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NOT AN OFFICIAL UNCTAD RECORD. OIL AND GOVERNANCE - A TIME TO ACT UNCTAD 11 th African Oil & Gas, Trade & Finance Conference Nairobi 24 th May 2007. Sumayya Athmani Legal Manager & Company Secretary National Oil Corporation of Kenya Limited.
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NOT AN OFFICIAL UNCTAD RECORD OIL AND GOVERNANCE- A TIME TO ACT UNCTAD 11th African Oil & Gas, Trade & Finance ConferenceNairobi 24th May 2007 Sumayya Athmani Legal Manager & Company Secretary National Oil Corporation of Kenya Limited
Africa – fantastically rich in natural resources yet economically poor.Africa’s challenge or the world’s challenge?
Background-World Oil Reserves • Middle East - largest proven oil reserves in the World (62%) • Total proven oil reserves in Africa estimated at 114.3 billion barrels in 2005 • World consumption - expected to increase by 55% from the present 70 million to 120 million barrels/day by 2030
500 400 300 bilion dollars (nominal) 200 100 0 2000 2002 2004 2006 2008 2010 Upstream Downstream Global Oil and Gas Investment Investment has surged in recent years with higher prices & is set to rise further through 2010 on current plans…
Strategic attractiveness of Africa’s oil & gas sector • Convenient location to North American market -closer distance than Middle East • Light sweet crudes • Growing demand from China and India – demand unlikely to slacken in the near future
Key challenges for the oil & gas sector in the 21st Century • Growing demand – • rapid growth of the emerging economies • the still growing demand in the industrialised countries • contributing to rapid price increases and increasing concerns about long term supply. • Imminence of ‘peak oil’ – in terms of both amounts of worldwide reserves and also production capacity – has gained increasing prominence.
Key challenges- Contd. 2) Competition for resources – • the current ‘scramble for Africa’ is for discovery and ownership of oil and gas resources. • ‘Old’ Northern countries facing increasing competition in this game from the BRICs. • This challenge can be a major obstacle to resource governance and must therefore be directly managed based on recognition of the legitimate interests of all the parties in pursuit of sustainable access to the resources.
Key challenges- Contd. 3) Resource Curse • Dependancy on resource rents contributes to • The risk of Dutch Disease • Poverty, corruption and conflict • Weak democratic accountability
Key challenges- Contd. 4) Environmental and Social Impact – If poorly managed, resource extraction can be a destructive process. • Site specific contamination to large-scale ecosystem degradation: oil leakages, accidents on pipelines and platforms, waste management affecting water and habitat quality,land degradation and water pollution • High incidence of migrant workers thus destroying local economies and social structures. • Human rights abuses including from using security forces against protestors.
Key challenges- Contd. 5) Climate change – resource extraction is linked to climate change which is widely regarded as the biggest environmental threat the world is facing this century. • Oil and gas extraction provide fossil carbons which upon burning ends up in the atmosphere contributing to global warming. • Therefore energy efficiency rather than merely continued and intensive resource exploitation is vital.
Key challenges- Contd. 6)Trade & Investment rules – • The rules and institutions governing international investments flows need to be framed to ensure the investment contributes to the sustainable development of those in the developing world.
Governance and Energy Security • Weak governance in supply countries can complicate security of supply in several ways:- • Corruption and mismanagement of energy revenues may exacerbate civil discontent to the point of violent conflict • Corruption can entrench vested interests thus adversely affecting the stability of a country and create an unwelcome volatility in the price and supply of energy • The increased risk of state failure and conflict is borne by the citizens and the international community through increased aid, disruption of trade, need to support peacekeeping operations and to support refugee populations
Governance and Strategic Competition for Resources • Tensions between the emerging and the ‘old’ Northern powers • New game – different players? • The real threat to resource-rich countries is if the old and new powers seek to divide up the countries according to different legal and ethical standards. • Importance of strong governance structures.
The Environment story • The oil industry occupies less than five per cent of the delta’s land, but the entire region feels the impacts of its operations. • Canalization: • To shorten travel time and improve access to oilfields and production facilities • Sometimes causes saltwater to flow into freshwater zones • Destroys freshwater ecological systems. • Aggravates illegal logging activities.
The Environment story – Contd. • Oil Spills - Approximately 6,817 oil spills occurred between 1976 and 2001, with a loss of approximately three million barrels of oil.
The Environment story –Contd. • Flaring – • Around 75 % of the gas is flared • Low financial penalties not a deterrent • Air and thermal pollution damages biodiversity. • Noise and elevated temperatures • perpetually exposed to light with no respite at night.
The Environment story –Contd. • Effluent and waste from oil operations: • Lack of appropriate waste treatment facilities • Wastes generated by the oil operators are discharged onto land, into mangrove and freshwater swamps, and into the sea.
The Environment story –Contd. • Which companies operate in these areas?
Where does the Money Go? • All these deals, legal and illegal, push vast amounts of money through the international banking system – • Riggs Bank Dupont Circle Branch, Washington DC • Deutsche Bank in Frankfurt – Turkmenistan’s gas revenues
Is there anything we can do? • Is it all a tale of woe or can something be done? • The good news is, something can be done:- • First, we need to acknowledge our respective contributions to this problem and hence the need to be part of the solution • Increased governance structures:- • At the local level, by building/strengthening our integrity systems including our laws, institutions and practices relating to accountability and integrity • Embracing initiatives such as EITI • Capacity building not only for management of the sector but also of civil society to effectively perform its role
Is there anything we can do? Contd. Government • Recipient of lion share and therefore must play central role in developing; • policies • legislating • enforcing • managing • delivering governance including through transparency initiatives such as EITI Private Sector • historical and current role is create petroleum wealth through investment and application of its operational and commercial management expertise • if good corporate citizen, will comply with all: • governance related laws & regulation • adopt internal codes of conduct – as a minimum same principles at home as abroad • partner with government on ethical, social & environmental issues Civil Society, Media Watchdog
Is there anything we can do? Contd. • Internationally – • The Northern countries should oblige their companies to maintain, as a minimum, the same transparency and accountability standards abroad as they do at home • International agreements that promote equitable resource exploitation, benefits to the general citizenry, transparency, good governance and an end to human rights abuses • Voluntary codes?
Is there anything we can do? Contd. • Capacity building • Institutional capacity • Technology transfer • Local content • Management, oversight and audit • EHS management • International standards • Community Development – contractual provisions
A time to act – the challenge for Africa, the Northern states, the emerging economies – the world
