Legislative Bodies. Often overlooked and handicapped by weak institutional capacity and more powerful executive bodies, legislatures have the potential to play a major role in effective management of the EI sectors. Through their core law-making function, legislatures are responsible for reviewing bills and enacting legislation needed to support the EI sector.

Legislatures also serve an oversight function that allows them, and particularly their committees: (1) to inject accountability through investigation of EI sector issues, and (2) scrutinize government activities and the allocation of funds. Finally, in their representative role, legislatures can ensure public participation in the political process as it relates to the EI sectors. 

Executive. The executive, which typically includes the presidency and executive cabinet, often reserves for itself the final decision on critical EI sector issues such as licensing rounds, state participation, and the establishment of EI sector-related funds.

Sector Ministry. At the center of the nexus of government agencies involved in EI sector management and oversight is the EI sector ministry itself. This ministry typically has overall responsibility for the EI sector. This mandate requires the EI sector ministries to oversee EI sector operations and to set policy and strategic direction of the sector.

Tasks falling within its ideal mandate and guided by legislation might include: (1) EI sector policies and planning, including proposed legislation; (2) negotiation and award of contacts; (3) calculation and collection of royalties; (4) promotion of local content; (5) preparation of regulations; (6) oversight and regulatory functions, with authority to delegate this responsibility; (7) coordination with other ministries, especially the ministries of finance and economic planning; and (8) governance of NRCs, sometimes in collaboration with the finance ministry.  

Although environmental and sustainable development issues are usually the responsibility of other ministries, small units charged with coordination of the EI sector and environmental or social ministries on EI sector-related impacts are often found within the EI sector ministry.

Regulatory Agency. The EI sector ministry should be empowered and expected to delegate regulatory functions to a subordinate and quasi-independent agency. It would normally report to the EI sector ministry and have oversight functions for: (1) the development of technical specifications and standards; (2) technical supervision of EI sector operations; (3) supervision of company operations in accordance with contracts and legislation; (4) metering and monitoring of production, technical data analysis, and storage; (5) recording of licenses and ownership interests; (6) contributions to economic planning; and (7) social and environmental protection in coordination with relevant authorities.

Responsibility for HSE oversight and enforcement is commonly assigned to the regulatory agency. On HSE issues, the regulatory agency will typically have reporting obligations to the EI sector ministry and one or more other ministries or agencies involved in HSE issues. In Norway however, safety matters are vested in a distinct petroleum safety authority within the regulatory agency. This Norwegian approach appears to highlight the importance given to safety considerations; it also provides some autonomy from within the regulatory agency itself.

The collection, storage, and analysis of EI sector data and samples, and the preparation and maintenance of records on petroleum and mining rights and agreements have become critical mandates for regulatory agencies. Good practice would provide for an arms-length relationship between the regulatory agency and its ministry in order to safeguard the regulatory agency’s objectivity. In a number of states, EI sector regulatory functions, either formally or in practice, have been allocated to the NRC, rather than to an independent agency. This choice appears to have been primarily based on the perceived superiority of expertise within the NRC: a practice which seriously compromises the impartiality of regulation (see Section 6.3 below). 

NRCs. NRCs play a powerful, and sometimes controversial, role in EI sector management in many states. Normally, NRCs are responsible for commercial operations and the development of a shared national capacity in the EI sector. In sharing competence between public and private obligations, NRCs often have difficulty in separating these obligations. Since NRCs are charged with responsibilities going far beyond commercial operations and may ‘capture’ local managerial and technical sector expertise, bypassing the EI sector ministry to which it usually nominally reports. Due to their prominence, particularly in the petroleum sector, NRCs are discussed at some length below. 

Finance Ministry. In almost all states, there are certain tasks that fall exclusively within the traditional competence of a ministry of finance. These usually include: (1) tax policy and the proposal of tax legislation; (2) resource revenue forecasting; (3) revenue management; (4) and expenditures (budget allocations). In a number of states, mining and petroleum royalties are assessed and collected by the EI sector ministry especially where there are issues of measurement of quantities or verification of prices which require specific EI sector technical expertise.

All of these functions, however, depend on an accurate understanding of the EI sector, and require close coordination between the finance and EI sector ministries and NRCs. Unfortunately, this coordination is typically weak or entirely lacking.^[1]  Good practice would recommend establishment of a small professional unit within the finance ministry, well-grounded or trained in sector economics and operations, and able to deal with EI sector agencies on an equal footing and ensure coordination.  

Taxation Authority.  In most states, there is a revenue authority that is responsible for assessing and collecting taxes and undertaking tax audits. Likewise, most states have a customs authority that is responsible for import duties. With regard to mining and petroleum taxation, the finance ministry is responsible for tax policy and proposing tax legislation. All EI sector ministries and authorities must have strong EI sector knowledge to do their work efficiently and effectively.

In many larger states, EI sector tax authorities are part of a larger taxpayer unit within the tax authority. Some states may even have a dedicated mining tax unit. For states where petroleum or minerals make up a significant portion of tax revenues, it will be important to have better systems and capabilities and more highly skilled and experienced staff to work on a small number of large EI sector projects. This approach contrasts with tax agency authorities that may be dealing with tens of thousands or possibly hundreds of thousands of small retail or other businesses. This may have important implications for the staffing and employment policies, as well as, the provision of fully adequate computer and other systems for the sections of the tax agency that deals with the EI sector.    

Central Bank. While not expected to play a proactive role in EI sector management, the central bank of a resource-rich states does play a pivotal role in the tracking, reporting, and reconciling of fiscal and financial flows in the EI sector. Central banks in these states will also likely play a large role in setting monetary and exchange rate policies. However, in resource-rich states, the central bank’s major role relates to requirements for repatriation of funds by EI sector investors. The central bank will often set policy concerning the share of export revenues that must be brought onshore and the share that may remain offshore.

Economic Planning Ministry. In states where economic dependence on the EI sectors is high, the performance of these sectors becomes critically important to overall macroeconomic planning. The ministry charged with economic planning, like the finance ministry, should have a very close relationship with, and good understanding of, the various EI sector agencies.

Environment Ministry. Petroleum, and especially mining, activities are often associated with significant environmental and social ‘footprints.’ Addressing the issues arising from those footprints may be the responsibility of the EI sector ministry, but good practice would recommend that responsibility go to specialized ministries like the environment ministry, and ministries dealing with labor and local community matters. In this case, good practice would also recommend that a small unit be established within the EI sector ministry to coordinate with the specialized environmental and social issue ministries.      

Other Agencies.  There are a number of other state agencies that are relevant to the EI sector. These include the health ministry; the labor ministry; the ministry of foreign affairs; the ministry of national parks, wildlife, and tourism; and the customs and excise tax authority.^[2]

Source: Norwegian Petroleum Directorate website. Available at: http://www.npd.no/en/ (last accessed 1 April 2012).

Additional Reading