Oil for Development – OfD Stanford March 13, 2009 Petter Nore norad.no\ofd

1. Oil for Development – OfDStanfordMarch 13, 2009Petter Norewww.norad.no\ofd Januar 2008

2. Overview • Description ”Oil for Development” • Lessons learnt from the program • Issues for further discussion : • Security of supply and OfD

3. 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)

4. 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”

5. Core countries

6. Howwework • 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

7. 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

8. 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)

9. OfD – our foundation • OfD is built around three integrated themes: • Resource management • Environmental protection • Revenue management Principles of good governance, transparency and accountability are a fundamental part of the three themes

10. 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

11. 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

12. 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)

13. 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

14. Ofd activities, NOK million (1USD=5NOK)

15. Core activities, percent

16. 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

18. 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

19. 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

20. 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

21. Lessons learnt from OfD program

22. TenLessonsLearnt • 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

23. TenLessonsLearnt 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

24. 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

25. Security of Supply and OfD

26. SecurityofSupply • 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

27. SecurityofSupply History • Churchill WWI\Persia\English navy • 1973 oil embargo • Ukraine cutoffs of Russian gas • Two Gulf Wars

28. TwoaspectsofSecurityofSupplywith 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

29. Thirdfactor; OfDcanplay a role in encouraginglong 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

30. World supply less thanpotential • ”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

31. SummarySecurityofSupply • 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