies of the agreements were publicly accessible at the Department of Mines offices in 2015, it was still hard for most people to access them.

Six months later, the Malawi EITI Secretariat made two mining contracts available. These contracts were released on ResourceContracts.org. In doing so, Malawi became one of the majority of EITI implementing countries that publish contracts.

Building a financial model
Grain Malunga, a former minister responsible for mining in Malawi, and I used the 2007 mining development agreement for Kayelekera uranium mine, found on ResourceContracts, to build a financial model of Malawi’s largest mine, which contributed about 3 percent to the country’s 2013 GDP. The mine is operated by Paladin Energy.

​ResourceContracts documents are annotated by legal experts, meaning we had access to contextualized information about key obligations, including fiscal provisions, which aided in building the financial model.

We examined possible future scenarios for government revenue and for the mine, which is on care and maintenance (meaning that production has stopped, but the site is being managed to allow for potential recommencing of operations at a later date) due to depressed uranium prices and high operating costs.

As we modeled the fiscal regime, we learned that the break-even price—which the owner would need to obtain to cover the costs of extraction—was more than double the price of uranium at that time. The government has generated USD 12 million to date from royalties, but lost out on a further USD 15 million due to reduction in royalty rates. This was a result of mining development agreement negotiations that gave the Malawian government a 15 percent free carry equity stake in Paladin Africa, part of the Paladin Energy group of companies and the holder of the group’s interest in Kayelekera. We concluded that a further royalty reduction would only marginally increase the break-even price.

​Much speculation surrounds when or if the mine will resume operations. The model has improved public awareness of what factors need to change, such as price, production to resume. As part of the Malawi EITI multi-stakeholder group, I hope to use similar skills and tools to produce financial models for projects in the exploration phase. In doing so, Malawian civil society hopes to ensure that our expectations—regarding revenues as well as impacts on local communities—are grounded in reality.

About ResourceContracts
The ResourceContracts platform is an online repository of oil, gas and mining contracts developed in partnership between the World Bank, NRGI and CCSI. The site enables civil society organizations, members of affected communities, government officials, researchers, and other stakeholders to search for contracts; view summaries of contracts’ key environmental, social, operational and fiscal provisions; and download full contracts as open data. The site was relaunched in 2015 with new features and contracts.

​Rachel Etter-Phoya is an integrated expert on accountability, natural resource governance and public financial management at Citizens for Justice in Malawi.