Why We Need Transparent Commodity Trading

RWI Head of Governance Alexandra Gillies speaks at SwissAid's Commodities Conference.

Switzerland is home to the world’s largest commodity trading companies. Due to their growing market shares, the recent public offering of Glencore, one of the largest traders and several scandals (like the Oil-for-Food program in Iraq) , commodity trading companies like Vitol, Trafigura, Mercuria and Glencore have begun to attract more public scrutiny. The Swiss government faces growing pressure to assess the implications of hosting these large and influential companies.

On January 17, Swissaid hosted an event on commodities and transparency  attended by an audience of almost 300. At the event, senior policymakers and representatives of the trading industry heard and responded to extensive calls for greater transparency in the trade of oil, gas and minerals–especially whether Switzerland will require its commodity companies to shed light on the deals they strike with governments, many of which take place in countries with high levels of both corruption and poverty. The U.S. passed such mandatory reporting legislation in 2010, and the EU is expected to follow suit later this year.

This is the talk I gave at this event. It describes how many oil-producing countries receive the majority of their oil revenues when the government sells its share of production. These sales, often to traders, are subject to negligible reporting or oversight in most cases. Given their size and the associated governance risks, oil sales constitute an increasingly obvious and urgent gap in the movement towards greater transparency.

In Nigeria, for example, the state sells over 1 million barrels per day in crude oil, sales which bring in over 60 percent of the government’s total budget. It's rumored that the national oil company’s trading subsidiaries receive oil at a below-market price. Most of these trading subsidiaries are joint ventures with Swiss trading companies. Without transparency, there is no way to prove or disprove these rumors. Also in Nigeria, the government allocates export licenses to so-called “briefcase companies” which lack the financial or technical capacity to actually lift the oil. Because there is no reporting on sales, the actual buyers remain unknown.

Commodity trading should not become an enclave of secrecy. To avoid this outcome, the Swiss government could pass legislation requiring its companies to disclose how much they pay to foreign governments in exchange for what are essentially the citizens’ natural resources.

RWI's report, Selling the Citizens' Oil, researched how 11 countries sell the portion of oil produced that belongs to the government. The results are detailed in four policy briefs that recommend transparency, identify good sale practices and explain how oil sales and global oil prices work.

Alexandra Gillies is RWI Head of Governance.

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