About Caspian Revenue Watch and Caspian Oil Windfalls: Who Will Benefit?

Dear Reader,

The idea for the Caspian Revenue Watch germinated in 2001 out of concern that petroleum development in the Caspian region could undermine rather than promote the goals of the Open Society Institute: the establishment of open societies that provide real opportunities and protections to their citizens. The goal we set for the Caspian Revenue Watch was to promote transparency and accountability in the hydrocarbon sector in these countries and to give citizens an opportunity to study and shape how revenues from this sector would be used for their country's development. Subsequent events, such as the Enron corporate accountability scandal, investigations into oil deals that may have violated the Foreign Corrupt Practices Act, and the invasion of Iraq and reconstruction of its oil regime, have all demonstrated that much work remains to be done in improving the transparency of revenues generated by the extractive sector.

Through its research and other activities, the Caspian Revenue Watch program aims to empower citizens of Azerbaijan and Kazakhstan to hold their governments accountable in how petroleum revenues are used. The research provided in Caspian Oil Windfalls: Who Will Benefit?, which will also be available in Russian and Azeri, provides readers in these countries with a basic understanding of the opportunities and challenges in their country's management of petroleum earnings. A related campaign supported by the Open Society Institute, Publish What You Pay, seeks a legal framework to require energy companies to disclose all payments made to host governments where they extract resources. Caspian Revenue Watch will work with local groups to help them analyze the information about payments that companies disclose.

Azerbaijan and Kazakhstan are in transformation. Not only are they becoming increasingly dependent on petroleum earnings, but they are also undergoing political and economic change. As former Soviet republics, they now face the challenge of building the needed infrastructure for operating a modern democratic state and market economy. There is a danger that petroleum earnings may dampen the countries' incentive to implement needed reforms in their political and economic systems. At the same time, the influx of foreign exchange from the sale of oil and gas means that international donors will play a smaller role in helping to encourage and shape the necessary reforms. It is important that the international community act now to ensure that oil windfalls are used for the benefit of the public in Azerbaijan and Kazakhstan.

While the book focuses on Azerbaijan and Kazakhstan, the lessons and recommendations it provides have wider relevance. As the United States seeks to diversify energy supplies, it is increasingly looking to suppliers in West Africa, Latin America, and the former Soviet Union. Many of the target countries are ones that suffer from poverty, corruption, authoritarian rule, and a legacy of civil war. In order to ensure that these countries can be reliable suppliers of oil, it is important that they be able to translate oil wealth into improved lives for their citizens. The recommendations provided in Caspian Oil Windfalls provide a good start in thinking about how to do this.

Anthony Richter, Director, Central Eurasia Project, Open Society Institute
May 2003