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A Question of Oil Accounting

Government budget data leave billion of dollars unaccounted for. Syria’s Statistical Abstract reveals (Table 5/5) that 21,425,000 m3 of oil was on average extracted each year from 2007 to 2009, or 152 million barrels per annum, or around 420,000 barrels per day. Of this volume, the Homs refinery (capacity of 107,000 bbl./day) and the Banyas refinery (capacity of 133,000 bbl./day) use some 240,000 bbl./day. Assuming full capacity refining, Syria’s oil exports would have averaged some 180,000 bbl./day. The average price for crude oil between 2007 and 2009 was US$75 /bbl. Assuming that Syria’s take after royalties to foreign companies and operating expenses was $50/bbl., dollar revenues from oil exports should have been in the region of US$3.28 billion for each of the three years involved, or some S£164 billion. But, Syria’s national budget (Table 4/14) shows “Government Royalty of Joint Oil Fields” averaging S£43.6 billion for each of the three years, not S£164 billion. The question is: Where is the difference of S£120 billion? Additionally, there is no mention in the budget of revenues from crude oil deliveries to the two refineries. Certainly, the refineries do not get their crude oil free of charge. At the deep discount of, say, 50%, government budget should show the Lira equivalent of US$3.29 billion, or S£165 billion. Such an amount is no where to be found altogether. Where is it classified? As such, government budget data leave undisclosed for each of the three years the Syrian Lira equivalent of US$5.69 billion per year; or, S£285 billion. Where are these amounts classified? How were they spent?
 
 

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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