Corruption and lack of transparency in the energy sector: continuing risks for Europe.

• Author: Smith, Keith

A major challenge to the new democracies of Central Europe is corruption and lack of transparency in the importing of oil and natural gas from Russia and other energy producing states once part of the Soviet Union. This situation has undermined good governance and ethical business practices in the "new democracies" and in the large and wealthier countries of Europe. EU membership has provided only limited energy security to the new democracies.

Wealth accumulation from the energy trade is often used by powerful groups in the East to buy support in Western countries for Russian economic and security policies. This situation is exacerbated by the lack of legal reporting requirements in the West concerning the outside funding of political and business groups.

The most serious threats result from the danger of intervention at any point in the commercial process on the part of elite cartels that dominate the energy trade, particularly in Russia, Ukraine, and Central Asia. These cartels are composed of governmental leaders, intelligence officials, and favored business oligarchs.

It will take greater coordination on the part of EU and Central European political leaders to bring about greater transparency and competition. Reformers are too often defeated at the next election. They need the full institutional and public support of the EU and other Central European governments.

Corruption and Non-transparency

Western energy firms too often confront demands from governmental officials and Eastern energy companies to engage in shady business practices when considering investment decisions, long-term sales contracts, and accounting procedures. Lack of a common EU energy policy and of strong antimonopoly enforcement regarding energy importers, have over the past 20 years increased opportunities for non-transparent state companies to increase their influence among Western governments and with political and economic elites in Europe.

Dubious or outright corrupt business practices are distorting the energy decision making processes in both consumer and supplier countries. According to Transparency International, the business climate within the Russian energy sector has become less transparent and more corrupt in recent years. This corruption has sometimes affected decision making by leaders in Europe, particularly in countries heavily dependent on oil and gas imports from or through Russia. Recent experience has demonstrated that Western energy investors...