Select Committee on International Development Minutes of Evidence

Supplementary memorandum submitted by BP


  1.  Following our appearance before the Committee on 9 January 2001, we undertook to provide additional information to the Committee on two areas—namely, examples of disciplinary action which has been taken by BP in the past and information on the overall business and commercial culture of developing countries with extensive oil and gas reserves. In covering this second aspect, we have also referred to the issue of Signature Bonuses, and the oral evidence of Global Witness, since this is also central to an understanding of how business is conducted in such countries.

  2.  We should also like to expand on our attitude to "Facilitation Payments" given the way this has been reported in the media and in light of the exchanges with the Committee during the oral session.


  3.  As requested we have provided some examples of disciplinary cases in the confidential Appendix[10], but there is some general context which should be explained. We do not regard the number of cases where disiplinary action has been taken as a primary indicator of our commitment to the maintenance and support of our policies. In each case, the need for displinary action is judged in the light of the circumstances, and the individual's track record. We aim to ensure that, where it is necessary to invoke the disciplinary procedure, employees are treated in a fair and consistent manner. Given the legislative framework in which we operate, and our own commitments to our employees, our approach is formalised in the interest of natural justice.

  4.  Allegations of breaches of our policy are independently investigated in order to establish the grounds for further action. It is BP's policy to ensure that employees who show signs of failing to meet required standards of conduct or work performance are given, wherever possible, the opportunity and guidance to bring about the necessary improvement without necessitating any formal displinary procedure. Often, a verbal reminder of what is needed or required will suffice. This may be seen as an "informal oral warning", but as such it is outside the formal process and no record would be maintained. However, there will clearly be situations where such a warning is inappropriate due to the seriousness of the action undertaken by the employee. Our procedures provide for more severe responses—formal warnings "on the record", and indeed dismissal—in these cases. But we have found, in practice, that individuals may elect to leave the Company, before such action is invoked. In the extreme circumstances of legal or regulatory breaches, we would expect to advise the necessary authorities.

  5.  We hope that the examples which have been provided in Appendix 1 separately will provide the specific background which the Committee requested.


  6.  We were asked to provide more information on the general commercial culture we encounter in countries where we operate, in particular in the lesser developed countries with extensive energy resources awaiting development.

  7.  The range of issues and concerns is very wide—including security, and environmental issues as well as those of corruption. As was explained to the Committee, we have a detailed formulation of policies and principles which are designed to cover possible contingencies and problems. In the final analysis, if we judge the behaviour and culture of the country concerned to be incompatible with our values, then we would have to reconsider the legitimacy of our presence.

  8.  We were asked specifically whether corruption is endemic in all developing countries where oil has been discovered. Perhaps one of the best examples of where good governance and sound public policy is to be found is in Oman. Oman's economy is based largely on revenue from the petroleum sector. The Omani Government decided in 1970 to use its oil riches to finance a comprehensive programme of reforms aimed at providing the country with necessary social amenities, while investing further in the petroleum sector. The result was some of the most rapid advances ever recorded in housing, education, communications and health services. In an otherwise volatile area of the world, Oman has often seemed a small pocket of stability, and has been rewarded with a constant stream of Foreign Direct Investment. It is extremely unlikely that Oman could have achieved its domestic reforms without this investment.

  9.  More generally, the issue normally encountered when embarking upon a new oil and gas development (whether in a developed or lesser developed economy) is how best to provide immediate benefit to a country with natural resources which are yet to be developed. Once the oil and gas is flowing, it is not difficult to devise transparent and legally enforceable contracts which stipulate openly the host government take, and the share which returns to the private sector. In addition, there is of course the fiscal regime which applies and which is open to scrutiny.

  10.  However, before this stage is reached, companies and governments are often in detailed negotiation over access to the resources and how development is to take place. In the United Kingdom, for example, companies are invited to apply for licences which are awarded by the Government with reference to the experience, and expertise of the applicants, as well as to the commitments and undertakings which the companies feel able to give. Some argue this should become less discretionary and be replaced by an auction approach. There are arguments on both sides, but an auction approach would resemble more closely the importance given to signature bonuses in developing countries in that both provide money "up front".

  11.  Signature bonus payments are a widely acknowledged and legally accepted means of obtaining economic rent from oil and gas resources in many countries throughout the world. They demonstrate a level of commitment by the investor and provide an opportunity for a country to receive immediate benefit from the planned investment. The process typically involves oil companies making preliminary evaluations of the acreage prior to submitting a bid which is commensurate with the expected value of oil in the ground. In the Gulf of Mexico, for example, the US Department of the Interior has recently requested information from oil and gas companies concerning the hydrocarbon potential of the Outer Continental Shelf, prior to the next five year leasing programme which begins in 2002.

  12.  In the case of Angola, the bonuses were substantial because, during the bidding round for the ultra-deep water blocks, companies were able to review seismic data over this region which highlighted its prospectivity. Noting the significant discoveries made in the last two years in the adjacent deep-water blocks, it was widely believed that the ultra-deep water blocks would possess significant volumes of oil. Hence, competition for access to these licenses was keen and the signature bonus was high reflecting the anticipated prospectivity. Block 31 is a very large area (5,349 square kilometers) equivalent to approximately 215 Gulf of Mexico blocks whose average size is 25 square kilometers. The promising prospectivity of the block, in what is now a proven hydrocarbon basin, has resulted in keen interest and competitive bidding from the industry. On a barrel for barrel basis, the access costs are not inconsistent with, and in some cases less expensive, than similar bidding rounds elsewhere in the world. Payment of signature bonuses by BP Amoco and the other companies involved in the ultra-deep water licensing round in normal business practice. It is a legitimate payment for a legitimate contract, akin to a royalty at a later stage of development—although given the greater exposure they create, large upfront payments are in general less attractive to the industry.

  13.  The major controversy surrounding signature bonuses centres upon the lack of transparency in the process, and this is an area of great concern to many, including ourselves, and on which we are striving to address. What is certain is that any British company which refused to participate would merely leave the field open to foreign rivals—unless, which is sometimes the case, the technological and scientific expertise provided by the company was clearly superior to its rivals and was judged more essential to the country concerned than immediate revenue. BP prefers to compete on technological and environmental grounds.

  14.  In the light of comments made by Mr Simon Taylor of Global Witness to the Committee on 16 January 2001, we would point out in the specific case of Angola that BP is fully committed to increased transparency and accountability of our operations. Towards this end, BP began a dialogue with the International Monetary Fund nearly two years ago, and has progressed this relationship with the Bretton Woods Institutions to the stage where our Angola Business Unit has a World Bank Senior Economist secondee helping us to find ways for our two groups to work together better. All of these efforts have been possible because of the agreements signed by the Angolan government with the international finance institutions to promote increased transparency and accountability. For our part, we will publish annually the following information concerning our operations:

    —  total net production by block;

    —  aggregate payments by BP to Sonangola in respect of Production Sharing Agreement terms; and

    —  total taxes and levies paid by BP to the Angolan Government as a result of our operations.

  In respect specifically to our signature bonus payment, this information can be found in our recent submission to Companies House.


  15.  The International Development Committee posed several questions on the nature of "facilitation payments" and whether there is a differentiation between facilitation and bribery. For the avoidance of any misunderstanding, there is some important context we wish to reinforce here. Both the US Foreign Corrupt Practices Act (FCPA) and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Covention) prohibit payments or other advantage to foreign public officials for purposes of obtaining or retaining business or other improper advantage to which the company concerned is not clearly entitled in the conduct of in the conduct of international business. This is the definition of bribery we believe is generally accepted and which we have adopted in our policy—and it is against BP policy to offer, solicit or accept a bribe of any form.

  16.  As the OECD Convention note, small facilitation payments do not constitute payments made to obtain or retain business or other improper advantage. The FCPA refers to facilitating or expediting payments as those for purposes of expediting or securing the performance of a routine governmental action, and defines routine governmental actions, making reference to obtaining permits, licences, visa and work order processing, and the like. BP's approach on facilitation payments is based on these legal frameworks.

  17.  BP agrees with the statement made in the OECD Convention that facilitation payments should be addressed within the context of supporting programmes of good governance. As we explained to the Committee, we discourage facilitation payments wherever we can, but a measure of discretion is left with individual businesss managers to apply judgement in specific circumstances. BP's Guidelines on Business Conduct spell out the controls and due diligence requirements placed on our business managers which includes proper consultation with senior management, compliance with law, and proper record keeping and transparency, supplemented with additional internal requirements that address gifts and entertainment, and dealings with agents and other intermediaries.


February 2001

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