Tagged: King hamad

Once Again, King Hamad Meets with the Chairman of Strategic Advisory Firm G3

Yesterday King Hamad met with the Duke of Westminster, otherwise known as Gerald Cavendish Grosvenor.  The two discussed Bahrain and Britain’s historic bilateral relationship and the need to ‘enhance it’.  There was also talk of ‘bolstering cooperation’ in all fields – whatever that means.  Cryptic Bahrain News Agency jargon aside, it is interesting that the King of Bahrain is meeting with the Duke of Westminster. As well as being the richest British person, Grosvenor is chairman of G3, a strategic advisory firm hired by Bahrain’s Information Affairs Authority in 2011 to develop a “media campaign to support Bahrain’s position in the international community”. What the contract involved was not quite clear, though Lt Gen Sir Graeme Lamb, who worked as a ‘special adviser’ to G3, wrote a number of pieces in various news outlets that focused on Britain’s important military relationship with Bahrain.

Clearly 1.5 million pounds will buy a lot more than some PR in the form of a few sketchy articles. Indeed, the fact King Hamad gets to meet with G3’s chairman  suggests that Bahrain plumped for the company’s platinum package.  King Hamad has also met with Gerald Grosvenor on a number of other occasions over the past two years. In April and May 2011, the two met at the King’s palace where they once again discussed Bahrain and Britain’s historic trade relations, and the subsequent need to ‘bolster’ them. Grosvenor also visited the Bahrain International Circuit where, judging by the photo, he refused to sit on the outlandish sofas.

gros

The two also met in August 2012 when King Hamad visited the UK. As you may have guessed, their discussions revolved around Bahrain and Britain’s historic bilateral relations.  Whether or not the word ‘bolster’ was mentioned is unclear, though it should not be ruled out.

Incidentally, the tender for G3 was awarded in July 2011, and Grosvenor and Hamad met back in April 2011. I presume Grosvenor had a few interesting suggestions about how to boost trade between the two countries…and maybe G3 too.

Given the upcoming Grand Prix and the recent announcement of dialogue between government and Bahrain’s political parties, this is hunting season for PR companies, who will no doubt be seeking a windfall for their role in atoning for the government of Bahrain’s sins.

A Right Royal Robbery: How the Al Khalifas Took a Quarter* of Bahrain’s Wealth

This post is about how much of Bahrain’s wealth has been taken by  the Ruler and the Al Khalifa family over the past 80 years. In particular, it focuses on the years between 1925-70.  It also addresses some other interesting questions, such as the mystery of Abu Safah, and why the revenue allocated to the Ruling Family disappeared off the accounting books on two separate occasions. So before you wave a banner proclaiming support for the country’s wise and educated leadership, bear in mind that between the years of 1926 and 1970, Bahrain’s ruling family received about a quarter* of the nation’s wealth. In fact, the amount given to the ruling family per year was always the largest item of recurrent expenditure. Until 1941, the amount given to the Ruler and those on the Civil List was consistently greater than the the sum of all other expenditures. In other words, one family got more per year than the health sector, education sector, public protection dept etc combined. Although the amount they receive now is almost certainly less, it is no longer recorded on the budget sheets, so it is not subject to scrutiny. Such a lack of transparency is, as we shall see, nothing new.  Read on for an anger-inducing, yet interesting tale of greed and avarice.

How is money given to the ruling family? 

Traditionally, the Ruler and the ruling family of Bahrain were given money through payment to the civil list.  This practice continued until then end of 1949, after which the ruler distributed money from his own allocation called the privy purse. Upon receiving its first oil royalties in 1935, the Bahrain government set up a system of administration as follows;

The oil royalty would be divided into third, one third going to the Privy Purse of the Ruler, on third to non-recurrent capital expenditure and the remaining third to be invested. (Annual Report, 1955, pg 4)

The amount of money received directly by the Ruler was dependent on how good the deal was between the Bahrain government and the Bahrain Petroleum Company (BAPCO). The better the revenue sharing between the company and the government, the better it was for the both the people and the ruling family. It is also worth noting that Charles Belgrave (Political Adviser to the Sheikh)  imposed a limit of 500,000 rupees on the Civil List back in 1930, though this became meaningless when the ruling family started receiving oil royalties.

In 1952 a new 50-50 oil deal was struck, and the government was to receive ’50 percent of the profits of Bahraini oil and duty on oil imported from Saudi Arabia through the pipeline.’ (Annual Report, 1956, pg 106). This increase stemmed from the fact neighboring countries such as Qatar were getting similar 50-50 deals.  However, due to the fact that Bahrain’s oil reserves were relatively limited, a new deal was struck in 1955. This guaranteed that the state (and the Ruler) would continue to get significant revenue from oil even when Bahrain’s own reserves were depleted .  In this new agreement, the government would receive 50 percent of the profits of any oil refined in Bahrain. In all cases, the ruler would personally receive 1/3rd of all the oil revenue accrued to the government. It is hard to determine to what extent the Ruler’s desire for more income motivated his decision to push for a better deal, though Shiekh Salman bin Hamad Al Khalifa (Bahrain’s ruler from 1942 – 1961) was keen to double production in 1952.

On December 26 the Ruler had a further long conversation with company officials, in which he began by saying that if they did not drill a test well in additional area (i.e. in the sea bed) within one, or at the most two, months he would take this area away from them including the area in dispute with Saudi Arabia. He also said they must double production in the main island. (Telegram no. 1062 to foreign Office, 1953)

The fact the Ruling Family were receiving a third of oil royalties meant they had a vested interest in extracting as much oil as possible, even though this was bad for the wells.

After decades of receiving exorbitant yet varying amounts of income, the 1973 constitution contained an article that sought to define the amount received by the Ruler. It states

 The Amir shall have an annual privy purse to be determined by a special Amiri decree. The privy purse may not be revised throughout the reign of the Amir, and shall thereafter be fixed by the law.

If one looks at the state budgets from 1974 onwards, it appears that this sum was fixed at 6 million Bahraini Dinars (BD) per annum. Given the massive increase in oil prices following 1973, the figured given to the privy purse represented 5.8 % of Bahrain’s total oil revenue in 1974 (al-Kuwari, 1978). The budgets from 1975 onwards  seem to show that the Ruler continued to receive the aforementioned amount of BD 6 million  per annum (the constitution does not actually state that the Ruler should stop receiving oil royalties, though one assumes this is the spirit of the article). Ironically, it appears that the figure of BD 6 million  per annum actually increased after the reforms of 2001.  As I said in my previous post

Ebrahim Sharif also noted that the amount allocated for the Civil List in 2001 was 8.5 million dinars, which represented an increase of 2.5 million from 6 million . This increased in 2002 to 9 million. On 2003, the amount allocated to those on the Civil List was no longer included on the annual financial report, which meant that Bahrain’s elected MP’s, whose responsibility it is to scrutinize the budget, can no longer scrutinize the amount of money given to royals.

Where did the money go? 

Despite the scandalous amounts of money going to the Ruling Family, there were even more nefarious developments towards the end of the 1950s. After going through the annual reports I noticed a change in how allocations for the privy purse were recorded.  I also discovered that  Ali Al Khalifa Al Kuwari (now a professor economics at the University of Qatar) discovered something similar in a study he carried out 1978. We have slightly different dates though. Al Kuwari (1978) writes

the government budgets after 1959 no longer show all revenue received by the state or its allocations. The budget, in fact, shows only two-thirds of the state’s oil revenue, while the remaining third is reserved for the ruler and allocated to him directly before budgeting

Although al-Kuwari says this practice occurred after 1959, there is a budget for 1962 that does mention the allocation to the privy purse. However, instead of listing one third of oil revenue to privy purse under ‘expenditure’, it simply states Oil Receipts: Less on third to the Privy Purse under ‘revenue’. The inconsistencies in recording the accounts between 1959 and 1962 can be seen in the following accounts.

In 1954, the amount of revenue given to the privy purse is clearly recorded

In 1956, ‘privy purse’ is not mentioned. Instead, it is just referred to as ‘One-third Oil Receipts’

In 1959, money given to privy purse listed under revenue, and not expenditure

From 1963 to 1970, budget or balance sheets do not mention the privy purse. Instead they just list ‘Oil Receipts’ under revenue. The figure listed is actual two thirds of the amount of total oil receipts. The other third goes directly to the ruler and is not mentioned in the accounts.

Put simply, betwen 1962 and 1970, the government accounts do not list the amount of oil royalties going to the Ruler. The figure given for ‘Oil Receipts’ under ‘Revenue’ is actually two thirds of the total amount payable by oil companies to the State. There is little question about whether royalty payments stopped in 1962. According to a telegram sent from Shaikh Salman to the Chief Local Rep of BAPCO the royalty agreement was set to last until at least 1969, when it would presumably be subject to renewal.

By omitting the amounts paid to the privy purse, reading the financial reports is very misleading. For example, in his review of 1968 Head of Finance Shaikh Khalifa bin Salman Al Khalifa writes;

Educational and health services accounted for the largest single items of recurrent expenditure during the financial year and together they amounted to almost half the total expenditure incurred.

In actual fact, the largest single item of recurrent expenditure that year was the amount given to the Ruling family. To put it in perspective, the payment to the privy purse in 1968 was BD 4,035,287. The amount allocated to education was BD 2,934,521. The ruling family therefore received almost twice the second highest item of recurrent expenditure. Check out the financial statement below.

Despite Charles Belgrave’s fairly frequent attempts to limit the amount of money given to the ruling family, he seemed to capitulate in 1933

…I should be failing in my duty if I did not take this opportunity of stating that it is my considered opinion that the finances of Bahrain will never be on a satisfactory footing unless the Civil List is made to correspond, to a certain extent, to the actual revenue, increasing and decreasing according to the income of the State…the fluctuations of revenue have not proportionally affected the Civil List//I also wish to point out that it is impossible for me myself to persuade the Ruler and his relations to accept a further reduction. In a letter I wrote to the Political agent some years ago, I explained that owing to my position and work here it was extremely difficult for me to coerce H.E. Shaikh Hamad into agreeing to a course which he strongly disliked. To endeavour to do so would jeopardise my relations with him. (Annual report 1351, pg 7)

20 years later, the acting Political Agent of Bahrain J.E.R. Little echoed, somewhat dryly, Belgrave’s sentiments.

In 1955 it is expected that payments to the Privy Purse will amount to Rs. 13,400,00 or roughly 1 million sterling. Inevitably the payment of such sums to the Ruling Family will continue to be the subject of criticism locally, and it is no doubt due to his awareness of this fact that the ruler has donated a quarter of a million rupees to education, health and public protection. Other members of Al Khalifa apparently are impervious to the promptings of conscience.

Given the disturbances of 1956, it was perhaps prudent of the Ruler to donate some of his ‘personal’ wealth to public protection. It is also ironic that the Ruler is ‘donating’ the nation’s wealth back to the country.

The Abu Safah Question 

Under a treaty agreed with Saudi Arabia in 1958, Bahrain currently takes half the net revenue from the sale of oil from the Abu Safah Field. Most sources seem to state that this agreement was concluded in 1972, though apparently production started in 1966. Furthermore, an agreement between the governments of Saudi and Bahrain regarding ‘matters of policy  connected with the field was was made in 1965’ (Shaikh Khalifah bin Sulman, Annual Report 1965, pg 3). According to Al Kuwari (1978), oil revenues from Abu Safa were allocated to the Ruler of Bahrain’s Privy Purse between 1966 and 1972.  He makes this assumption based on on the following reasons

1) Since the government of Bahrain’s budgets, especially thsoe of 1966-1970, met their deficits by drawing from the reserve fund, it is difficult to beleive that all the revenue coming from the Abu Safah field was allocated to the reserve.

2) During the period 1960-1970, although the government of Bahrain’s annual reports (statement of revenue and expenditure) gave all the information affecting the reserve fund account (for example the setting up of a special account in 1960, the loss resulting from the sterling devaluation in 1967, and all withdrawals fromt his acocunt to meet the budget deficits), nothign at all is mentioned about the BAhrains tate’s half share of the Abu Safah Oil revenue.

3) All attempt sot get an explanation of this matter from officials in Bahrain have failed, in spite of their valuable help in providing other information. Since 1966, the government of Bahrain Annual Reports and all the official publications, as far as i known, seem to ignore the Abu Safah field before 1974.

4) All oil revenues received by the state and not appearing in the budget were allocated to the privy purse of the ruler. Therefore, on the basis of this assumption, the state oil revenue and the actual budgets, allows a reassessment of Bahrain’s public revenue and expenditure in a form which will enable an examination of the allocation of the Bahrain state oil revenue.

If al-Kuwari is correct, then this represents a significant scandal in Bahrain’s history. It would certainly not be an implausible occurrence. Given that no officials were able to give satisfactory explanations, it seems unlikely that the 1972 agreement was a retroactive one, and that moneys received in 1974  (the year revenues from Abu Safah first appeared in the state budget) included profits that had accrued between and 1966 and 1972. If anyone knows more, please enlighten me. (Although I don’t have access to the 1974 budget, the 1975 one can be viewed here). If funds from Abu Safah were going to the privy purse, the money involved would probably be huge. In 1975, Abu Safah was generating BD 50 million for the Bahrain government, only about BD 10 million less than was being generated by BAPCO.

So how much do the ruling family get?

Between the years of 1926 and 1970, the Ruling Family of Bahrain have accrued a huge amount of wealth.  The following tables illustrates some interesting statistics, not least that the ruling family were allocated about a quarter of all revenue between the years of 1925 and 1970. Between the years of 1925 and 1937, the Ruling Family received about half of Bahrain’s total revenue. If that’s not daylight robbery, than I’m not sure what is. There are also some graphs for added pizzazz. ( Figures from 1965 – 1970 are written in Bahraini Dinars, whereas those between 1925 – 1964 are written in Rupees)

Total amount of wealth accrued to the Ruling Family between 1925 – 1970

More detailed breakdown of the percent of annual revenue that was allocated to the Al Khalifa family

Although the percentage of annual revenue allocated to the privy purse varies, there is a general increase in the total amount of money received every year by the Ruler. This graph illustrates that trend.

Graph showing amount of annual revenue allocated to the Ruling Family between 1925 and 1940

Graph showing amount of annual revenue allocated to the Ruling Family between 1941 and 1950

Graph showing amount of annual revenue allocated to the Ruling Family between 1950 and 1964

Graph showing amount of annual revenue allocated to the Ruling Family between 1964 and 1970

Concluding remarks 

Although some questions still remained unanswered (such as why were privy purse payments removed from the budget, and what happened at Abu Safah?) what is clear is this – one family has accrued about a quarter of Bahrain’s revenue between 1925 and 1970. This percentage decreased significantly between 1974 and 2001, after the privy purse allocation was reduced to BD 6 million  per annum.  It is also important to bear in mind that those in the ruling family still receive money from the privy purse in addition to monies received from their normal jobs. This was something Belgrave noted in 1928

this amount (Civil List) does not include salaries which are paid to various Shaikhs, in addition to their allowances, who occupy positions in the govt such as Magistrates, Presidents of Courts, Amirs Etc. These payments are included under other headings, Protection, Judicial etc. (pg 76)

In addition to this, the wealth that has accrued to the Al Khalifa family over the years has allowed them to secure lucrative land deals, property investments  and monopolies. The legacy of their privilege moves beyond an annual stipend, and one can only imagine the extent of the personal fortunes enjoyed by many members of the family. Thus 25% is probably a conservative estimate.

It is also interesting to note how history repeats itself. See the following chronology

Anyway, my closing thought is simple. Ebrahim Sharif – a man who has continually highlighted this greed and corruption – currently languishes in jail on bogus charges.  On the other hand, some people glorify a ruling elite who have been bleeding the country dry for centuries.

*Update: When I posted this yesterday I stated that the Al Khalifas had taken a third, and not a quarter of the nation’s wealth. My error was perhaps understandable, as I was calculating percentages from 1959 -1960 using the revenue figure that did not include the extra third missing off the oil receipts. I was therefore using a much lower figure for the revenue than I should have been using.

Notes.

1) Prior to 1955, the government accounts were produced according to the Hijry calendar.

2) I am not an economist, financier or accountant, but I think the methodology here is fairly sound. I used the same one adopted by Charles Belgrave when he was tallying up what percent of total annual revenue went to the Al Khalifas. After cross checking my results with his, we arrived at the same figures in all cases except for 1345. The reason being Belgrave used different figures for the total amount of annual revenue. There were two sets of figures for 1345, and I chose to use the most recent ones. It is also important to note that I used the summary of revenue and expenditure, as opposed to the budget. This gives a more accurate of picture of what was spent and received. The only exception is 1962, where there was no statement of revenue and expenditure, only a budget.