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Improving extractive industries governance:
Updates from Oil for Developmentand the EITI International
Secretariat
5 October 2009
Oil for Development’s work on a framework for assessing
governance in the petroleum sector
Petter Nore, Director of Oil for Development
5 October 2009
Oil for Development’s work on a check-list for petroleum-related
governance
By Petter Nore, Director
Side/Page 511.04.2023
The debate on good governance
• OfD is working towards improving petroleum sector governance in our cooperating countries
• Civil society and media often have a narrow definition which mainly emphasizes transparency
• OfD’s assistance reflects a broader perception of petroleum-related governance
• Transparency is important, but so are other dimensions such as “enablement to carry out the role assigned”
Side/Page 611.04.2023
OfD’s five principles of good governance:
• Clarity of goals, roles and responsibilities • Sustainable development and risk management as
overarching goals for the sector • Enablement to carry out the role assigned • Accountability of decision-making and performance • Transparency and accuracy of information
Side/Page 711.04.2023
Side/Page 811.04.2023
How the governance check-list will be used
• To assess petroleum related governance needs in countries applying for broad based petroleum assistance
• As a tool for providing input for revisions as part of larger program reviews
• As a pool of indicators that can be further developed and used for assessing results
Side/Page 911.04.2023
You can download the checklist from www.norad.no
EITI – on its way to become a global standard?”
Jonas Moberg, Head of the EITI Secretariat
5 October 2009
December 1999
1997
Petrol is the best vector of corruption
Africa's Oil DreamsTHURSDAY, MAY. 31, 2007 By ALEX PERRY
Petrol sellers in Lagos, Nigeria.
www.eitransparency.org
www.eiti.org
Governance failure
Pressure/attention
Investigative reporting
Facilitation
Business case for actionNegotiation
Implementation
Quality assurance
Code/standard
There is hope Oct 9th 2008From The Economist print edition
Another promising new mechanism is the Extractive Industries Transparency Initiative, a voluntary code that a score of African countries have adopted, with governments and foreign firms accounting openly for their dealings..."
TRANSPARENCY
ACCOUNTABILITY
Award of licenses
&contract
s
Regulation&
monitoring of
operations
The EITI provides a Forum for dialogue and a Platform for broader reforms
RevenueDistribution
& Manageme
nt
Implementation of
Sustainable
Development olicies
Government Spending
Companies Disclose
Payments
Government Discloses Receipt
of Payments
Independent Verification of Tax & Royalty
Payments
Oversight by aMulti-Stakeholder
Group
How the EITI works
o 30 Implementing Countries across Africa, Asia, Latin America, Middle East and Central Asia
o 42 major international oil, gas, and mining companies
o 80 institutional investors with collective assets of over $16 trillion
o 100s of civil society groups and networks – e.g. Publish What You Pay, Open Society/Revenue Watch Institute, Transparency International
o Supporting Countries, including Australia, Canada, France, Germany, the Netherlands, Norway, the UK and the US
EITI in 2009
Implementing Countries
EITI Other Publications
...and video.
Ellen Johnson SirleafPresident of Liberia
“The Liberia EITI is one of the institutional pillars of integrity anchoring and sustaining the reform agenda of Liberia.”“By promoting better management and use of public resources and discouraging corruption, LEITI … is critical to poverty reduction and social development in Liberia.”
July 2009, when signing the new LEITI law
The EITI has been politically endorsed by many Governments and in many forums
The AU, EU, UN, G8, G20,..
• It can be a platform for long-term reform• From transparency to accountability • To fight corruption – maybe• To build trust and confidence
- definetely • It takes time, although it doesnt have to
Lessons/challenges
www.eiti.org
• The EITI is a start, only• Deepening, validation and beyond• Widening, Jakarta and beyond
Lessons/challenges
More at:
...and video.
www.eiti.org
Jonas Moberg, Head of the EITI Secretariat
Update about Norwegian EITI implementation
Gro Anundskås, Assistant Director General, Norwegian
Ministry of Petroleum and Energy
5 October 2009
Olje- og energidepartementet www.regjeringen.no/oed
Update about Norwegian EITI implementation
5.october 2009
Gro Anundskaas,
Assistant Director General, Norwegian Ministry of Petroleum and Energy
Olje- og energidepartementet www.regjeringen.no/oed
EITI - Norwegian implementation
• First meeting with an interim MSG 22.10.08• Became a Candidate Country 15. February 2009• Regulation implemented 26.06.09 • MSG appointed 26.06.09• Administrator/reconcillator – bidding process. Contract
signed with DeLoitte 17.juli 2009. Draft report received today.
• Draft report will be sent to MSG soon and discussed end October
• Next step; bidding process to choose Validator
Olje- og energidepartementet www.regjeringen.no/oed
EITI – Norwegian implementation
Interim MSG; •OLF, The Norwegian Oil Industry Association•The Norwegian Confederation of Trade Unions (LO)•Ministry of Petroleum and Energy (lead) •Ministry of Finance•Independent lawyer•Independent economist•Center for corporate responsibility(Norwegian School of Management) •Det Norske Veritas (DNV) (Corporate Responsibility Division) •Transparency International (TI)•Publish What You Pay (PWYP) •Willy Olsen
Olje- og energidepartementet www.regjeringen.no/oed
MSGIndustry:Oluf Bjørndal, OLF, The Norwegian Oil Industry Association Frode Bøhm (deputy))Håkon Nordang, StatoilHydro ASA, Siv Helen Rygh Torstensen, StatoilHydro ASA, (deputy)Aksel Luhr, ENI Norge ASKarl B. Myhre, Norske Shell (deputy)Jon Jerre, Det Norske VeritasGovermentLars Erik Aamot, Ministry of Petroleum and Energy (international coordinator)Gro Anundskaas (deputy)Beate Bentzen, Ministry of FinanceStig Sollund (deputy)Willy Olsen, Civil SocietyGro Skaren-Fystro, Transparency InternationalMona Thowsen, Publish What you PayPer Bondevik, Kirkens Nødhjelp (deputy)Ola Mestad, UiO, Atle Midttun, BI, Senter for samfunnsansvar (deputy)Amalie Tofte, Industri EnergiLiv Undheim, (deputy)Fanny Voldnes, (LO) Camilla Houeland (deputy)
Olje- og energidepartementet www.regjeringen.no/oed
EITI- Norwegian implementation
• Focus on the petroleum sector• Disaggregated data/company level• Actual payments – (ref State Account tab 3.2);
- Ordinary Tax
- Special Tax
- Area Fee
- Environmental taxes (CO2 and NOX)
- Net cash flow SDFI
Corruption in the petroleum sector. Can the damage to development
be reduced?Farouk al-Kasim, President of
Petroteam AS
5 October 2009
Petroteam a.s
REFLECTIONS ON GLOBAL EFFORTS TO ENSURE THAT OIL
LEADS TO DEVELOPMENT
By Farouk Al-Kasim
REFLECTIONS ON GLOBAL EFFORTS TO ENSURE THAT OIL
LEADS TO DEVELOPMENT
By Farouk Al-Kasim
Petroteam a.s
ENERGY CHALLENES IN THE 21st CENTURY
Growth has been sustained by easy access to energy.Negative growth means a troubled world.Oil will continue to be important. Before long, oil supplies will fall short of demand.Development of alternative sources must be accelerated.Environmental protection is a serious global challenge. The remaining energy resources will have a higher cost.In any case: Global Good Governance is a pre-requisite.Access to energy is the No.1 geopolitical issue.Will the oil business be strictly commercial? Or will it be more geopolitical?
Growth has been sustained by easy access to energy.Negative growth means a troubled world.Oil will continue to be important. Before long, oil supplies will fall short of demand.Development of alternative sources must be accelerated.Environmental protection is a serious global challenge. The remaining energy resources will have a higher cost.In any case: Global Good Governance is a pre-requisite.Access to energy is the No.1 geopolitical issue.Will the oil business be strictly commercial? Or will it be more geopolitical?
Petroteam a.s
PETROLEUM AND THE DEVELOPING COUNTRIES
The gap between the “haves” and “have-nots” is widening.Producing countries will be pressurized to accelerate exploration and development to meet rising demands.For most developing countries petroleum is the LAST HOPE for eliminating poverty and securing a better future. But development hinges upon the country’s ability to convert petroleum into lasting benefits to its citizens.This means defeating corruption and the oil curse, i.e.
The gap between the “haves” and “have-nots” is widening.Producing countries will be pressurized to accelerate exploration and development to meet rising demands.For most developing countries petroleum is the LAST HOPE for eliminating poverty and securing a better future. But development hinges upon the country’s ability to convert petroleum into lasting benefits to its citizens.This means defeating corruption and the oil curse, i.e.
Petroteam a.s
GOOD GOVERNANCE STANDS ON 3 LEGS
..
INSTITUTIONS
LEGISLATIONPUBLIC
MONITORING
Petroteam a.s
PRE-REQUISITES FOR GOOD GOVERNANCE IN THE PETROLEUM SECTOR: LEGISLATION
Aid programmes must fortify the pre-requisites for GOOD GOVERNANCE in the recipient countries. This may take time.
1. Efficient system of government.
2. Fair and reliable system of justice.
3. Consensus (at least broad agreement) on the fundamental aspects of a petroleum policy.
4. Adequate and timely legislation.• A Petroleum and Fiscal Laws.• Regulations, guidelines, instructions etc.
Aid programmes must fortify the pre-requisites for GOOD GOVERNANCE in the recipient countries. This may take time.
1. Efficient system of government.
2. Fair and reliable system of justice.
3. Consensus (at least broad agreement) on the fundamental aspects of a petroleum policy.
4. Adequate and timely legislation.• A Petroleum and Fiscal Laws.• Regulations, guidelines, instructions etc.
WHAT CAN AID PROGRAMMESACHIEVE IN THESE FIELDS??
Petroteam a.s
PRE-REQUISITES FOR GOOD GOVERNANCE IN THE PETROLEUM SECTOR: INSTITUTIONS
5. Clear contractual terms that are subordinate to the
legislation. Model Contract(s).
6. Clearly documented processes for decision- making.
7. Government institutions with clearly defined delegation of
powers and responsibilities.
8. Accountability throughout the government’s own
administration.
9. Effective private institutions with social responsibility and
full accountability.
5. Clear contractual terms that are subordinate to the
legislation. Model Contract(s).
6. Clearly documented processes for decision- making.
7. Government institutions with clearly defined delegation of
powers and responsibilities.
8. Accountability throughout the government’s own
administration.
9. Effective private institutions with social responsibility and
full accountability.
Petroteam a.s
PRE-REQUISITES FOR GOOD GOVERNANCE IN THE PETROLEUM SECTOR: PUBLIC MONITORING
10. Effective public monitoring and supervision of petroleum activities.
11. Transparency.
12. Freedom of expression.
13. Active and responsible NGO organisations.
14. Active academia with research capabilities.
15. Active press and media.
16. Effective and timely flow of relevant data.
10. Effective public monitoring and supervision of petroleum activities.
11. Transparency.
12. Freedom of expression.
13. Active and responsible NGO organisations.
14. Active academia with research capabilities.
15. Active press and media.
16. Effective and timely flow of relevant data.
Petroteam a.s
THE NECESSARY BALANCE OF INTERESTS
COMPANY FOCUS GOVERNMENT FOCUS
COMPANY FOCUS GOVERNMENT FOCUS
PROFIT TO SHAREHOLDERS
PROJECT PROFITABILITY
HIGH EARLY PRODUCTION
LONG TERM BENEFIT TO THE PEOPLE
REVENUE. COMPETENCE.
EMPLOYMENT. WELFARE
HIGH RECOVERY
OPENNESS FAIRNESS PROFESSIONALISM
Petroteam a.s
OPTIMISING RESERVES
OIL COMPANIES PREFERENCE
• HIGH DISCOUNT RATE TENDS TO
MAXIMISE UPFRONT PRODUCTION.
• THIS LEADS IN MOST CASES TO
LOWER RECOVERY.
HOST-COUNTRY PREFERENCE• FOCUS ON LONG TERM BENEFITS
TO SOCIETY.
• LOW DISCOUNT RATE
ENCOURAGES HIGHER RECOVERY
REMAINING
RECOVERED
REMAINING
RECOVERED
Petroteam a.s
CORRUPTION IN THE VARIOUS PHASES OF OPERATIONS
.
COSTS
- VE
INCOME
+ VE
Time
GOVERNMENT REVENUE
PROJECT CASH FLOW
PRE-LICENSING
EXPLORATIONDEVELOPMENT PRODUCTION TAIL ENDDECOM
MISSIONING
IOC’s GAIN FROM
CORRUPTION
LICENSING
Gets rights easily and
cheaply Lower investment
Exaggerated cost
Reduce Government’s Share of Profit Early
abandonmentMinimise
cost
MOST VULNERABLE
PDO andDevelopment
Petroteam a.s
CONCLUSION
Petroteam a.s
Petroteam a.s
Comments byWilly Olsen, Special Adviser
INTSOK
5 October 2009
Discussion
5 October 2009