Oil for Development – OfD

StanfordMarch 13, 2009

Petter Norewww.norad.no\ofd

Januar 2008

Overview

• Description ”Oil for Development”• Lessons learnt from the program• Issues for further discussion :

• Security of supply and OfD

Introduction• Norway with petroleum assistance from mid 1980s

• Vietnam\Mozambique\Angola• Oil for Development (OfD) founded in 2005. Aim to

strengthen environmental, governance and financial aspects of assistance

• Operates in 10 core countries plus regional programs and 15 ”light” assistance countries.

• Close links with ”Clean Energy for Development” (A new Norwegian program promoting clean energy solutions in cooperating countries)

OfD – main objectives

• Help cooperating countries to• Generate sustainable

eonomic growth • Promote the welfare of the

whole population • Be environmentally benign

• Combat the ”resource curse”

Core countries

How we work

• Along the integrated petroleum chain • Limited downstream activities

• Demand driven• No export of the ”Norwegian model”;

• Share experiences• Enter where ”we can make a difference” and

where there is a clear demand

OfD – who we cooperate with

• National governments• Civil Society (both Norwegian and international)• World Bank\ African Dev. Bank\ IMF\ UNDP\ EITI

• Norwegian ministries• Norwegian and international oil and service

companies; where appropriate

OfD and civil society

• Civil society (incl. media) plays a crucial role in preventing the resource curse

• OfD cooperates with Norwegian and international NGOs Aim is to build capacity among civil society

organisations in the South• 6 Norwegian NGOs and one international NGO have

received funding for 2008 (20 mill NOK)

OfD – our foundation

OfD is built around three integrated themes:

1. Resource management2. Environmental protection3. Revenue management

Principles of good governance, transparency and accountability are a fundamental part of the three themes

Resource management

• Strengthening of local institutions (ministries & directorates)

• Development/assessment of petroleum legal frameworks

• Framework for exploration and production of petroleum

• Resource databases • Strategies for transparent licensing and tendering

processes• Policies to stimulate technology development and the

involvement of local industry

Environmental management• Build environmental management capacity within the

sector• Basic legislation, rules and regulations covering

environmental dimensions of the petroleum sector• Minimise discharges from activities• Environmental impact assessments • Manage gas flaring and other national/global climate

challenges that are directly related to the petroleum industry

Revenue management• Design, management and

control of tax regime for the extraction of oil and gas (Government take)

• Transparency and accountability around payments by oil companies (EITI)

• Planning and execution of government budgets

• Management of the financial savings (oil fund)

Transparency, anti-corruption

• Open bid and tendering processes• Transparency about licenses and contracts• Transparancy about payments by oil companies

• Extractive Industries Transparency Initiative (EITI)• IMFs Guide on Resource Revenue Transparency

Ofd activities, NOK million (1USD=5NOK)

Core activities, percent

Afghanistan; a case-study

• OfD engaged in a number of complicated states (Sudan\Iraq\Palestine\Afghanistan)

• Afghanistan a case study of what is feasable in such situations\what are the key uncertainties

Afghanistan • OfD has worked in Afghanistan for two years

• A combination of anti-poverty\development and foreign policy considerations

• Has helped to create a legal petroleum framework• A new Petroleum Law enacted• Draft regulations accepted by the government

Afghanistan (2)

• Has given advice to Afghan authorities how to organize first concession round for three blocks in Northern Afghanistan

• OfD is helping in capacity building for government• Data management and environmental issues

Afghanistan (3)

• Uncertainty 1: The market for gas• Gas for power\export; Who will guarantee the

demand?• Uncertainty 2: Which companies to bid in today’s

financial situation?• Uncertainty 3: The actual implementation of the legal

and regulatory system

Lessons learnt from OfD program

Ten Lessons Learnt1. Heavy demand for the program

-Rapid growth in environmental and financial advice-Less demand for governance\ anti corruption; but

increasing2. Presents options; not solutions

-Can’t force countries to implement policies3. Ensure independence of advice from commercial sector

-But part of Norwegian foreign policy agenda 4. Keep a Long run (5-10 year) perspective

Capacity building\Institution building takes time

Ten Lessons Learnt

5. Keep a short term capacity to react6. Civil society and transparency; necessary but not sufficient

factors for success7. Concentrate number of countries\programs

-25 countries and regional program far too many8. Anchoring in the South

-Too many experts from the North fly in\out-South\South cooperation\ capacity building must be strenghtened

9. Better coordination between donors a must

Ten Lessons Learnt

10. Norway; a relatively easy ”brand” to sell• Reasonably successful resource rich country• Non-imperialist past

• OfD part of Norwegian foreign policy• A balance between interests of state and companies• But; Norwegian society\politics\economy differs

fundamentally from situation in other commodity rich countries

Security of Supply and OfD

Security of Supply

There are suffient physical hydrocarbons in the world Problem is political: To produce and deliver resources. We have seen the end of cheap oil NOT of oil itself

Top of the international agenda Europe\Ntl gas imports from Russia US: Crude imports\energy independence

Security of SupplyHistory

Churchill WWI\Persia\English navy 1973 oil embargo Ukraine cutoffs of Russian gas Two Gulf Wars

Two aspects of Security of Supply with limited relevance for OfD

Physical cut-off of energy Temporary damage?

The producers need to sell their products in the end

Security of Demand Key concept in the gas business used especially

by Russia

Third factor; OfD can play a role in encouraging long run supplies

Foster increased willingness to invest by IOCs Higher risk means less investment. Risk premiums

in excess of 10% pluss do not encourage investments (e.g. Sudan)

IOCs don’t want weak petro states IOCs want stable legal and regulatory frameworks ;

political predictability and stability These are also the aims of OfD

World supply less than potential

”Resource nationalism” due to unbalanced historical record. Little spinoffs\limited transfer of technology\weak capacity building ?Bolivia, Iran, Russia?

Weak state capacity ?Iraq, Afghanistan? Consequences of the ”resource curse” (weak

bureaucracy\internal strife) holds back further expansion ?Nigeria, Sudan?

OfD can encourage”win\win” situations between resource states and Western technology

Summary Security of Supply

Link between ”resource curse” and security of supply OfD can encourage”win\win” situations between

resource states and Western technology OfD can foster increased willingness to invest by

IOCs