Lahn Glada, Marcel Valérie, Mitchell John, Myers Keith, Stevens Paul, Good Governance of the National Petroleum Sector

12 Pages·0.177 MB·English

Good Governance of the
National Petroleum Sector
The Chatham House Document
1
Glada Lahn, Valérie Marcel, John Mitchell, Keith Myers, Paul Stevens
www.chathamhouse.org.uk
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©RoyalInstituteofInternationalAffairs,2007,2009
FirstpublishedMarch2007
ReprintedMay2009
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Acknowledgments
The authors worked as members of an editorial group
including Pedro Gomez, Willy Olsen, and Prof. Isabelle
Rousseau, who reviewed texts and made valuable contri-
butionstoboththisdocumentandtherelatedreport.All
participants in the project’s workshops were invited to
comment on the final draft of the report: many did so,
some at length, and all to good effect. The authors thank
thosewhoresponded,andespeciallyProf.ImadAl-Atiqi,
Alejandro Litovsky, Dr Bright Okogu and Abdullatif Al-
Othman, for their valuable comments and advice
throughout the drafting process. In a subject of this
breadth it is impossible that everyone is satisfied with
everyword,andthiswasnotsought.Theauthorsaresolely
responsibleforanyopinionsexpressedinthepresenttext,
andforanyerrorsoromissions.
3
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practice. Beginning in February 2005, Chatham House,
LondonandtheCentreforEnergy,PetroleumandMineral
Law Policy (CEPMLP) at Dundee University facilitated a
series of workshops involving participants from govern-
ment,nationalandinternationaloilcompanies,NGOsand
Good Governance
financialinstitutionsfromoil-andgas-producingcountries
at different stages of development. The conclusions have
of the National
beensupplementedwithin-houseresearchoninternational
governance practices to produce this document and the
Petroleum Sector
more detailed Report on Good Governance of the National
Petroleum Sector. The latter provides examples from
countrycasestudiesandofferschecklistsandguidancefor
thepetroleumsectorpolicy-orstrategy-maker.3
This project is separate from other governance initia-
This document introduces the results of a two-year tives such as the Extractive Industries Transparency
project, led by Dr Valérie Marcel with Professor Paul Initiative(EITI),whichfocusesonresourcerevenues,and
Stevens, to find out what constitutes good governance of theInternationalMonetaryFund’sCodeofGoodPractices
the petroleum sector from a national perspective. It on Fiscal Transparency, which focuses on fiscal processes
condenses the project’s findings and recommendations inthegovernmentsector.Althoughtherearesomenatural
into5principlesand40benchmarks.Theseareuniquely complementarities,ourprojectaddressespetroleumsector
basedonadialogueinwhichdecision-makersfrom23oil- governance at a broader level. Recommendations are
and gas-producing countries shared their experience and basedprimarilyonproducers’experienceandaspirations,
worked towards a set of common goals and guidelines.1 including those of countries actively engaged in the EITI
Together, the benchmarks form a broad framework for or IMF programmes. We hope that the project’s findings
good governance of the sector and a springboard for will form a foundation for ‘good governance’ dialogues
makingpracticalimprovementstogovernancesystems. amongnationalpetroleumsectorstakeholdersaroundthe
worldandpromoteagreaterawarenessoftherichbreadth
ofexperienceuponwhichproducingcountriescandraw.
The Good Governance of the National
Petroleum Sector project
What is in this document?
In many developing countries, petroleum2 is the primary
sourceofgovernmentrevenue.Failuresofpetroleumsector Thisdocumentisdividedintofiveparts:
governance can have far-reaching implications for the
economy,socialdevelopmentandpoliticalstability.Bythe 1 Whatispetroleumsectorgovernance?
same token, a well-governed sector will increase national 2 Theimportanceofthenationalcontext
wealth, sustainable development and social stability. This 3 Participantsingovernanceandfouressential
projecttookasitsstartingpointthefactthatthesebenefits governancefunctions
are more likely to be achieved if all stakeholders share an 4 Fiveuniversalprinciplesofgoodgovernance
understanding of what good governance requires in 5 Improvinggovernance:40benchmarks
1 Participantsinvolvedintheprojectcamefrom:Algeria,Angola,Azerbaijan,Brazil,Colombia,Egypt,India,Iran,Iraq,Kazakhstan,Kuwait,Libya,Malaysia,Mexico,
4 Nigeria,Norway,SaudiArabia,Suriname,Trinidad&Tobago,theUnitedArabEmirates,theUnitedKingdom,theUnitedStatesofAmericaandVenezuela.
2 Theword‘petroleum’refersheretobothoilandgas.
3 ThefirsteditionoftheChathamHouseReportonGoodGovernanceoftheNationalPetroleumSectorisa‘livingdocument’thatcanberevisedonthebasisof
commentsandsuggestionsfrompetroleumsectorrepresentativesaroundtheworld.Itisavailableatwww.chathamhouse.org.uk/goodgovernance
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GoodGovernanceoftheNationalPetroleumSector
1.Whatispetroleumsectorgovernance? 3.Participantsingovernanceandessentialgovernance
Petroleumsectorgovernancereferstothesystemformaking functions
andimplementingdecisionsconcerningtheexploitationofa Executiveactorsandstakeholdersinacountry’spetroleum
nation’soilandgasresources.Itincludesthestructuraland governance can be divided into three groups: State/
hierarchicalorganizationofthesector,itsdecision-making Government, People/Society and Investors/Operators.
andcommunicationprocesses,thepoliciesandobjectives State/government actors may include the executive,
governingitsactivitiesandtheregulationofthoseactivities. ministries,thenationalbank,apetroleumadvisorycouncil,
There is a wide range of producer experience and many official regulators, local authorities and legal institutions.
sectorsareundergoingreformsinthesefourareas. Peopleandsocietymayberepresentedbyparliament,trade
unions, the media, civil society groupings etc. The
2.Theimportanceofthenationalcontext investor/operator grouping includes the national oil
Itwasclearfromtheoutsetthattherecouldnotbeadetailed, company, local private-sector companies, international oil
one-size-fits-allmodelforgoodgovernanceofthepetroleum companiesandfinancialinstitutions. Therelationsbetween
sector.Eachcountryhasauniquecontextandsetofcustoms thesegroupsvaryfromcountrytocountry;forexample,the
and values which influence how political power and legal NOC is sometimes more of a government agency than an
authority are distributed and exercised. Defining factors operatingcompany.
include:thetypeofpoliticalsystem;thelevelofdependence Participants have agreed that four governance functions
onpetroleum;thelife-spanofresources;thelevelofnational areessential:
economic and educational development; the organization
andcapacityofgovernmentministriesandagencies;interna- 1 Policy-making–settingdirection,goalsandobjectives
tionalobligations(suchasmembershipofOPEC,theWorld 2 Strategy-making – translating policies into plans of
Trade Organization, the UN Framework Convention on action
Climate Change or the UN Global Compact); the legal 3 Operational decision-making – implementation of
frameworkforthepetroleumsector;andthenatureofcivil policy
society. The national context evolves over time and 4 Monitoringandregulation–providingassuranceand
petroleumsectorgovernancehastoadaptinresponse. compliance
Giventheseconditions,theprojecthas:
Figure1showsadesirablegenericmodelforthedistribution
(cid:1) sought universal principles and generally applicable of functions between the different stakeholders/actors.
guidelinestowhichallproducerscansubscribe Peopledelegateresponsibilityforpolicy-makingtogovern-
(cid:1) described how governance can be improved within ment which, in turn, delegates responsibility to operating
certainnationalcontexts companiestocarryoutoilandgasoperations.People/society
(cid:1) drawnupasetofbenchmarksagainstwhichproducers hold government accountable for the policies.
can assess themselves and identify potential improve- State/governmentholdstheoperatorsaccountableforimple-
ments mentationofthosepolicies.Severalactorsmaybeinvolved
inthesamefunctionbuteachhasaspecificrolewithinthe
Theprojecthasfocusedoncountriesthathaveanationaloil decision-making process. The investors/operators provide
company (NOC), although many of the principles and theinformationandfeedbacktoenableappropriateregula-
benchmarksapplyequallytocountrieswithoutone. Many tory standards and policies. People/society contribute to
NOCs now have shares or bonds listed on securities and policy-making debates, are ultimately responsible for the
stock markets and so fall under codes of private-sector approval of the chosen policy, and can assist in the moni-
corporategovernanceandreporting. Wedonotreplicateor toring and regulation of operations in the sector through
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draw from these codes here although there may be some mediainvestigation,industryanalysisanddirectcommuni-
obviouslinkages. cationwiththesector.
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GoodGovernanceoftheNationalPetroleumSector
Figure1:Agenericdemarcationoffunctionsbetweenprincipalactorsintheoilandgassector
GovernanceFunctions
Actors Policy Regulation Strategy Operations
People/Society/Parliament
State/Government
Investor/Operator
executiveauthority proposals&approvals input&feedback
4.Fiveuniversalprinciplesofgoodgovernance governance systems. The Report suggests more context-
Most importantly, the project established five universal specificresponsestoeachoftheabovequestions.
principles which underpin good governance in the
petroleumsector.TheyarelistedinTable1,togetherwith 5.Improvinggovernance:40benchmarks
the related questions that all systems of governance must A set of 40 conceptual benchmarks for good governance,
address. which can help assess governance systems and identify
The nationalcontext will influence the extent to which strengths and weaknesses, is given in this section. Issues
these principles are currently implemented and may pose are naturally interrelated and are cross-referenced where
specificchallengesforcountriesattemptingtoimprovetheir possible.
Table1:Thefiveprinciplesofgoodgovernance
Governanceprinciple Relatedquestions
1 Clarityofgoals,rolesandresponsibilities (cid:1) Whosetsobjectives,targetsandregulationsforthesector?
(cid:1) Howarefunctionsdistributedandrolesdefined?
(cid:1) Howisauthoritydelegatedandhowareresponsibilitiesdefined?
2 Sustainabledevelopmentforthebenefitoffuturegenerations (cid:1) Whatobjectivesarechosenforthesectorandwhy?
(cid:1) Howdoobjectivesandregulationscontributetosustainabledevelopment?
3 Enablementtocarryouttheroleassigned (cid:1) Whatdoeseachactorneedtoperformhisorherroleeffectively?
(cid:1) Whatcaneachactordotohelpenableotheractors?
4 Accountabilityofdecision-makingandperformance (cid:1) Howcandecision-makersbeheldtoaccountforcomplianceand
performance?
5 Transparencyandaccuracyofinformation (cid:1) Whatinformationdothoseinvolvedinthedecision-makingprocess
needtomakegooddecisions?
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(cid:1) Howdoesthegovernment/shareholderknowobjectivesarebeingmet?
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GoodGovernanceoftheNationalPetroleumSector
1. Clarity of goals, roles and responsibilities
Whatevertheorganizationalmodelforgoverningthepetroleumsector,clarityofgoals,rolesandresponsibilitiesbetween
agenciesiscrucial.Becauseofitsspecialimportancetonationalpoliticsandeconomicsinmanycountries,thepetroleum
industrycanbepronetooverlapsinpoliticalandcommercialdecision-making.Lackofclaritycanleadtoconflicting
agendas,duplicationofeffortandpolicyparalysis.Definingwhoshouldberesponsibleforwhatandwhateachactor's
objectivesarerequiresahighdegreeoftransparencyandenablement,asdescribedundersections3and5.
1.1 Nationaldevelopmentobjectivesandtheroleoftheoilandgassectorincontributingtothoseobjectivesare
clearandwellcommunicated.
1.2 Therolesof(a)policy-making,(b)strategy-making,(c)operationaldecision-makingand(d)monitoringand
regulatingindustryactivityareclearlydefinedandassignedtoindividualsand/oragencies(seealso3.3and5.1).
1.3 Responsibilityfortheregulatoryfunctionsisassignedtoallowforobjective,fairandindependentoversight,to
avoidconflictsofinterestandtominimizeduplicationofeffort(seealso3.6).
1.4 WherethereisanNOC,itspurposeandmissionarewelldefinedanditsobjectivesaretransparentand
alignedwithnationaldevelopmentgoals(seesection2).
1.5 TheNOC’soperatingroleisdefinedinawaythatallowscommercialandnon-commercialresponsibilitiesto
bedistinguished,andprioritizedifnecessary.
1.6 ThelegalframeworkfortheNOCclearlydefinestherightsandresponsibilitiesofshareholdersandother
stakeholders.
1.7 ThegovernancestructurespecifiestheroleoftheNOCboard,thelimitsofitsauthority,whatitisaccount-
ablefor,andtowhom(see4.1).
1.8 Thelegal,fiscalandregulatoryframeworkinwhichforeignandprivateoperators/servicecompanieswill
operateandanyobligationstothecountrybeyondtheiragreedworkprogrammeareclearlydefinedintheir
contracts.
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GoodGovernanceoftheNationalPetroleumSector
2. Sustainable development
As a capital-intensive, rather than people-intensive industry, dependent on finite resources, sustainability must be at the
heartofpetroleumsectorpolicy-making. Sustainabledevelopmentpoliciesaimtomeettheneedsofthepresentwithout
compromisingthewell-beingoffuturegenerations. Thiswillinvolvequestionsofthesector'slong-termsocialandenviron-
mentalimpactsandhowitcanbestcontributetogeneralnationaldevelopmentandthenon-petroleumsectors(thoughthe
useofstatepetroleumrevenuesonceinthehandsofthegovernmenttreasuryisnottreatedhere).Thepetroleumsector
(NOCandprivatesector,ifany)maybesubjecttopoliciesandobjectivesalignedwithnationaldevelopmentgoals.Most
importantly,theseobjectivesshouldbeassignedtotheactorbestplacedtoperformtheroleefficientlyandaccountably.A
periodinwhichtherelevantcapacityandauthorityaretransferredfromoneagencytoanothermaybenecessary(seealso
section3).
2.1 Thenationalpetroleumrevenuemanagementsystemprovidesforfiscalstability,andgivesassurancethat
petroleumresourcescontributetosustainablebenefitsforfuturegenerations(seealso3.4).
2.2 Educationandtrainingaresufficienttomeetthesector’sneedsandthetransferofskillstothenon-oilsectors
ispromoted.
2.3 Fairandrealisticlocalprocurementandemploymentpoliciespromotehumancapacitytechnologytransferand
diversificationoftheeconomy.
2.4 Corporatesocialresponsibility(CSR)policiesandprogrammesarealignedwithanationaldevelopment
agenda(see3.11and4.7)
2.5 The‘opportunitycost’ofgivingsocialobjectivestothesectoristhoroughlyassessed(see3.5).
2.6 Thepromotionofsocialwelfareand/oreconomicdevelopmentthroughsellingpetroleumproductsatbelow
internationalpricestonationalconsumersarepursuedonlyaspartofafair,transparentandcostedpolicy,for
example,tosmooththeeffectsoffluctuationsininternationalpricesoraddressquestionsofenergypoverty.
2.7 Effectiveprocessesareinplacetoensurethatthedevelopmentofhydrocarboninfrastructureanditsopera-
tionsdonotresultinlong-termdamagetolocalandregionalenvironmentalassets(see4.1and4.5).
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GoodGovernanceoftheNationalPetroleumSector
3. Enablement to carry out the role assigned
Enablementisamajorissueforproducersbecausethereisoftenamismatchbetweenwhereskilledpeopleareconcen-
trated(intheoperatingcompanies)andwheretheyarealsoneeded(intheministry,regulatororbroadergovernment).
Likewise,theremitofauthorityandfinancialcapacityofanactormaynotbesufficienttomeettheobjectivesandrespon-
sibilitiesassignedtoit.Foroptimumperformance,eachactormusthaveaccesstothenecessarymeansintermsof
authority,financialresources,information,humancapacity(skills,knowledge,experienceetc.)andsupportingprocesses.
3.1 Policy-makershavesufficientknowledge,capacityandinternalalignmenttoseteffectivepolicyandrealistic
andprioritizedobjectivesforthesector(see5.2).
3.2 Checksandbalancesareinplaceatgovernmentleveltoenableconsistencyforlong-termpolicy-making.
3.3 Actorsaredelegatedfinancialandmanagerialauthoritytocarryouttheirroleand/orfunction(seealso1.2).
3.4 ThefiscalandbudgetaryrelationshipoftheNOCtothestateisstructuredtoenabletheNOCtoachieveits
objectivesefficiently,i.e.therearechecksandbalancestoensurethatNOCspendingisinthenational
interest;theNOCisabletomakepurchasesandinvestmentspromptlyandhasthestabilitytomakelong-
terminvestmentplans.
3.5 ThereisanexitstrategytoenabletheNOCtotransferanynon-commercial,socialand/ornationaldevelop-
mentfunctionstothegovernmentorotheragencieswhentheyarereadyandabletotakeover.
3.6 TheselectioncriteriaforappointmentstotheNOCboardandexecutivemanagementaretransparentandthe
boardhastheappropriateknowledge,skillsandresourcestocarryoutitsrole(see5.7).
3.7 OperationalandcommercialdecisionsoftheexecutivemanagementandtheBoardareseparatedfrom
politicalandotherconflictinginterventions.
3.8 Theindustryregulatingbodieshavethenecessarytechnicalskills,financialresources,knowledge,accessand
legalauthoritytoexercisetheirpowerseffectively(see1.4).
3.9 Auditsofoperatorswithinthesectorarecoordinatedtominimizeduplicationandavoidunnecessarybureau-
cracy(see4.2).
3.10 Staffingdecisionsarebasedontheprincipleof'bestpersonforthejob'(see5.7).
3.11 NOCmanagersandemployeesareincentivizedtoimproveperformance(see4.5).
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GoodGovernanceoftheNationalPetroleumSector
4. Accountability for decision-making and performance
Accountabilityofdecision-makingandperformanceprovidesassurancetosocietythatdecision-makers(individualsand
institutions)areidentifiedandthattheirperformanceisassessedobjectively.Accountabilityrequirescleardelegation,
capableinstitutionsandmechanismsofenforcement.Withoutit,corruptionandmalpracticecanflourishandgood
practicecangounrecognized. Inthenationalpetroleumsector,thechoiceandempowermentofregulatorsandtherole
ofsocietyarekey,althoughthesemaytakedifferentformsdependingonthenationalcontext.
4.1 Mechanismsareinplacetoensurethatoperatorsinthesectorareincompliancewithnationalandinterna-
tionalregulationsandcontractualobligations(see3.8).
4.2 Thenationalpetroleumsectorasawholeissubjecttoregularaudit,accountingforrevenuesduetothe
government,revenuespaidtothegovernmentandrevenuesreceivedbythegovernment.
4.3 TheNOChasinternalauditfunctions(conductingfinancial,physicalandprocessaudits)whichreporttothe
board(see3.9).
4.4 TheNOCissubjecttoregular,functionallyindependentauditedreportsandaccountspreparedtointerna-
tionalaccountingstandards,suchastheIFRS(InternationalFinancialReportingStandards)(see5.2and5.3).
4.5 NOCperformanceisbenchmarkedinawaythatdemonstratesrelativeaswellasabsoluteperformancei.e.
functionalperformanceagainstcomparableorganizations.
4.6 Thereisaneffectivemechanismfordialoguebetweenlocalcommunitiesandoperatorstoaccountforthe
impactofoperationalactivities.
4.7 Corporatesocialresponsibility/nationalmissionspendinginthepetroleumsectorisaccountedforseparately
andevaluatedagainststatedobjectives(see2.4).
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