TRANSPARENCY: DEMONSTRATING SALIENCE: THE ROLE OF STATE-OWNED ENTERPRISES IN THE SUPPLY CHAIN

Estimates of oil reserves controlled by state-owned enterprises (SOEs) vary from 80 to 90 percent of the oil reserves. SOEs also control three-quarters of the world total output of crude oil. Of the top 25 oil and gas reserves holders and producers, 18 are state owned. In addition, an estimated 60 percent of the world’s undiscovered reserves lie in countries where SOEs have privileged or exclusive access. Production of natural gas is equally controlled by SOEs. As with oil and gas, governments often use state-owned mining companies to develop their mining sectors, including managing exploration activities, issuing licences, holding equity stakes and undertaking commercial activities. Some SOEs in the mining sector take on multiple functions – as commercial operators, holders of government equity stakes, regulators and providers of social goods and services, such as subsidised oil products.

Extractive Industries Transparency Initiative (EITI) Reports have shown that these SOEs play in important role in producing, transporting, refining and selling oil, gas and minerals on behalf of their governments. Many governments of resource-rich countries derive the largest share of their revenues from their extractive sector; a significant proportion of these revenues is often received “in-kind” rather than as cash payments. This can occur because the state or state-owned entity operates or owns shares in a producing licence, through production-sharing agreements, or when companies make payments such as royalties with physical commodities rather than money. The state or the SOE then sells these physical resources and transfer the proceeds to the governments. Crude oil is the most common form of “in-kind” revenue, followed by natural gas and precious metals such as gold. Although less common in the mining sector, some SOEs also sell minerals and metals on behalf of their governments.



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