ESCAPING THE OIL CURSE AND MAKING POVERTY HISTORY IN LIBERIA As Liberia positions itself to join the club of oil producers and exporters, a number of questions has continued to linger in the minds of a population with a very brief history of relative peace and stability. While the availability of commercially viable oil resources present an opportunity for poverty reduction, the nexus between oil, conflict and democratic failures is also well documented in most poor countries especially in sub-Saharan Africa. The oil boom, however, needs not to be viewed as curse but a blessing. Prudently managed, oil can be highly beneficial to a country. In this article I make a case that well managed oil resources like other natural resources will lead to socio-economic transformation and sustainable development to Liberia. The work on oil governance has just started and this article opens up the need for further inquiry and debate for deeper understanding of the oil governance. The purpose of this article is to inform the on-going National Oil and Gas Policy-making process by providing to policy makers alternative policy ideas and options. This article is also intended to promote public participation and oversight over the oil resources management and benefit sharing. It is my sincere hope that this article will trigger and sustain debate over prudent stewardship of Liberia’s natural resources capital in order to foster sustainable peace and development. At the same time however, the discovery has generated fear that the oil resources would turn out to be a curse rather than a blessing especially if the anticipated revenues were not properly planned for and, more importantly, equitably and transparently utilized. Both the anticipation and the apprehension are well-founded. Examples abound and are reviewed in this article , of countries which struck oil and either immediately nose-dived into misery or at best continued to wallow in the mire of economic stagnation, unfavorable terms of trade, dependency, unemployment and the attendant social unrest just as they did in their inglorious pre-oil days. Nigeria, for example, Africa’s largest oil producer and the fifth overall worldwide, is a classical study in poverty amidst plenty. With proven reserves of 30 billion barrels per day (bpd), Nigeria earned a whopping US$ 340bn from 1965 to 2000 from oil. But by the year 2000, that country’s income per capita was exactly what it was in 1965! And what is more shocking, 70% of Nigerians were below the poverty, earning less than one dollar a day, compared to 36%in 1970. At the same time, easy petrodollars erased the need for accountability, bred dictatorship, distorted the social structure, laid a big chunk of the country to waste and reduced the Niger Delta to an ungovernable hell-hole. Elsewhere in Africa, the discovery and exploitation of oil in Gabon literally wiped out Agriculture, industry and commerce and yet the oil has now run out, leaving the country in an extremely vulnerable position. In Angola, the bloated expectations from oil led to wanton expenditure on white elephant projects, resulting in an unmanageable national debt. To date, the bulk of the oil output is mortgaged as security for the loans recklessly incurred in anticipation of income from the “back gold”. As for Equatorial Guinea, not only has oil bred an unaccountable government, but the bulk of the earnings therefrom have not been translated into incomes for the citizens, most of whom live in penury, but have been deposited on the personal account of the president – in Washington DC .But as the article demonstrates, things need not be so grim. There is nothing inherently cursed about oil. Norway has responsibly managed oil to bring about a sustainable, fully integrated economy and stable welfare society. Many Arab countries may not exactly be bastions of democracy and accountability, but they have posted impressive economic statistics and ensured a reasonable standard of living for their people. This, then, suggests that it is possible for Liberia to avoid the so-called oil curse, and translate the discovery of oil into positive and sustainable gains. The article goes to some length to analyze the natural resource paradox, explaining how oil tends to create stagnation, economic decline and civil unrest, by distorting the interaction between the factors of production resulting in the (in)famous Dutch disease, how it promotes rent-seeking and corruption, increases the appetite for spending, undermines control of public spending, undermines industry and agriculture, lays the ground for oppression of women and, at the political level, breeds dictatorship, unrest, conflict and even civil wars. Over time, common features of what has come to be known as the “oil curse” has emerged, which include (a) Increasing the chances of conflict in a country; (b) The tendency for the real exchange rate to become overly appreciated; (c) Exposing the country to volatility, especially in commodity prices, with the attendant adverse impact on growth; (d) Environmental costs. Oil operations damage the environment and have adverse effects on the livelihoods of the communities around the production areas; (e) The cash economy created by oil undermines those trying to work for longer-term and more sustainable development initiatives. People become disinterested in anything that does not deliver instant cash, with agriculture and industry as the prime casualties. The growth of an oil cash culture thus undermines real and sustainable development. RECOMMENDED AREAS FOR LEGISLATIVE ACTION In a nutshell the existing legal regime for the management of the petroleum industry has been overtaken by realities and leaves a lot to be desired. It may not be enough to merely amend the relevant laws without fully revisiting the entire regime to take into account the needs of the day. Now that the existence of oil is a proven fact, there is need for legislation that goes way beyond regulating exploration and upstream production operations, to cover the full range of challenges that arise in an oil economy. New Petroleum (Exploration and Production) should be put in place which is ongoing. The Act should address itself to the need for the following: An elaborate institutional framework for the oil sector. In this regard, I recommend a proposals in the draft oil and gas policy for the setting up of two separate institutions to manage the sector, namely; an oil and gas policy making and monitoring body (a directorate within the Ministry of Finance ), a separate and autonomous regulatory body and a business arm (Liberia Oil and Gas Company). The roles of each should be clearly defined to avoid overlapping of roles and institutional bickering. At this point, it needs to be pointed out that the framework that I am proposing in the draft policy would have the directorate and the Authority/Commission. The relationship between Liberia Revenue Authority and the Finance ministry should provide a workable template. Provisions dealing with natural gas which, as already pointed out in this article, is not provided for in the National Oil Company of Liberia. (NOCAL) Law. Provisions dealing with transportation of crude (including law on construction, maintenance and securing of pipelines), refining, marketing (local and export). Provisions addressing tail-end operations, decommissioning and abandonment. . Legal provisions need to be put in place for the regulation of payment of compensation for damage to livelihood caused by oil operations so that those adversely affected are compensated and protected by law. Provisions for an oil fund - the Liberia Petroleum Fund - to be monitored by a wide range of stakeholders, including civil society, which should act both as a stabilization fund to absorb price shocks and as a source of future funding to sustain the economy after the oil boom. The Fund should preferably be sequestered overseas or in the central Bank of Liberia, with strict restrictions on withdrawal. For example it can be provided that withdrawal may only be done after a proven need to address a substantial price shock in the economy, otherwise the bulk of the deposits, which should be made into the account at regular specified intervals, should remain there, to be applied after the oil bonanza has come to an end or when income from oil will have so reduced as to be insignificant as a percentage of the national income. In this regard, one could look at the ample of Sao Tome which has put in place such a fund, with strict provision for a single annual withdrawal, with a complicated four-signature procedure and with power to the public to monitor activity in the account. The law should restrict the government’s freedom to spend the oil earnings and borrow against future income. Elaborate environmental controls and safeguards, including imposing obligations on the oil companies to contribute to a fund to cater for redressing oil-related environmental problems and on the Government to use some of the revenues to address oil related environmental problems, such as oil pollution. The oil legislation in this regard needs to be brought into line with the Environmental Protective Agency (EPA) legislation. Other matters like fiscal stabilization to absorb global price shocks, benefit sustainability plans aimed at intergenerational equity (to ensure that there is life after oil) and the full range of policies to address the macro-economic implications of the discovery and exploitation of oil may be addressed through other laws. Revisit the revenue code of Liberia to include the following: special provision for the taxations of petroleum operations. The reason for such provision is to provide special consideration on Allowable contractual expenditure, transfer of interest in a petroleum agreement and interest on loan for production. But the below listed should not found part of cost recoverable by international oil companies that operate in Liberia. Deductibility of petroleum Royalties, signature bonuses, cost associated with the provision of a bank guarantee granted under a petroleum agreement and any payment made under the petroleum agreement in respect of failure by the contractor to comply with it contractual obligations under the petroleum agreement and any other amount spent on indemnities with regard to the fulfillment of contractual obligations by the contractor , Fines and penalties impose by court, cost incurred before the date of petroleum agreement, cost incurred as a result of willful misconduct or gross negligence of the contractor and interest incurred on loan raise by the contractor to finance exploration operations also enact law on Capital gain Tax. POLICY RECOMMENDATIONS A creative oil governance mechanism for Liberia should be underlined by the Following considerations: The overall strategic role of oil in the economic development of the country, especially its contribution to economic transformation. Enhancing overall political accountability. Transparency in the management of oil resources. Seriously examine the merits and demerits of the policy of PWYP (Publish What You Pay) as a mechanism to enhance transparency and control of oil revenues. Mandatory audit by the General Auditing commission. The results of the audits to be made public as require by the public financial management of 2009. Building the requisite technical expertise for responsible managements (Liberia revenue Authority and the General Auditing commission) of oil revenues. Direct linkage between oil revenues and raising the standard of living of ordinary Liberians and poverty eradication. A percentage of the oil revenues should go directly to poverty eradication, stipulating what percentage for which areas (e.g. education, agriculture, health, rural development). Mitigating the damage to the environment attendant to oil exploration & production activities. Engendering the oil industry activities. Written by: Emmanuel Tarnue Azango Tazango2002@yahoo +256700927587/+256784621592 One of Liberia’s foremost emerging Economist, Tax Consultant, an expert Oil and Gas.
Posted on: Mon, 23 Jun 2014 05:42:50 +0000
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