## It’s time for more transparency in the management and governance of national oil companies

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**Canonical URL:** [It’s time for more transparency in the management and governance of national oil companies](https://www.imf.org/-/media/files/publications/fandd/article/2019/december/national-oil-companies-need-more-transparency-manley.pdf)

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### Overview
- National oil companies (NOCs) control at least $3 trillion in assets and produce most of the world’s oil and gas.
- NOCs dominate energy production in countries including the Islamic Republic of Iran, Mexico, Saudi Arabia, and Venezuela, and play a central role in many emerging producers.
- A new report and accompanying database from the Natural Resource Governance Institute highlight widespread failures to scrutinize NOCs and the policies governments use to manage them.

### Limited transparency and disclosure
- For the most data-rich year covered by the National Oil Company Database, only 20 of the 71 NOCs studied published information sufficient to populate all 10 of the database’s “key indicators.”
- Information on production and revenue is available for most NOCs, but less than half reported on capital expenditure or employment.
- On average, NOCs in the Middle East and sub-Saharan Africa disclosed the least amount of information.
- The Resource Governance Index found that 62 percent of the NOCs reviewed exhibited “weak,” “poor,” or “failing” performance in regard to public transparency.
- In 2013, companies responsible for 57 percent of global NOC oil and gas production did not publish independently audited financial statements.

### Fiscal dependence and transfers
- At the peak of the oil price boom in 2013, there were at least 25 “NOC-dependent” countries—those where the NOC collected funds equivalent to 20 percent or more of government revenues.
- The median NOC in the sample transferred only 17 percent of its gross revenues to the state in 2015.
- In many cases only a fraction of resource revenues are transferred to governments, with NOCs spending and investing the rest themselves.
- Chart data note: SOCAR (AZE) recorded 168 percent (NOC total revenues as a percentage of general government revenues, 2013) among the examples shown.

### Debt, leverage, and sovereign risk
- NOCs borrow through multiple channels: bank loans (example: Ghana National Petroleum Corporation), oil-backed loans (example: KazMunayGas), loans from other government entities (example: Sonatrach borrowing from Algeria’s central bank), and corporate bond issuance (example: Rosneft).
- A handful of NOCs have debts that exceed 20 percent of their countries’ GDP (examples include Petróleos de Venezuela, S.A., and Angola’s Sonangol).
- Some NOCs are highly leveraged, such as Rosneft and the United Arab Emirates’ TAQA.
- Petróleos de Venezuela is currently unable to service part of its $35 billion in debt despite holding much larger assets through equity; its 335 billion barrels of oil-equivalent reserves are mostly locked underground amid falling production and sanctions.
- Mexico’s Pemex had more than $100 billion in debt on its balance sheet by the end of 2018, prompting government intervention to bail the company out.
- NOC debts are treated inconsistently in public reporting (for example, included in public debt figures for Mexico and Venezuela, but not for Bolivia or Brazil).

### Roles, productivity, and employment
- The term “national oil company” covers entities with varying roles: profit seekers, cash cows, and “state supplement NOCs” that provide fuel subsidies, jobs, and social services.
- On average, the larger the labor force, the less productive that labor force is in purely commercial terms (production per employee).
- Publicly listed NOCs exhibit higher production per employee than unlisted counterparts of similar size; listing may impose shareholder discipline driving higher returns per employee.
- Example data points from the chart:
  - Saudi Aramco: 191 boe/emp (oil and gas production per employee, 2011-17 average).
  - The chart excludes Saudi Aramco for trend calculation because of its outlier status; differences between publicly-listed and unlisted NOCs are less pronounced when the outlier is included.

### Energy transition and stranded-asset risk
- In 2015, the median NOC in the sample relied on oil and gas sales for 96 percent of its total revenues.
- NOCs in Azerbaijan, Bolivia, Kuwait, Qatar, and Venezuela control more than 2.5 percent of total national wealth (a measure combining produced capital, natural capital, human capital, and net foreign assets).
- A global transition away from fossil fuels could cause a terminal decline in oil and gas prices, rendering many NOC investments economically unviable and increasing the risk of “stranded nations.”
- The size of fossil-fuel rents, specialized sector skills and technologies, and entrenched political interests pose obstacles to NOCs pivoting decisively toward renewables.

### Urgent reform priorities and policy recommendations
- NOCs and their governments should ensure company strategies outline a sustainable vision that sets clear rules on:
  - How much NOCs are allowed to spend.
  - How much NOCs are allowed to borrow.
  - How much NOCs must transfer to the government treasury.
- Citizens and governments need better, consistent reporting from NOCs, including reporting on:
  - Spending.
  - Production costs.
  - Revenues.
- The IMF should consider a more active role, including:
  - Routinely requiring the disclosure of audited annual accounts for NOCs (and other large state-owned enterprises) as part of its surveillance mandate.
  - Providing clearer guidance on when countries should include NOCs in public accounts, given the multiple roles many of these companies play.
- NOCs should assess and disclose preparedness for energy transition, including:
  - An analysis of climate-related risks to their upstream activities.
  - Progress made in diversifying and mitigating risks.

*Source: David Manley, David Mihalyi, and Patrick R. P. Heller, “It’s time for more transparency in the management and governance of national oil companies,” Finance & Development, December 2019.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2019/december/national-oil-companies-need-more-transparency-manley.pdf_