Transcript Slide 1

NOT AN OFFICIAL UNCTAD RECORD
OIL AND GOVERNANCE
- A TIME TO ACT
UNCTAD 11th African Oil & Gas, Trade & Finance Conference
Nairobi 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
Africa, 9%
North
America, 5%
South and
Central
America, 9%
Europe and
Eurasia,
12%
Asian
Pacific, 3%
Middle East,
62%
Global Oil and Gas Investment
500
bilion dollars (nominal)
400
300
200
100
0
2000
2002
Upstream
2004
2006
2008
Downstream
Investment has surged in recent years with higher prices
& is set to rise further through 2010 on current plans…
2010
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Billion barrels
Africa’s Oil Reserves & Production
Reserves
Production
40
35
30
25
20
15
10
5
0
Increase in Fuel Imports (%)
2000 - 2004
Japan
Brazil
United States
European Union
India
China
0
20
40
60
80
% increase in fuel
100
120
140
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
1) Growing demand –
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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.
Are these Africa’s problems?
Are they solely Africa’s
problems?
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.
The Environment story –Contd.
Summary of some oil spills in the delta
The Environment story –Contd.
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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.
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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