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A Question of Oil Accounting
October 2010
Reporting by Syria’s
Central Bureau of Statistics (CBS) of the country’s oil revenues in the
national budget and balance of payments is confusing, inconsistent, and
ambiguous. The IMF Country Report on Syria, No. 10/86, dated March 2010 states on
page 30: “Government finance statistics (GFS) suffer from major deficiencies
with respect to definitions, coverage, classification, methodology, accuracy,
reliability, and timeliness that generate severe inconsistencies with monetary
and balance of payments statistics”.
In the interest of clarity and
transparency in connection with Syria’s crude oil accounting this article poses
seven questions.
Syria’s physical oil production in 2008
Syria’s Statistical
Abstract of CBS reveals in Table 5/5 (Main Extractive Industries Production
2004 – 2008) that 20,245,000 m3 of oil were extracted in 2008, a volume equating to
145 million barrels (7.15 barrels = 1 m3), or a touch below 398,000 bbl/d (145
million barrels / 365 days).
Syria’s oil production
is divided between two sources. The first source is jointly owned oil fields
with international partners. The second source is Syrian Petroleum Company
(SPC), a wholly owned government company.
As for the division
between the two sources, at the end of 2009, according to Industrial Info Resources of Texas, Syria
had produced 5.56 billion barrels of oil equivalent since it began exploiting
oil and gas resources. Of this, 3.08 billion barrels of oil equivalent have
been produced by the joint ventures with international companies, accounting
for about 55 percent of the country's total oil production.
According to this
formula, Syria’s joint oil fields would have produced in 2008 around 218,000 bbl/d
(398,000 bbl/d x 55%) and SPC another 65 million barrels, or around 180,000 bbl/d
(398,000 x 45%).
The ostensible value of Syria’s oil production in 2008 from
joint oil fields with foreign partners
In terms of local
currency, using an exchange rate of S£50 to $1 in 2008 for simplicity (the rate was 46.8599
in 2009, 46.5281 in 2008, 50.0085 in 2007), the ostensible value
of government revenues from the joint fields, after accounting for production
costs plus royalties to foreign venture partners of, say, 30%, could have
been S£225 billion (218,000 bbl/day x 365 days = 79,570,000 bbl x $80/bbl = $6.365 billion x 70% = $4.5 billion x S£50).
However, Syria’s
Statistical Abstract, Table 4/14 (Estimated Revenues in the Consolidated
Budget, 2008) shows that, “Government Royalty of Joint Oil Fields” in 2008 was
S£ 42.452 billion, not S£225 billion. Looking at this
revenue amount (S£42.452 billion) differently, the per-barrel price in 2008
would be S£535 [S£42.542 billion / 218,000 bbl/d x 365 days)], or $10.7 (S£535 / S£50), not $85.
Question 1: How might the difference
between the ostensible revenues from Syria’s joint oil fields of S£225 billion
and the budget revenues of S£42.452 billion be reconciled? Might it be that the
CBS used a rate of exchange of S£9.45 to $1 (S£42.452 billion / $4.5 billion)
instead of S£50 to $1? If such were the case, would using a rate of
S£9.45 to $1 not contradict the unification on January 1, 2007 of Syria’s
official “budget” exchange rate with the private sector exchange rate? (IMF Country Report No. 10/86, March
2010, p. 26).
Inconsistent export
proceeds compared with revenues from joint oil fields
According to Table 8/9
(Exports by Main Commodities 2008) crude oil exports in
2008 were 7.83 million tons, or 56 million barrels (7.83 million tons x 7.15 barrels
per ton), or 153,000 bbl/d (56 million barrels / 365 days). Export proceeds
were reported in Table 8/9 as S£218 billion.
Question 2: How could it be that government
royalty from 218,000 bbl/d from the joint oil projects was valued in Table 4/14
at S£42.452 billion while export proceeds from 153,000 bbl/d (30% less bbl/d)
in Table 8/9 were S£218 billion (512% more S£)?
Question 3: Syria’s dollar
earnings from the export of 153,000 bbl/d in 2008 ought to be in the region of
$4.8 billion (153,000 bbl/d x 365 days x $85). Might it be that the government allocated from the $4.8 billion the equivalent of S£42.452 billion (at
S£50 to $1), or about $0.9 billion (S£42.452 /S£50), keeping the remaining
$3.9 billion ($4.8 billion - $0.9 billion) in an undisclosed account to be
spent on confidential purchases and operation?
Ambiguous oil revenues reporting and disclosure
As seen above, in 2008
CBS reported in Table 5/5 Syria’s oil production as 20,245 m3, or 398,000
bbl/d. Table 4/14 reported “Government Royalty of Joint Oil Fields” as S£42.452
billion.
Question
4: Was government's joint oil fields revenues of S£42.452 billion a net balance after deducting production
costs plus foreign partners’ royalties or was it gross revenues? Since Table
3/14 (Estimated Expenditures in the Consolidated Budget, 2008) shows no costs
associated with oil production, then it may be deduced that the £42.452 billion
is a net figure. Is netting in such a case proper? The answer is no, especially
if the amounts of gross revenues and associated costs are not disclosed in at
least a footnote. Was there such a footnote in the budget tables? The answer is
no.
Question 5: Does the entry in Table
4/14 (Government Royalty of Joint Oil Fields) reflect the entirety of Syria’s
revenues from crude oil? In answer, there is no entry in Table 4/14 that would
signify the existence of other source(s).
Where might the revenues
from the oil production of Syria’s wholly owned company, Syrian
Petroleum Company (SPC) of 185,000 bbl/d be classified? Given the absence of a
clear designation in Table 4/14, it
might be speculated that SPC’s production is transferred to Syria’s two
refineries in Banyas (133,000 bbl/d capacity) and Homs (107,000
bbl/d capacity) free of charge and that the net profits from the two refineries
would be transferred at year end to the government in the form of dividend.
If such were the case,
do the refineries’ dividends appear in Table 4/14? The answer is that two minor
revenue captions might possibly contain dividends from the refineries; namely,
a small item of S£90 million under “Distributed profits – Industrial Revenues”,
and a balance of S£9.3 billion under “Budget Surplus – Manufacturing Industry”,
though it is unclear what “Budget Surplus” might encompass.
In the absence of a
clear presentation of the value of crude oil transferred to the refineries in
Banyas and Homs, might it be that Syria’s government allocated the proceeds of
crude oil supplies to the two refineries, in part or in full, to an undisclosed
account in a manner similar to the allocation referred to in question three
above?
Question 6: The IMF Country
Report on Syria above mentioned shows on page 18 that Syria’s “revenues” from
“oil” in 2008 were S£131.4 billion. The report does not specify whether the oil
revenues came from “Government Royalty of Joint Oil Fields” and/or other
sources. It would, therefore, be reasonable to assume that the IMF figure
represents Syria’s entire revenues from oil and that the IMF oil revenues
balance, like that of the balance in Table 4/14, represents net revenues.
If such were the case,
SPC’s oil revenues ought to be in the region of S£89 billion (S£131.4 billion –
S£42.452 billion). If so, the question arises as to why it is that revenues
from the joint oil fields’ 218,000 bbl/d were S£42.452 billion in 2008 while
revenues from SPC’s 180,000 bbl/d were twice as much in the same year (S£89
billion / S£42.452 billion)?
Conclusion
The above six
questions give rise to a seventh question: Is the ambiguity in Syria’s crude
oil accounting intentional or is it an innocent presentational flaw? In the interest
of transparency, accuracy, and honesty in reporting and irrespective of motive
or reason the CBS needs to deal convincingly with the issues involved in the
above questions in order to avert negative speculations, rumors, and erroneous
conclusions regarding government integrity.
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