Natural Resource Charter Blog/News

Video from this year's NRC Annual Workshop

September 15, 2011
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Report from Natural Resource Charter annual technical workshop, Oxford, June 2011

August 19, 2011

Invitation for inputs to the Natural Resource Charter

June 16, 2011

Dear Colleagues,

The Natural Resource Charter invites contributions from all stakeholders as part of its annual consultation and revision process.

Revisions to the Natural Resource Charter recommendations: 2010

June 6, 2011

The year of 2010 saw a continuation of the Charter's global consultation process, drawing on a wide range of expertise and stakeholders views and culminating in the annual technical workshop, held in Oxford in September 16th and 17th.

Throughout 2010 the Charter had gathered feedback from a variety of sources including industry, civil society organisations, academics and technical experts, as well as concerned citizens of resource-rich countries. Furthermore, the technical workshop welcomed many different viewpoints, across these various stakeholders, to scrutinise, challenge, revise and update the Charter text.

Volatility of Commodity Prices and Investment Flows

May 26, 2011

The unpredictability and volatility of commodity prices, capital movements and revenue flows are well known—often from bitter experience of inflation, Dutch Disease and boom & bust in public expenditure and borrowing in resource-rich countries. A couple of recent data points usefully bring home the continuing and particular dangers that come with the opportunities of volatile natural resource windfalls.

Oil Money Must Not Be Eaten Too

May 16, 2011

When the big people eat the money...indignant animators strike back.

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Ghana Oil Readiness Report Card

May 16, 2011

Last month, Ghana’s Civil Society Platform on Oil and Gas issued a ‘Readiness Report Card’ on stakeholder preparations for the potentially transformative—and disruptive—impact of oil revenues from the Jubilee Field, where commercial extraction began in December 2010, marking Ghana’s debut as an oil producer. Drawing on best practice guidelines, including the framework provided by the Natural Resource Charter, five stakeholder groups assessed the preparations for the impact of operations and revenues estimated to reach $1bn per year over the next decade. Prominent amongst the efforts examined was the landmark Petroleum Revenue Management Act (PRMA) passed by the Parliament of Ghana in March.

The report gave Ghana an overall ‘C’ rating across each stakeholder group assessed—a fair, improved performance, with a mixture of optimism and foreboding about how much further there was to go.

Transparency and Beyond

May 9, 2011

Earlier this year the Extractive Industries Transparency Initiative (EITI) held its fifth Global Conference in Paris. The event was dominated by often lively debate on three broad issues: the extent to which the voluntary EITI was complemented by the requirements of the US Dodd-Frank Act (esp. Sec. 1504, the Cardin-Lugar Amendment); what comes next for those countries deemed compliant with EITI; and what could be done beyond transparency to ensure that the greatest social and economic benefit is secured from natural resource wealth.
Shell CEO Peter Voser made news by suggesting that Dodd-Frank’s reporting requirements diminished the sovereignty of resource-rich countries, which were being treated as ‘a problem and not a solution’ in contrast to the approach of the voluntary EITI.
Dr. Mo Ibrahim, a member of the Oversight Board of the Natural Resource Charter, warned against seeing any contradiction between Dodd-Frank-style regimes and EITI. Ibrahim called on Europe to ‘show its moral character’ by swiftly following the US example. And it certainly seems that the EU and its members are gearing up to act.

New rules for Africa’s resource scramble

April 7, 2011

This post previously appeared on February 21st 2011 as a guest posting at the Aid Thoughts blog.

Natural resource extraction in Africa is a big deal. Particularly when it comes to sub-soil assets such as oil, gas and minerals. Between 2000 and 2008, ODA flows to sub-Saharan Africa increased from $12bn to $36bn per year. In contrast the value of natural resource rents rose from $39.2bn to $240bn. And this is just the beginning. Paul Collier and Anke Hoeffler’s much-touted estimates (based on the World Bank’s 2006 Wealth of Nations research) put the value of known sub-soil assets in SSA at only one-fifth of those of the OECD ($25,000 per sq. kilometre versus $125,000 per sq. kilometre in the OECD). It seems likely then that much of Africa’s wealth is yet to be discovered. This is consistent with what we know - that many countries remain only partially explored. For example, the Zambian government’s most up-to-date geological survey reportedly date from the 1950s!

Getting better public geological information and incentivising exploration are just the first in a chain of complex decisions facing many of these countries. Even once you know what you have, and it’s coming out of the ground, opportunities for abuse and mismanagement are rife. Securing the full value of resource rents for government remains challenging. Gold exports from the Eastern DRC have been estimated to be around $1bn per year. In contrast treasury receipts from these exports reached only around $20,000 in 2008. This is an extreme example, but this story is all too familiar.

Money, evidently, goes missing. One part of the problem is a lack of scrutiny; governments need to be held to account by their citizens and companies by their shareholders. For this kind of scrutiny to take place, transparency in operations and disclosure of payments is important. It is for this reason we should all welcome the UK government’s recent announcement.

The Observer newspaper reported yesterday that George Osborne and Vince Cable are working together towards EU legislation requiring all extractive industry companies to disclose any payments made to resource rich governments. It is hoped this legislation will cover all companies, European or otherwise, listed on European markets. Osborne made this case for decisive legislative action before a meeting of G20 finance ministers in Paris on Saturday.

The movement to strengthen governance in extractive industries has seen a succession of victories in recent months. The inclusion of disclosure provisions in the Dodd-Frank financial reform legislation, passed in July 2010, requires all extractive companies to report all payments made to governments in each country they operate in. Furthermore this extends not just to U.S. companies but to any company publicly listed in the States (for example BP). More recently in December it was announced the EU will seek to implement equivalent legislation by the end of 2011. At the end of January this year Nicholas Sarkozy, in response to an open letter from Bono of the ONE Campaign, pledged French leadership and support for this process. Furthermore, Sarkozy has put the future of Africa at the heart of his aims for France’s chairmanship of the G20 this year.

These breakthroughs come on the back of work by initiatives such as the Extractive Industries Transparency Initiative (EITI), which has led the implementation of voluntary country-by-country disclosure, and the Publish What You Pay coalition, a network of civil society organisations, who have lobbied G20 governments to take action.

However there is work yet to do. Many companies operating in Africa will remain uncovered by these reforms. Canada’s parliament recently rejected by a narrow margin a Bill that would have extended similar provisions to the many important (and many smaller) mining companies listed in Toronto. Furthermore an important minority of the new players in the extractives sector, particularly those operating in Africa, originate from outside the OECD. Other G20 nations such as Brazil (home to Vale, the world’s second largest mining company) plus China and India should be encouraged to take similar steps (Hong Kong already has a form of these rules in place).

The international community has a vital role to play, to establish global governance around extraction companies and flows of funds out of resource-rich countries. Such actions can also bolster the efforts for reform from within these resource-rich countries.

The recent announcements create real momentum to level the global playing field in transparency and can galvanise the G20 nations around a clear development agenda. This agenda may not be built on aid flows or debt relief, but may prove to be more important for the future of Africa. Transparency is a good place to start but would be the wrong place to stop.

Conditional Cash Transfers can help deliver real benefits for citizens

December 1, 2010

Over at the Guardian’s development blog, Madeline Bunting discusses the growing popularity of conditional cash transfers (CCTs) in emerging economies and the development community.

What does this have to do with natural resources? A great deal, it turns out. The use of CCTs in resource rich countries is illustrative of the importance of an over-arching view of the whole decision chain pertaining to natural resources – from exploration to expenditure – and the need for such a view to earn the support of an informed social consensus.

Governments with windfall revenues, for example from oil extraction, may be well positioned to develop innovative or ambitious programs of social protection or transfer. Indeed, governments should seek to maximise the benefits to its citizens of such resource wealth, and some form of direct transfer may be an effective means of doing so.

Take Mexico, for example, where government obtains 40% of its revenue from oil. In 2009 Mexico garnered $5bn from a hedge targeted at the oil price used in overall government budget estimates. Designed as an insurance mechanism, with Mexican officials careful to avoid gambling – or appearing to gamble - with the national patrimony, the amount dwarfed the expenditure ($3.6bn) on the country’s own CCT, a central component of its Oportunidades program. Oportunidades reduced the incidence of illness amongst 1-5 year olds in the 25% of Mexican families covered by the scheme by 12% and increased the mean growth rate of children between 12 and 36 months by 1cm.

It’s not merely the cash amounts that link successful hedging, or natural resource windfalls generally, to successful CCT schemes. Bunting points out that the success of Bolsa Familia in Brazil was bolstered by the legitimacy it achieved in the eyes of the majority of Brazilian taxpayers, mostly non-beneficiaries, both through the transparency of its administration and the fact that the economic pie as a whole has been growing over the years of the program’s operation. To this we might add the importance a stable as well as a growing ‘pie’: countries that have received a sudden natural resource windfall or are reliant on resource revenues can help avoid the zero-sum, short-term political economy inimical to successful cash transfer programs by using means such as the Mexican hedge, or other forms of smoothing, to counter price volatility. The hedge helps – both politically and economically - to guarantee the stream of revenues necessary to invest in human capital or meet urgent human needs.

It is relatively easy to recommend conditional cash transfer programs in states that are as developed as Mexico and Brazil. But what about countries that may lack existing, affordable channels for social transfers? It’s not necessarily the case that such innovations cannot be adapted to these environments. A new influx of revenues such as those associated with commodity price spikes or a new resource discovery provide an opportunity for innovating in previously poor institutional environments. Such opportunities are also the occasion for technical assistance from the developed world or the contracting out of certain functions to trusted partners of host governments. The infrastructure for a conditional cash transfer system can provide the basis for increasing the accessibility of everyday financial services of other kinds, with profound benefits to the private institutions of a developing economy, as well as the public fiscal balance. Technological innovation has reduced the cost of basic banking and communication services, whilst pilot schemes linking immunization drives to census recording and biometric identification hint at further positively reinforcing components of a virtuous cycle that can be sparked in previously unpromising environments.

It may be desirable to redistribute some natural resource revenues on a conditional basis and some on an unconditional basis (as with oil revenues in Alaska, for instance), and then – somewhat counterintuitively – tax back some of that distributed income. Many of the iniquitous consequences of the resource curse are the result of an overdependence of a gatekeeper state on resource revenues alone. Dividend-and-tax allows peoples not only to take ownership of their country’s natural resources, but of their own governments too.

The unconditional variant of CCTs, otherwise known as direct dividends, may be an appropriate tool in resource rich states, not least since citizens have a claim of ownership over resource rents. For more information on implementation of direct dividends see the Charter fact sheet and the recent paper by Paul Segal.