Oil for Development – OfD Stanford March 13, 2009 Petter Nore www Oil for Development – OfD Stanford March 13, 2009 Petter Nore www.norad.no\ofd You can find more information about the Oil for Development initiative on the website: www.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” This can only be achieved through involving a broad range of institutions and stakeholders, and through promoting transparency and good governance

Core countries OfD has broad long term projects in the ten core countries on the map and has more limited cooperation with 14 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 Punkt 1: You can find the three frame agreements we have with consultancies on our website Punkt 2: OfD encourages all its cooperating countries to implement the EITI Punkt 3: On our website you will find a list of which international and Norwegian NGOs that have been supported by OfD so far, and the amount each has received Punkt 4: However, cooperation with industry will be based on careful analysis of roles and responsibilities of different stakeholders, and efforts are made to ensure that Oil for Development is contributing to a level playing field among competing oil industry players, and not the opposite

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) . The key concern of OfD is to build capacity among NGOs in the South, not primarily to support NGOs in Norway

OfD – our foundation OfD is built around three integrated themes: Resource management Environmental protection Revenue management Each of these three pillars, as well as overall good governance, is essential for contributing to sustainable development 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 Introduksjon: Support within this broad thematic category can address the following issues and challenges, among others

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 Introduksjon: Support within this broad thematic category can address the following issues and challenges, among others Punkt 1: this includes petroleum, fisheries and environment and impact on other industries in general

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) Figure 1 shows how funds spent by OfD have steadily increased. In 2007 total spending reached NOK 148 million which was an 80% increase from NOK 82 million in 2006. The budget for 2008 is NOK 240 million. The shaded area in the column for 2008 indicates an uncertainty in the expenditure which is likely to be less than budgeted. The main reason for this is that a number of countries where OfD operates are politically unstable (e.g. Sudan, Lebanon and Iraq) with discontinuities and delays in the disbursement of funds. OfD activities are financed from eight different posts of the development assistance budget. The most important funding for the program are the regional allocations of the Ministry of Foreign Affairs and Norad’s budget.

Core activities, percent Figure 3 shows how OfD’s country based expenditures are distributed among three core activities; Resource management, Environmental management and Revenue management. The fourth category “Other” mostly relates to governance. Activities associated with resource management are the most important, with a share of approximately 60 percent. The share spent on environmental and revenue management is expected to see an increase from 2007 to 2008, which is in line with the overall objective of the programme. These figures are “bottom-up” estimates based on an analysis of the activities in each country. OfD aims at a holistic approach to petroleum administration where Resource management, Revenue management and Environmental management are integral parts of an overall approach. Therefore, it is difficult to exactly determine the percentages allotted to each core activity. Consequently the aggreaget figures must be interpreted with care. They are more a rough indication than exact figures.

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 helped Afghan authorities to organize first concession round for three blocks in Northern Afghanistan OfD has helped 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 Learnt Heavy demand for the program -Rapid growth in environmental and financial advice -Less demand for governance\ anti corruption; but increasing Presents options; not solutions -Can’t force countries to implement policies Ensure independence of advice from commercial sector -But part of Norwegian foreign policy agenda Keep a Long run (5-10 year) perspective Capacity building\Institution building takes time

Ten Lessons Learnt 5. Keep a short term capacity to react 6. Civil society and transparency; necessary but not sufficient factors for success 7. Concentrate number of countries\programs -25 countries and regional program far too many 8. 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 Supply History 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