Oil and Gas Management: Oil and Gas Law, Oil and Gas Contracts, Oil and Gas for Beginners, Petroleum, Energy Market, Oil Production, Oil and Gas Investing: Case Studies Included by Johnathan Borg

Author:Johnathan Borg [Borg, Johnathan]
Language: eng
Format: azw3
Published: 2017-02-20T05:00:00+00:00

Measures to be Taken by Developing Country to Avoid “Curse of Oil”

While wealth from mineral resource can be very beneficial for one country with high-standard political institutions, it could be a curse for countries with poor institution.[56] The Oil Curse is the puzzlingly paradoxical situation where countries rich in hydrocarbon resources exhibit slower progress than countries with little or no resource.[57] This leads to a poor country with vast resources failing to achieve economic growth due to corruption and mismanagement, which is encouraged by the high volume of revenues generated by the O&G industry. Furthermore, corruption often means that no investments are made by government to the benefit of the wider population.[58] Taking into account experience of some developing and developed countries, the following approaches are suggested to avoid curse of oil.

Stabilisation policies and saving fund provide separate accounts into which oil revenues are paid. They are designed to set aside revenues from hydrocarbons when oil prices are high. However, when prices drop, governments use the funds to amortise the fall,[59] shielding the state budget from revenue uncertainty and resource revenue volatility.[60] Such funds would not only help spread the wealth over several generations, but also help avoid over-appreciation of the local currency, leading to transparent resource revenue flow.[61] This will also help prevent the “Dutch disease” effect.[62] National funds are commonly used, for example in Kazakhstan and Azerbaijan. Norway’s approach, in particular, can serve as a model of a successful curse of oil management.[63]

Some countries disburse a percentage of oil revenues directly to every household, under so-called oil distribution fund to insure that residents receive benefits from the industry.[64] This approach was successfully employed in Alaska in 1976 under Alaska Constitution,[65] creating greater economic dynamism by paying annual dividends from oil revenue to it citizens.

Publish what you pay[66] is a campaign designed to encourage O&G majors to disclose their payments to governments of O&G producing nations.[67] Consequently, this makes it more difficult for governments to hide revenues received from companies, and easier for citizens to control officials, thus preventing corruption in the government.

The Extractive Industries Transparency Initiative, is a voluntary effort between governments and oil majors to achieve natural resource revenue transparency. Under this approach, countries which implement EITI standards have to ensure that taxes and other payments made by O&G majors to the government are open to the public review, consequently broadening the scope of reporting coverage to include NOCs and government.[68] However, a major drawback of this initiative is its voluntarily status.

In conclusion, the above-listed approaches will allow newly developing O&G States escape the oil curse. Nevertheless, André Madec of Exxon argues that “We don't like to call it the oil curse, we prefer ‘governance curse', meaning that the negative outcomes are not necessarily the result of resource riches, but rather the political conditions under which the resource is exploited. Therefore, the critical point is to ensure that reserved revenues from O&G industry are managed in diligent and transparent way in order to benefit the national economy and its citizens.

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