Transcript Governance & Anti-Corruption Diagnostics

Intergovernmental Benefit Sharing
of Natural-Resource Revenues
Presented to:
World Mines Ministries Forum
(WMMF) 2008, Toronto, Canada
Plenary Session on Establishing
Good Governance
Saturday, March 1, 2008, 8:35 am
Presented by:
Kai Kaiser, Senior Economist
Public Sector Group, World
Bank, Washington, DC
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Overview of Presentation
• The Natural-Resources Value Chain in an
Intergovernmental Setting: Entry Points?
• Economic and Political Arguments around Sub-National
Natural Resource-Revenue Allocation
• Defining Success: Some International Highlights
• Approaches to Promoting Linkages Between Natural
Resource Revenues and Benefit Sharing/Development
Outcomes Across Different Country Settings
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Decentralized Benefit Sharing and Natural Resources
• Prevailing Issues in Range of Developing Countries
– Nigeria, Russia, Indonesia, Iraq, Bolivia, Sudan, DRC, Malaysia,
PNG, Peru, etc.
• Challenges in applying developed country models for our
clients
– Natural resources fail to translate into demonstrable and sustainable
development in places of extraction
– Weak Institutions, capacity and poor governance contribute to
“resource curse” at various levels of government
– Recent price increases and new discoveries in range of countries
with pressures for decentralization
– Claims to mining and oil revenues highly contested with diverse
states…
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Welcome to Southern Sudan
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The Extractive Industries Value Chain
Across Levels of Government
Non-renewable
Resources
Sustainable
Development
EITI
Award
of
Regulat
ion and
contrac
ts
and
license
s
monitor
ing
of
operati
ons
Collecti
on
Revenu
e
of taxes
and
distribu
tion
and
royaltie
s
manage
ment
Sound
Sustain
able
Project
s
National Government
State/Provincial Level Government
Local Government
Communities/Indigenous Groups
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Arguments Around Natural Revenues Sharing
• Arguments for Greater Degree of Centralization
–
–
–
–
–
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Stability: Natural Revenues Subject to high Degree of Volatility
Disparities: Known and potential endowments highly unequal
National Treasure: Belongs to all the people!
Local Capacity: National governments better placed to manage
Coherence in Natural-Resource Policy: Avoid distortion across regions
Revenue Transparency: Easier if revenues accrue to one “account”
• Arguments for Decentralization/Derivation Based
–
–
–
Cost-Reimbursement: Including Environmental Costs
Heritage Argument: Non-renewable resource
Political/Conflict Resolution Arguments:
• Often very important where legitimacy between central and sub-national
governments have been contested
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“Performance” of Natural Resource Revenue Sharing in an
Intergovernmental Context
• Glue or Solvent for National Cohesion?
– Averting grievances, Promoting Sustainable Local Development
• Revenue Flows Translate Into Development Outcomes
– Finance Follows Function
– Accountabilities Promote Service Delivery
• Revenue Assignments/Collection Consistent with Coherent Revenue
Policy
– Effective in attracting investment to best placed locations
• Consistent with Good Public Financial Management (PFM) at all Levels
• Intergovernmental Arrangements Consistent with Fiscal/MacroEconomic Stability
– “Overgrazing” undermines stabilization/heritage arrangements
• Natural-Resource Rents Don’t Subvert Country’s Institutional
Development/Integrity
– Corruption Further Corrodes Representative/Legitimate Institutions
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Natural Resource Revenues Must Be Seen Within the Context
of Good Intergovernmental Design
Decentralization spans

Political/Legal
 Including Constitutional Assignments (e.g., DRC 2005)

Fiscal
 Shaped by country’s economic/revenue structure

Administrative
Natural-resources can add to the complexity…
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0
Source:
Gabon
Iraq (Est.
Oman
U.A.E.
Kuwait
Nigeria
Angola
Qatar
Algeria
Congo,
Papua
Iran
Sudan
Syria
Yemen
Mexico
Chad
Congo,
Indonesia
Kazakhst
Norway
Russian
Malaysia
Australia
Natural Resource Dependence Varies Significantly
Oil & Gas Revenues (Share of Total)
M ost Recent Available Year
100
80
60
40
20
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Five Fundamental Questions
Facing Any Decentralizing System
• Expenditure Assignments/Responsibilities
– Finance Follows Function Principle
• Revenues
– Own Source Revenues (autonomy of bases/rate setting)
• Role of Sub-Nationals in Negotiating Exploitation/Revenue Streams
– User Fees
• Intergovernmental transfers
– Derivation Based Revenue Sharing
– Transfers
• Fiscal Equalization
• Specific Purpose/Conditional Grants
• Subnational borrowing/debt
• Capacity Development: Organizational, Institutional and Human
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Mining Benefit Sharing and Sustainable Development
• Clarifying Roles and Responsibilities
– Government
• National
• State
• Local
– Communities
• Indigenous/Traditional Authorities
– Mining Companies
• Mining’s Development Footprint
– Administrative Jurisdictions: National, Intermediate, Local
– Communities/Indigenous Groups
• Promoting Mutual Accountability
– Development Outcomes, Sustainability, Efficiency
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Intergovernmental Revenue Management
• Addressing Natural Resource Revenue Volatility
– Transfers Based on Realizations or Actuals
• Sub-National Revenue Predictability
– Ex Ante Rules
– Stabilization Accounts
• Addressing Natural-Resource Revenue Non-Renewability
– Heritage Funds
• Who benefits and when?
• Transfer Transparency
– Commissions for Dispute Clarification/Resolution
– Reporting to Higher Levels
– Revenue Transparency and Accountability
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Expenditure Assignment Considerations
• Macroeconomic stability
– Takes on special importance with natural resource revenue
dependence
• Public Service Delivery
– Effectiveness/Efficiency
– Public Management Innovation
• Poverty Reduction
– Responsiveness
– Equalization
Expenditure assignments often span multiple tiers of
government
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Rationales for
Intergovernmental Transfers
•
•
•
•
•
Vertical imbalances
Horizontal imbalances
Inter-jurisdictional spillovers (externalities)
Enhancing national objectives at the subnational level
Paying for national programs implemented by subnational
governments
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(Sub-National) Natural-resource revenue assignments
tend to make inter-regional disparities prominent
• Assignment of Natural Resource Revenues to SubNationals
– Shared versus Own Source (i.e., incorporates effort)
– How much is assigned to sub-nationals on derivation basis?
• Assignment of Other Revenues
– Property Tax?
– Income Tax? Other?
• Expenditure Needs
– Ideally funds follow function
• Transfer Design
– Vertical Shares/Pools?
– Horizontal Allocation Criteria
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A “Good” Transfer System
•
Transfers should be transparent and predictable
–
–
•
Preference for formula-based
Natural-resource revenue rich settings need to place special emphasis
on transparency
Equalization transfers should include
–
A realistic measure of “need”
•
–
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–
•
Population, Area, Cost, “Backwardness”
A realistic measure of “fiscal capacity”
Adequate sub-national revenue autonomy
Stable but flexible financing
No Single Transfer May Meet All Objectives
–
But, avoid proliferation of different grants
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Managing Transfers Across Levels
• Hierarchical Models
– 2nds tier has full autonomy over LG allocations
• Indonesian districts receive direct allocations
• Pakistan (with some modification)
• Nigeria: transfer allocations earmarked to locals, but concerns about state
interception
• National Models
– Direct allocations to second & third tiers
• E.g., Indonesia’s provinces & districts
• Guidelines for 3rd tier allocations
• Mixed/Asymmetric Models
– Special autonomy in Indonesia (Aceh/Papua)
– North/South Sudan
– Iraq’s Regions/KRG
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The Challenge of Sub-National Accountability
• Natural-Resources Revenues May be Especially Prone to Weak
Accountability
– Weak Bottom-Up Accountabilities
• No Representation Through Local Taxation
– Beneficiary Regions Subject to Windfalls
– Weak Top-Down Accountability
• Sub-National Allocation of Natural-Resources May Be Subject of Political
Bargains
• Natural Resource Revenues May Be Inherently “Centralized”
– Allocation to Sub-National Governments May (Also) Fail to Trickle Down
– Differences between Mining and Petroleum?
• Revenue-led Fiscal Decentralization Associated with Weak
Accountability for Outcomes
– Explore Linkages to Sectoral/Frontline Outcomes?
– Role of Communities?
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Conclusions
•
Significant Variations in Intergovernmental Benefit Sharing
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•
Overall and local intensity varies, different challenges from mining and petroleum
De Jure and De Facto Intergovernmental Arrangements
Understanding Political Context and Drivers
Strategic Entry Points
– Appreciate, Prioritize, and Sequence Different Links in the Value Chain
•
•
E.g., DRC revenue mobilization, distribution, and allocation agenda…
Multi-stakeholder agenda
– Transparent and Predictable Revenue Assignments
•
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Benchmark and Validate Good Practice (e.g., Public Expenditure and Financial Accountability Indicators (PEFA))
Promote transparency. E.g., expenditure tracking, external monitoring
– Identify and Promote Entry Points for Local Outcomes
•
Strengthen linkages between mining resources (“inputs”) and outcomes
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Leveraging Local, Community Institutions, and Civil Society for Effective Participation/Accountability
–
Performance Grants?
– Trade-offs and Tensions?
•
Clarify Roles, Responsibilities, and Accountabilities
–
•
Local Welfare Enclaves by Mining Companies Erode State Accountability? Tax Credits?
Balancing Capacity/Institution Building with Delivery Demands
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Q&A
Selected References
ESMAP (2005). Comparative Study on the Distribution of Oil Rents in
Bolivia, Colombia, Ecuador, and Peru. Washington, DC, ESMAP
(Joint UNDP/World Bank Energy Sector Management Assistance
Programme: 142.
ODI, 2006. Sub-National Implementation of the Extractive Industries
Transparency Initiative (EITI). London, Prepared for the EITI
Secretariat and DfID, London, Issues Paper, April.
Fiscal Decentralization and Sub-National Public Financial
Management in Iraq, Washington, DC: MNSED (mimeo)
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