## National Oil Companies Are Economic Giants

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**Canonical URL:** [National Oil Companies Are Economic Giants](https://www.imf.org/en/publications/fandd/issues/2019/12/national-oil-companies-need-more-transparency-manley)

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## Bibliographic details
- Authors: DAVID MANLEY, DAVID MIHALYI, PATRICK RP HELLER
- Published: December 1, 2019

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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 central roles in many emerging producers.
- NOCs are poorly understood because of uneven financial reporting and limited scrutiny of the policies governments employ to manage them.

### Limited transparency and reporting findings
- For the most data-rich year covered by the National Oil Company Database (2015), only 20 of the 71 NOCs studied published information sufficient to populate all 10 of the database’s “key indicators.”
- Information availability:
  - Production and revenue: available for most NOCs.
  - Capital expenditure or employment: reported by less than half of NOCs studied.
- Regional disclosure: On average, NOCs in the Middle East and sub-Saharan Africa disclosed the least amount of information.
- Resource Governance Index result: 62 percent of the NOCs reviewed exhibited “weak,” “poor,” or “failing” performance in regard to public transparency.
- NOC dependence and transfers:
  - At the peak of the oil price boom in 2013, there were at least 25 “NOC-dependent” countries where the NOC collects 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.
- Audited financial statements: In 2013, companies responsible for 57 percent of global NOC oil and gas production did not publish independently audited financial statements.

### Debt, leverage, and fiscal risk
- Examples of high debt and leverage:
  - Petróleos de Venezuela, S.A.: carries very large amounts of debt and is currently unable to service part of its $35 billion in debt.
  - Angola’s Sonangol: debts exceed 20 percent of the country’s GDP.
  - Mexico’s Pemex: had more than $100 billion in debt on its balance sheet by the end of 2018.
  - Rosneft and the United Arab Emirates’ TAQA: described as highly leveraged.
- Types of NOC borrowing:
  - Bank loans (example: Ghana National Petroleum Corporation).
  - Oil-backed loans from other NOCs or traders (example: Kazakhstan’s KazMunayGas).
  - Loans from another government entity (example: Algeria’s Sonatrach borrows from the country’s central bank).
  - Issuance of corporate bonds (example: Russia’s Rosneft).
- Public reporting inconsistency: NOC debts are included in public debt figures for some countries (Mexico and Venezuela) but not for others (Bolivia or Brazil), creating opacity in fiscal risk assessment.
- Structural risk: When a dominant NOC is essentially too big to fail, governments may be on the hook for NOC-incurred debts even when not formally guaranteed by the state.

### NOCs and societal roles; productivity insights
- NOC typology and roles:
  - Profit seekers prioritizing commercial efficiency.
  - Cash cows focused on collecting revenues from private operators.
  - “State supplement NOCs” providing fuel subsidies, creating jobs, and providing social services.
  - Many NOCs perform multiple roles simultaneously.
- Labor productivity findings (building on Victor 2007):
  - Chart analysis indicates that, on average, the larger the NOC 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.
  - Low labor productivity often corresponds to companies undertaking greater state supplement roles (example: Ukraine’s Naftogaz providing subsidized energy).

### Energy transition prospects and risks
- Current revenue dependence on fossil fuels:
  - In 2015, the median NOC in the sample relied on oil and gas sales for 96 percent of its total revenues.
- NOC movement toward renewables:
  - Some NOCs from Colombia to Nigeria to Saudi Arabia have started investing in renewable energy.
  - Potential strengths for NOCs in transition: employ well-educated professionals, experience managing complex projects with international partners, and integration in fuel and power supply systems.
- Reasons for skepticism:
  - Size of fossil-fuel rents, bespoke skills and technologies of the sector, and entrenched political interests pose obstacles to NOC transformation.
- Wealth concentration and stranded-asset risk:
  - 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).
  - Energy transition could increase risks that NOC expenditures on oil exploration and production become economically unviable, potentially creating “stranded nations” that continue heavy sector spending without viable alternatives.
- Opportunity costs: Many NOCs spend most of the money they collect rather than transferring revenues to the treasury for public sector investments.

### Urgent reform priorities and policy recommendations
- Strategic clarity:
  - NOCs and their governments should ensure company strategies outline a sustainable vision for their futures, facilitating clear rules on allowed spending, borrowing, and transfers to the government treasury.
- Reporting and transparency:
  - Citizens and governments need better reporting from NOCs, including consistent reporting on spending, production costs, and revenues to separate public relations claims from reality.
- IMF role:
  - The IMF could play a more active role by routinely requiring the disclosure of audited annual accounts for NOCs (and other large state-owned enterprises) as part of its surveillance mandate.
  - The IMF should provide clearer guidance on when countries should include NOCs in public accounts, given the multiple roles many NOCs play.
- Climate and transition disclosures:
  - NOCs should assess and disclose how prepared they are for energy transition, including analyses of climate-related risks to upstream activities and progress in diversifying and mitigating risks.

### Authors
- DAVID MANLEY, senior economic analyst, Natural Resource Governance Institute (NRGI).
- DAVID MIHALYI, senior economic analyst, NRGI; visiting fellow, Central European University’s School of Public Policy.
- PATRICK R. P. HELLER, advisor, NRGI; senior visiting fellow, Center on Law, Energy and Environment, University of California, Berkeley.

*National Oil Companies Are Economic Giants – IMF F&D | DECEMBER 2019*

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_Source: https://www.imf.org/en/publications/fandd/issues/2019/12/national-oil-companies-need-more-transparency-manley_