Managing Oil in New and Emerging Producers

Imagine you are a public official in a country that has just discovered oil. You want to build strong relationships with the private sector to help develop the resource, set the stage to earn good revenues if oil starts flowing commercially, and limit the risks of pollution, corruption and conflict that have too often come with oil production. Now imagine that your country has just a handful of professionals trained to understand the industry, and that most of the historical experiences that people share for your benefit are from countries that scarcely resemble yours. Where do you turn for relevant lessons?

This was the central question posed at Governance Challenges for Emerging Oil and Gas Producers, a workshop organized in London on 5 – 6 November by Chatham House, Revenue Watch and the Commonwealth Secretariat. The workshop brought together government officials, nongovernmental organizations, researchers, oil company staff and representatives of international development institutions to talk about the unique circumstances facing countries that are new oil or gas producers, are attracting major exploration interest or are small producers considering how to restructure their management of the sector.

Participants presented case studies on the experiences of new and emerging producer countries such as Mozambique, Ghana, Papua New Guinea Suriname, South Sudan and Seychelles. The workshop also included discussions of the histories of mature petroleum producers including Trinidad and Tobago and Mexico, which emphasized the paths they took to develop skills and strategies as the oil sector matured.

The workshop was designed as a follow-up to Chatham House’s earlier work on Good Governance of the National Petroleum Sector. The project builds upon two pieces of research to which RWI contributed: Institutional Designs in Low-Capacity Oil Hotspots, which examined the mammoth task facing new producers in structuring public institutions to promote accountability and effective management, and Exporting the “Norwegian Model,” which argued that a classic separation of administrative powers into a purely commercial national oil company, a ministry charged with policy-making and an independent regulator may not be feasible or desirable in countries with weak institutions or nondemocratic systems.

One of the major themes of the discussion was the impact of the lack of oil-sector expertise and broader administrative capacity in many new or emerging producers. Participants agreed that in order for a country to make the most of petroleum opportunities, systems and rules have to be designed realistically in light of national capabilities, and should promote a strategic economic vision that evolves over time. Among the specific issues discussed:

  • First- vs. second-best approaches to creating institutions. Many governments have to make decisions about which public institutions to create, and where to house regulatory responsibilities, with imperfect information. Creating multiple bodies that institutionalize checks and balances is expensive and complex, and may be difficult or counterproductive in countries that have little capacity to manage the oil sector. On the other hand, some participants argued that once institutions become entrenched, they can be difficult to alter or hold to account, which may counsel toward seeking a first-best approach from the outset.
  • Empowerment of oversight actors. In order for good governance of petroleum to be sustainable, participants agreed that it is critical to build the capacity not only of high-level executive officials, but also of parliaments, journalists, auditors, civil society and others who are responsible for monitoring the behavior of government and companies. Where the needs for capacity development in a country are great, it can often be difficult to secure the resources necessary to empower these oversight bodies.
  • Strategic use of technical assistance. New producers often have access to technical support from a variety of private, public and not-for-profit sector organizations. But such support does not always result in effective or sustainable policy decisions. Participants discussed the need for governments to be active consumers of technical assistance—to use the resources provided by outside efforts as aides to a coordinated strategy. They also discussed the need for the providers of technical assistance to provide nuanced and context-specific advice rather than cookie-cutter recommendations, and to help governments move beyond decisions about rules and into strategies for implementing rules that impact the day-to-day conduct of public bodies.

Other topics debated during the workshop included the challenges emerging producers face in balancing a need to attract investors to explore areas seen as “risky” against the importance of securing terms that operate in the long-term interest of the state; and the importance of choosing strategically among a host of competing priorities for taking advantage of oil activity.

Building on the themes discussed in the workshop, participants will seek to develop a set of principles to help new producers confront the specific and complex challenges they face. For more information on the workshop and the emerging producer project, see http://www.chathamhouse.org/research/eedp/current-projects/governance-challenges-emerging-oil-and-gas-producers.

Patrick Heller is RWI Senior Legal Advisor.

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