6.4 Key Institutional Issues

6.4.1 Building Capacity

Large scale EI sector developments can involve very large investments relative to many small economies, and can require much more technical expertise than other sectors in the economy. They can involve very experienced and serious international investors on one hand, and speculators seeking to take advantage of a state’s resources on the other.

Box 6.6: Institutional Capacity

Appropriate institutional capacity at each stage in the EI value chain is critical to overall EI sector management success. Targeted skills, training, adequate resources and compensation, and insulation from political interference are essential. Technical assistance and the engagement of professional advisers can contribute importantly to capacity building. 

 

Savvy investors can put government officials at a disadvantage when negotiating private participation in a state’s EI sector.[14]  It therefore may be necessary to adjust employment and other policies so that the EI sector agencies can attract and retain competent, non-corrupt, well-qualified, and experienced professional staff in sufficient numbers to administer the EI sector effectively so as to adequately represent the state interest.  It may also be necessary to ensure that the EI sector ministries and agencies, and their counterparts in the tax and finance ministries, have adequate budgets and technical capacity given the high financial stakes involved for a state with large-scale EI sector operations.

Box 6.7: Petroleum Technical Assistance to South Sudan

South Sudan was officially recognized as a newly independent state in July 2011. However, in gaining its independence, South Sudan has become the world’s most petroleum revenue dependent country in the world (98 percent).

A World Bank administered grant in the amount of 3.3 million USD has been prepared by the World Bank working closely with the South Sudanese Government and other key donors such as Norway to address South Sudan’s urgent petroleum sector priorities in three key areas:

  • Assist the Ministry of Energy and Mining (MoEM) and Ministry of Finance and Economic Planning (MoFEP) in assuming certain core functions related to EI sector management and revenue management.
  • Assist MoFEP in establishing a macroeconomic and fiscal policy framework that takes into account the challenges of extreme petroleum dependence.
  • Assist relevant committees of the South Sudan Legislative Assembly (SSLA) to begin to carry out their accountability function for the use of petroleum revenues.
  • In all cases, appropriate external expertise has been carefully identified and will be twinned with selected South Sudanese for training and capacity building purposes.

 

Resource-rich developing states, where institutional capacity is weak, can seek support by directly engaging external expertise or benefiting from donor or IFI technical assistance programs. External assistance can be doubly valuable in providing essential training while at the same time addressing current issues on behalf of the state. Good practice would call for this assistance to be discussed and carefully planned with the expected beneficiaries. The petroleum sector technical assistance program designed jointly by the Government of Southern Sudan, the World Bank, and Norway provides an excellent example of good practice (see Box 6.7 above).

 

6.4.2 Inter-Agency Coordination

Perhaps the biggest issue related to the development of appropriate institutional capacity relates to inter-agency coordination. Several different governmental entities engage with EI sector investors. The key government agencies include: (1) the EI sector ministry or government department on exploration and production; (2) the ministry responsible for geological data; (3) the ministry responsible for the environment; (4) the ministry responsible for local community and social issues; (5) the finance ministry; (6) the ministry or administration responsible for taxation; (7) the ministry responsible for economic planning; and (8) the ministry or ministries responsible for rural and small business development.

Box 6.8:  Petroleum Sector Reform in Brazil

Brazil’s organizational reform of its petroleum sector has provided clarity on roles and responsibilities and enhanced transparency and accountability. The roles for Petrobras (Brazil’s NRC for petroleum exploitation) are divided among the following entities:

  • President. Approves fiscal targets for Petrobras;
  • Congress. Approves the investment budget for Petrobras;
  • Ministry of Mines and Energy. Develops EI sector policy and   the Petrobras budget; ANP. Independent regulatory agency that provides regulatory oversight and royalty administration;
  • Ministry of Finance. Develops EI sector tax design and administration, and proposes fiscal targets for Petrobras:
  • Petrobras. Responsible for commercial petroleum operations. It is 51 percent state-owned with the remaining shares listed on the stock exchange and subject to exchange requirements on transparency. Petrobras provides full disclosure of expenditures and revenues that are held in public, audited accounts.
  • Private Sector. Authorized to act alone or in joint ventures with Petrobras.


As noted below in the discussion of fiscal administration (Chapter 7), all too often the expertise regarding EI sector exploration and operation is only to be found in the EI sector ministry. If this expertise is not made available to or if it is not accepted by other arms of government, it can result in those other agencies being seriously disadvantaged in their engagement on EI sector issues.

It is not unusual to find a situation in which some ministries or agencies are actively encouraging new investment while at the same time others are creating barriers. This can obviously create additional risks for investors and fewer benefits for government. As a practical matter, this can cause problems relating to issuing visas and work permits, and in providing customs clearances and releases for goods and equipment. Thus, there is great value in developing well-organized and coordinated EI sector knowledge sharing and information flows. In particular, it is important that the EI sector ministry coordinates well with other government departments in order to achieve effective oversight, regulation, and risk sharing between government and investors.[15] 

 

Box 6.8: Mining Sector Reforms

Botswana, Chile, Brazil, the DRC, and Zambia provide different models for both sustained success and reform.

Botswana has a 50/50 ownership of the highly profitable Debswana diamond operation with De Beers and has played an active, commercial shareholder role while leaving management in the hands of De Beers.  In addition to its dividends as shareholder, the government has also received substantial tax payments.

Chile has retained control and operation of much of its copper resources through the 100 percent state owned Codelco.  A strong shareholder role, undertaken in large part by the technically competent and well-experienced Chilean Copper Commission (Cochilco), has enabled Codelco to remain one of the most highly profitable and lowest cost mining companies in the world over many decades.

CVRD (now called Vale) has been a well-governed and well-managed iron ore mining company in Brazil, which was taken to the stock market by the government and remains one of the world’s largest and most profitable iron ore exporters.

In the mid-1970s, both Gecamines in the DRC and ZCCM in Zambia were two of the largest and most profitable copper producers in the world: both were state-controlled.  However, a combination of non-commercial roles, mismanagement, and corruption led them to becoming non-competitive in their copper and cobalt mining production. Today, they produce one-fifth of their peak production in the 1970s.  Both have now been restructured and reformed, and have divested much of non-commercial roles to other government agencies. Most of their mineral reserves have been auctioned to private investors who are now assisting in the rebuilding of the mining sector in the DRC and Zambia.




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  • daniel gilbert: South Sudan, referenced on this page, is also an area of focus of Dr Salman Salman, ex-World Bank, and an 'Hon Associate' of the UNESCO Water Centre, a sister department of CEPMLP. See http://www.dundee.ac.uk/water/people/honoraries/salmansalman/… read more