Foreword

At the 2016 Anti-Corruption Summit held in May 2016, general consensus emerged among countries that made commitments on commodity trading transparency around the need for the OECD to host and convene an international dialogue on commodity trading transparency to identify and address existing gaps for improved resource governance and to effectively advance the transparency agenda.

Sales of publicly-owned oil, gas and minerals are of particular economic significance to the budgets of developing countries due to the scale of those revenues. Research by the Natural Resource Governance Institute (NRGI) in respect of oil and gas sales from state-owned enterprises (SOEs) to commodity traders and other buyers, showed that sales from 35 SOEs generated over USD 1.5 trillion in 2016 (Malden and Williams, 2019[1]). However, very few governments or SOEs have published data on the process to select buyers of oil, gas and minerals, with contextual information to understand how decisions are made and the various procedures used.

The risks of corruption in the selection of buyers of publicly-owned commodities is significant due to the large volume of commodities sold and the amount of money involved. The establishment of rigorous and robust processes and criteria for the selection of buyers can help to reduce the political pressure to use discretion (whether in terms of pricing or arbitrariness of selection), especially considering the potential for involvement of politically exposed persons (PEPs) in the transaction.

Therefore, getting the buyer selection process right is a crucial step to prevent potential public revenue losses that can arise through sub-optimal allocation and corruption. This document sets out guidance on transparent and competitive processes for selecting buyers can help host governments and SOEs to reduce discretion, close opportunities for corruption, favouritism and public rent diversion that would result in public revenue losses. This guidance may also be used by government agencies that market commodities on behalf of the state and is also applicable to domestic markets. The focus of this document is on conventional sales (spot sales, term sale agreements) of oil, gas and minerals.

The development of this Guidance was undertaken under the auspices of the Thematic Dialogue on Commodity Trading Transparency – a multi-stakeholder platform established in response to the call received from the 2016 Anti-Corruption Summit and in line with the high-level mandate received from the Governing Board of the OECD Development Centre on 3 October 2017 (Governing Board of the OECD Development Centre, 2017[2]).

This Guidance complements the work of the EITI that seeks to improve transparency around commodity sales transactions from both a seller and buyer perspective. Requirement 4.2 b) of the 2019 EITI Standard provides that:

implementing countries including state-owned enterprises are encouraged to disclose a description of the process for selecting the buying companies, the technical and financial criteria used to make the selection, the list of selected buying companies, any material deviations from the applicable legal and regulatory framework governing the selection of buying companies, and the related sales agreements (EITI, 2019[3]).

Furthermore, this guidance reflects the provisions laid out in the EITI Guidance Note 26: Reporting on first trades in oil, that recommends the disclosure of a description of the process for selecting the buying companies and the technical and financial criteria used to make the selection. (EITI, 2017[4]).

Disclaimer

This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the member countries of the OECD or its Development Centre.

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

Photo credits: Cover design by Aida Buendía (OECD Development Centre) based on images from © Der_Wolf/Shutterstock.com.

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