OSI Report Calls for Public Oversight of Oil Industries in Azerbaijan and Kazakhstan

The report, Caspian Oil Windfalls: Who Will Benefit? urges foreign oil companies, their home governments, and international financial institutions to promote good governance and democracy in Azerbaijan and Kazakhstan to ensure that petroleum revenues generate social prosperity and stable governments.

As the United States and its allies prepare to help shape the post-war Iraqi oil regime, we are reminded that security of energy supply has always been a priority of United States national security policy.

Oil booms in the Caspian Basin are expected to make Azerbaijan and Kazakhstan important new energy suppliers for the United States. But the report warns that the lack of good governance and democracy in the two countries could make them less reliable partners.

Without systemic reforms in the management of oil revenues, the report says, the money beginning to flow into the countries will not result in healthy, long-term economic growth, higher living standards, and more freedom for the countries’ people. Instead, it likely risks being squandered on pet projects or domestic enterprises that do not lead to growth while the majority of citizens remain poor and powerless.

“There is no issue of greater importance than ensuring the long-run prosperity and stability of resource-rich countries by developing ways to use these resources and the wealth they generate well,” Joseph E. Stiglitz, Nobel Prize winner in economics, writes in his foreword to the report.

According to the report, foreign oil and natural gas companies benefit from disclosing their payments to governments so that citizens can monitor the use of these revenues. Without disclosure, companies leave themselves open to accusations that they have underpaid the state and are to blame for continued poverty. “It is in the enlightened self-interest of these companies to ensure that their payments are not misappropriated,” says George Soros, founder of the Open Society Institute.

The governments of Azerbaijan and Kazakhstan should consider creating citizens’ advisory councils such as the ones set up in Alaska after the Exxon Valdez oil spill. The councils would monitor the oil industry and the government budget, and provide information to the public, giving citizens a voice in hydrocarbon development.

Caspian Oil Windfalls analyzes the systems Azerbaijan and Kazakhstan use to manage their oil wealth. It offers recommendations to the governments of Azerbaijan and Kazakhstan, multinational oil companies, international financial institutions, and foreign governments for promoting accountability, transparency, and public oversight in the management of oil and natural gas revenues. The report includes 10 case studies on natural resource funds in other countries as well as models of citizen oversight.

The report was written by Svetlana Tsalik, director of the Caspian Revenue Watch, a program of the Open Society Institute’s Central Eurasia Project.

For copies of Caspian Oil Windfalls: Who Will Benefit? and more information about the Open Society Institute and the Caspian Revenue Watch project, please contact OSI's Central Eurasia Project at centraleurasia@soros.org or call 212-548-0679. The report can be downloaded at: http://www.eurasianet.org/caspian.oil.windfalls/