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

Jmoberg@eiti.org

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