Supplementary memorandum submitted by
1. Following our appearance before the Committee
on 9 January 2001, we undertook to provide additional information
to the Committee on two areasnamely, 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,
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 responsesformal
warnings "on the record", and indeed dismissalin
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
wideincluding 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
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 developmentalthough 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 rivalsunless, 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
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 policyand it
is against BP policy to offer, solicit or accept a bribe of any
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.
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