Topic: oil and gas

Proposed Shale Gas Lifecycle Process Map

Kevin Lustig — Fri, 14 Dec 2012 12:04:15 -0500

Shale Gas

Kevin Lustig — Tue, 20 Nov 2012 18:10:56 -0500

WRI is providing insight into this issue by:

Creating guidance on how to define the life cycle of shale gas projects, in order to better assess their impacts
Studying how shale gas development in China affects the energy picture in the U.S. and internationally
Taking a detailed look at how we produce and consume energy in U.S. states and regions
Assessing the risk to water resources posed by shale gas development

Shale gas is a game-changer for global energy supply. It is already transforming the U.S. energy outlook (see figure below), and is expected to deliver over 40% of domestic gas production by 2025. Opinion is bitterly divided, however, over the environmental risks and benefits of this abundant new source of energy – so much so, that the different sides struggle to agree even on basic facts. The debate is raging over two key issues – on-the-ground impacts to water, air, communities, land use, wildlife, and habitats; and the broader energy and global warming implications of developing shale gas.

Upcoming Event
April 4, 2013
Launch of a new WRI working paper Clearing the Air: Reducing Upstream Greenhouse Gas Emissions from U.S. Natural Gas Systems

STATEMENT: Obama Administration Finalizes Emissions Standards for Light-Duty Vehicles

Lauren Zelin — Tue, 28 Aug 2012 12:56:16 -0400

The Obama Administration announced the finalized historic fuel economy and greenhouse gas emissions standards for light-duty vehicles. The final program for model year 2017-2025 passenger cars and trucks will require an average CO2-level of 163 grams per mile, which is equivalent to 54.5 miles per gallon by 2025, if all reductions are made through fuel-economy improvements.

Today’s action builds on the first phase of the Obama Administration’s national program (2012-2016), which would raise fuel efficiency equivalent to 35.5 mpg by 2016 and lower CO2 emissions standards to 250 grams per mile.

Following is a statement by Kevin Kennedy, U.S. Climate Director, World Resources Institute:

“These rules will take a real bite out of U.S. greenhouse gas emissions, and in a way that’s good for consumers and the auto industry. Following the summer of extreme weather and with mounting evidence of climate change all around, the need for greater action could not be clearer.

“EPA and National Highway Traffic Safety Administration (NHTSA) estimate that the national plan will reduce greenhouse gas emissions by 6 billion metric tons. Light-duty vehicles account for approximately 17 percent of U.S. greenhouse gas emissions.

“These standards will also save consumers money by reducing the amount of fuel needed by drivers in America. EPA and NHTSA estimate together the plan will save 12 billion barrels of oil, which is more than the total gasoline the United States consumed in 2011 (approximately 3.2 billion barrels).

“Even with a recent dip, U.S. emissions are expected to grow and will significantly impact our planet—bringing more extreme weather and other dangerous impacts to people and the economy. While more needs to be done, these rules will play an important role in driving down U.S. emissions over time.”

# # # #

For more background on the auto standards, read: What To Look For In The EPA’s Forthcoming Standards On Emissions From Light-Duty Vehicles.

Fact Sheet: U.S. Electricity Markets Increasingly Favor Alternatives to Coal

Kevin Lustig — Mon, 23 Apr 2012 15:20:35 -0400

The U.S. electric power system is gradually shifting toward cleaner forms of generation. One sign of this transition is the declining use of coal for electric power production.

In 2011, use of coal for U.S. power generation dropped to its lowest level in more than a decade, according to the federal government’s independent U.S. Energy Information Administration (EIA). In fact, the EIA reported1 earlier in 2012 that coal’s share of total U.S. electric power generation dropped below 40% for the last two months of 2011, the lowest level since 1978.

To understand the cause of this decline, it is important to examine contributing market forces. Doing so provides important context for recent coal plant retirement announcements, particularly given that some companies have attributed retirements to EPA rules that are still years away from going into force. For example, FirstEnergy Corp. announced in late January 20122 that it would retire several of its smaller coal-fired power plants, explaining that the decision was “based on the U.S. Environmental Protection Agency Mercury and Air Toxics Standards (MATS), which were recently finalized, and other environmental regulations.” FirstEnergy, however, had previously cited a range of reasons3 for its decision to reduce operations at many of its smaller coal plants.

Furthermore, available evidence does not support the notion that regulations are the primary driver behind recent coal plant retirement announcements. These business decisions4 are heavily influenced by such market forces as lower natural gas prices, declining growth in electricity demand, rising coal prices, and increased cost-competitiveness of renewables.

Download the fact sheet to keep reading and see full citations.

Power Almanac of the American Midwest

Kevin Lustig — Wed, 21 Mar 2012 14:07:40 -0400

Testimony: China's Prospects for Shale Gas and Implications for the U.S.

Maggie Barron — Thu, 26 Jan 2012 09:51:49 -0500

Testimony Of Sarah M. Forbes
Senior Associate, Climate and Energy Program
World Resources Institute

HEARING BEFORE THE U.S.-CHINA ECONOMIC AND SECURITY REVIEW COMMISSION

CHINA’S GLOBAL QUEST FOR RESOURCES AND IMPLICATIONS FOR THE UNITED STATES; CHINA’S PROSPECTS FOR SHALE GAS AND IMPLICATIONS FOR THE U.S.

Introduction

Good morning and thank you for the opportunity to contribute to the deliberations of this Commission. My name is Sarah Forbes, and I am a Senior Associate for the Climate and Energy Program at the World Resources Institute. I am also manager of the World Resources Institute’s Shale Gas Initiative.

I am delighted to speak with you today about China’s prospects for shale gas and the implications for the United States. The United States and China share an interest in the domestic and international development of shale gas resources. In this testimony I will describe the state of China’s shale gas industry as well as the governmental policies that will drive its future development in China. I will discuss the implications of U.S.-China business-to-business partnerships as well as government-to-government cooperation―including the risks and opportunities such cooperation could yield. I will also describe how shale gas development in China and the United States changes the global dynamics of energy security. In conclusion, I will provide recommendations for future actions Congress and this Commission can take. In the interest of time, I have limited the scope of my testimony to a discussion of the implications of shale gas development in China on the U.S. and China.

Considering the speed with which shale gas has shifted the U.S. energy outlook1, this is an important moment to consider the implications of the development of China’s shale gas resources. Development of shale gas in China will shift future global energy dynamics. How it is done will affect the environment and global climate picture. As I describe in this testimony, shale gas can help improve international energy security by providing an abundant domestic energy resource and reducing the need for natural gas imports. What role it plays in addressing climate change will depend in large part on the degree to which shale gas displaces inefficient coal plants and supplements continued improvements in energy efficiency and renewable energy.

As I start, I would like to emphasize the following key points, which I will describe in detail in the sections that follow.

1. Current state and future direction of China’s shale gas industry: The shale gas industry in China is in early development, but the topic has already garnered significant interest from the national government. The Chinese government is implementing new policies that support the future development of China’s gas industry broadly, as well as supporting shale gas research. State-owned and provincial-owned enterprises are conducting exploration and pilot demonstrations on shale gas in China. Through its state-owned enterprises, China2 is also investing in shale gas development in the United States.

2. U.S.-China cooperation on shale gas: The global oil and gas industry operates joint ventures (JVs) to sustain growth and defuse financial risk. The emerging international shale gas industry will rely on the same tactics, particularly given the current state of the global economy. In recent years, major investments or partnerships between U.S. and Chinese companies in the shale gas sector have been used to the near-term economic benefit of both countries and provide potential for U.S. companies to benefit domestically and abroad.

3. Impacts on the energy situation in China: Shale gas development in China will reduce natural gas imports, thus improving China’s energy security. Because total natural gas demand will continue to far outstrip all domestic production for the foreseeable future, any natural gas from shale in China is expected to be consumed domestically. From an environmental perspective, the more China can develop energy alternatives to imported oil and domestic coal, the less pressure it exerts on global energy markets and the global environment. China’s domestic use of its own natural gas resources would be unlikely to have an effect on net U.S. energy imports, as the U.S. is projected to domestically produce sufficient quantities of natural gas to meet its own demand for at least the next 25 years.

Throughout my testimony, I will also emphasize a fourth point that cross-cuts these three themes.

4. Ensuring responsible operations and creating a “level playing field”: Shale gas development should proceed in China (or any country) with environmentally and socially responsible operations which are (1) enforced by appropriate laws, regulations, and standards, (2) realized through implementation of international best practices, and (3) based on an understanding of the real risks and benefits of responsible deployment (both to industry and the public). Such approaches drive demand for U.S. products and ensure a “level playing field” between companies operating in the United States and those in China. More importantly, they help ensure that any negative environmental impacts associated with shale gas development in the United States are not repeated elsewhere.

Read the full testimony here >>> (PDF, 454 Kb)

Q&A: Avoiding the Resource Curse in Uganda

Peter Veit — Fri, 08 Apr 2011 14:48:36 -0400

The following Q&A and photo essay originally appeared on allAfrica.com, and are reposted with permission.

Uganda stands to be the latest African country to benefit from newly discovered resources of oil. If used successfully, the nation’s petroleum reserves could spur development and improve the lives of millions of Ugandans. But if used improperly – with lack of transparency and insufficient regard for the environment – Uganda could become stricken by the “resource curse,” or a negative overall impact despite great potential to improve a nation’s wellbeing.

WRI is working with Ugandan non-governmental organizations to help assure that Uganda’s petroleum industry is transparent, benefits all Ugandans and is environmentally careful. Peter Veit, a senior fellow at WRI, and associate Florence Landsberg, discussed the impact of the discovery of oil in Uganda with allAfrica’s Cindy Shiner.

Lake Albert

Kyohero fishing village on the shores of Lake Albert, Uganda. The discovery of oil around the Lake Albert region has raised hopes of boosting development in the nation. Photo: Greenwatch

Development Challenges

Women coming from the market at Runga fish landing site in the Lake Albert region. Although development has improved with the construction of new roads, population growth and greater trade have depleted fish stocks that local communities rely on for their livelihoods. There are concerns that local development will not be sustainable. Photo: Robert Byaruhanga

Kisoro Market

Biweekly Market in Kisoro, south of Lake Albert on the border with Rwanda. This is within the Albertine Rift, where oil is being explored in Uganda. Photo Richard Duncombe

Community Engagement

Local non-governmental organizations have been active in undertaking community engagement for villages affected by oil production on Lake Albert. Photo: Robert Byaruhanga

Awareness of Rights

They are being made aware of their rights and how the discovery of oil might affect their communities. The goal is to avoid the ‘resource curse’ that has plagued some nations that have vast wealth underfoot, but have failed to develop. Photo: Robert Byaruhanga

Community Meeting at Bombo Parish

Here, villagers put on a drama show on the impact of oil exploration. This was held at Bombo parish, Kigorobya subcounty, Hoima District in the Lake Albert region. Photo: Robert Byaruhanga

Managing the Flow of Oil

Open drill waste management pit managed by Tullow Oil in Uganda’s Hoima District. With the assistance of the World Resources Institute (WRI), Ugandan NGOs are working to help ensure that Uganda’s petroleum industry is transparent, benefits all Ugandans and is environmentally careful. Photo: Greenwatch

National Parks

Government officials and others on tour of Kaiso Tonya Oil Exploration sites on Lake Albert. There are fissures within the Ugandan government over how to deal with oil exploration and extraction in the country’s national parks. Photo: Robert Byaruhanga

Total, S.A. Petrol Station, Kampala

Total owns two major oil concessions in the Lake Albert region of Uganda. Three promised petroleum bills are being presented to parliament this year about management of Uganda’s oil revenues. WRI says they should give a good indication about how transparent the government will be regarding Uganda’s oil industry. Photo: Alisa Zomer, WRI

A Need for Transparency

Mini buses crowd the streets of Kampala, Uganda. The actors linked to Uganda’s oil agree that the discovery of petroleum is a good thing for the country, as long as there is transparency, respect for the environment and sustainable development. Photo: Richard Duncombe

Tell us about WRI’s work in Uganda.

Veit: We’ve been working in Uganda for over 20 years on a range of issues that place us nicely to deal with some of the oil issues. We have been looking at alternative revenue-sharing formulas for oil revenue management and reinvestment. We’ve been looking at issues of disclosure and transparency, specifically on the production-sharing agreements, but also more broadly on oil revenue information.

Florence [Landsberg] has been working on the environmental aspect of the potential oil effects, both to protected areas and, perhaps most importantly, on local populations around Lake Albert. More recently we’ve been working on land-grabbing issues in the oil districts. Land values have increased, the number of land transactions has increased and the number of non-Bonyoro people that have acquired land in the oil districts has increased significantly.

What are the potential environmental impacts? The Albertine Rift has great value for its biodiversity.

Landsberg: There are direct impacts; they are going to convert wild areas to settlement and things like that. But I would like to speak about the indirect impacts.

For example, the Albertine Rift in Uganda used to be quite remote. You will have more migrations of more people into the area, and better roads. The rate at which natural resources are used is going to increase - which could be an opportunity for development, except that it is not likely to be sustainable. Many local populations around the lake are fisher folks. They already have a hard time, because there are less fish and they are smaller. And now that there are more people around the lake and more access to markets, there has been more overfishing, so the situation is worsening.

You said that development would not be sustainable – why?

Landsberg: The fish stock is already at risk, because there is more catching of fish that are not mature. The upgrade of the roads has allowed for more fish to be exported. The restocking of the fish is not going to happen if there is no intervention.

Veit: To add to that, many scientists will tell you that the Albertine Rift is the most biologically diverse area in all of Africa. There are national parks, wildlife sanctuaries, forest reserves, and there already is some impact on these protected areas. For example, there is drilling in Murchison Falls National Park, even though many public interest environmental lawyers in Uganda will tell you that the law does not allow that. Kenneth Kakuru of Greenwatch has filed a pleading in the High Court over extractive resource industries in national parks.

There was already discussion of de-gazetting one of the parks to make way for an oil refinery. There is discussion of a pipeline that would take the oil to Mombassa that would have effects on biodiversity. And there is also discussion about oil workers poaching inside protected areas.

How receptive has the government of Uganda been to these issues being brought to their attention?

Veit: There’s what appears to be an interesting split between the president, his cabinet and the oil department, versus the forestry department and the Uganda Wildlife Authority. On one hand, the Wildlife Authority has threatened to kick Tullow Oil workers out of some parks. (More here.) On the other hand, there seems to be no stopping extractive industries from operating in fully protected national parks such as Murchison.

Ken Kakuru tells me that the law allows for extractive industries in reserves and sanctuaries, but not in national parks. Even if Ken’s case succeeds and the judge rules that drilling is illegal, I would not be surprised if the judge does not order the government to stop all drilling in national parks. Even if he does, I suspect the government would either not comply or simply change the law.

How much power do wildlife authorities have to follow through on threats to expel oil workers?

Veit: Not sure. But even if they have the legal authority to do so, it is unclear whether they would actually do so. My sense is that they are using the media to raise the profile and push Tullow to be more careful and watchful. Tullow doesn’t want this type of publicity.

The bottom line is: drilling is taking place in Murchison Falls and in some of the forest reserves and sanctuaries as well. The National Environment Management Authority (Nema), which approves the environmental impact assessments (EIAs), is under some political pressure in reviewing these EIAs. As far as we know, most, or all of the EIAs have been approved - an indicator that suggests the oil sector will continue to be developed. I don’t know of any oil EIAs that were rejected by Nema, although they have called for changes in the associated mitigation plans.

Landsberg: There was one project, the early production scheme, that was inside a gazetted area, that at the very last moment actually stopped. They located somewhere else. So it does happen.

Veit: An oil refinery there, which was targeted to be placed within a protected area, was subsequently scrapped. But the information we have suggest that it had less to do with the Uganda Wildlife Authority and more to do with the European funder, who was not happy.

To what degree is there enough transparency and fairness in governance to assure that the wildlife and environment authorities have genuine power?

Veit: Probably not enough. I doubt [President Yoweri] Museveni would allow drilling to stop. Eventually he would step in and broker some agreement.

We’re not privy to those discussions. The EIAs that have been approved usually come back with some conditions, which need to be met by the oil companies before they can proceed. But the bottom line is that oil development will progress in that area. There’s just too much oil, and it means too much for Uganda as a whole.

Landsberg: Under certain conditions that can be good. Establishing these conditions is the role of environmental impact assessments at project level and the strategic environmental impact assessments at regional level. That’s where there could be some improvement. The strategic environmental impact assessment hasn’t taken place yet.

The strategic environmental assessment aims at comparing different development alternatives at a regional level. It means that you don’t only look at oil development. You weigh a scenario with oil development versus a scenario with some oil, some renewable energy, some tourism development, for example. It could translate into a zoning where no oil development would be allowed in order to preserve the area’s tourist potential. A strategic environment assessment will provide the regional context in which the impacts of a specific project will happen, which will be addressed in the project EIA.

What effect do you think this year’s elections might have in terms of Uganda’s oil, how it is used and the transparency process?

Veit: If Museveni wins then probably not much. If [Kizza] Besigye wins, perhaps. The parliamentary elections are more interesting in this regard. If the opposition picks up a number of seats then they may be powerful enough to change matters. There is a caucus of MPs on oil, which can be influential.

You had mentioned problems of land grabbing. Are there proper land-use laws in place in Uganda?

Veit: Uganda’s land law recognizes undocumented customary tenure arrangement, but in practice, it can be difficult for rural people to protect their customary holdings. Much of the ‘land grabbing’ is legal. The law provides opportunities for well-connected and well-heeled individuals to acquire land through the legal processes. So a lot of that land is being taken and held in speculation for when the likely development that comes with the oil sector takes place.

I have been told that when rural people see oil workers coming on their land, they quickly sell it out of fear that the government will just expropriate it and they won’t get anything. There are more land transactions taking place in western Uganda than in any other part of the country. Many of the transactions are resulting in new owners who are not Bunyoro or Acholi – the traditional groups in western Uganda.

What we’re trying to do is create more transparency around some of these transactions. A lot of them are willing seller-willing buyer types of arrangements. But a lot of the land in that area is held under customary land arrangements, is undocumented and the transactions are being done in ways that are not clear until it’s been finalized. That’s one of the problems – the fact that a lot of it is undocumented, unregistered, untitled land. Nobody knows how much land is actually titled and registered in Uganda, but it’s actually a very, very small percentage.

Is this creating any tension locally?

Veit: Most of that area is claimed by the Bunyoro Kingdom and most of the people acquiring land are non-Bunyoro people. That’s creating problems, because a lot of people make their living off the land. When they sell their land, it creates problems for their livelihoods and well-being.

Which major oil companies are operating in Uganda?

The three companies that hold oil real estate in Uganda are Tullow, Tower and Dominion, all UK exploration companies. Tullow has made the major find in Lake Albert. They are hoping to transfer themselves into an oil production company as well. But in order to speed up production, they want to sell a third of their shares to Total France and another third to a Chinese oil company, CNOOC (China National Offshore Oil Company). That sale has not yet been approved by the government of Uganda. It’s partly held up by some capital gains tax the government claims that Tullow owes them.

Do you think there will be any difference in terms of impact if a Chinese company comes in?

Veit: We’ve been grappling with that question ourselves. WRI has an office in China that we recently opened, and we have an effort ongoing to do two things. One is to put in place better social and environmental safeguards with Chinese banks that are investing in the Chinese national oil companies. The second is to work more closely with the Chinese companies themselves to make sure they actually implement those higher standards. We have been meeting with Chinese oil companies in Beijing and briefing them on Uganda laws.

The recent Wall Street Reform [and Consumer Protection] Act here in the United States requires companies to submit annual reports to the SEC (Securities and Exchange Commission) and be much more open about the revenues that they pay foreign governments. The Chinese company that is likely to buy some of these shares, as well as Total, would qualify, and therefore in their annual reports to the SEC they might have to be much more open about some of their dealings with the government of Uganda. (See WRI’s working paper for more details.)

Uganda stands to potentially gain quite a lot through its oil resources. From the work you’ve done so far, do you see a trend that indicates a positive outcome for the country’s development?

Landsberg: Locally, there are better roads, better infrastructure, better healthcare and education. There are good things for sure. The fact that people can export their fish to market is a good thing. Now it really depends - are they going to do it for two years, three years or forever? It’s about sustainability at the local level.

I think it’s a great opportunity for Uganda, and all local NGOs agree on that. We just want to make sure it’s done the best way possible.

Veit: Tullow Oil certainly has made an effort to invest in the areas in which they are drilling. That’s a good thing. The real prize here is when the oil production starts and the oil revenues begin to flow. There are statements by the president of Uganda and other senior officials that they will manage these oil revenues in ways that will promote economic growth and poverty reduction. A lot of this will be codified in three promised petroleum bills that are supposed to be presented to parliament this year and next.

We won’t know the details until those bills are public. Only one has been released so far, and it doesn’t deal with oil revenue management and reinvestment. However, it does deal with transparency issues. The public statements the president has made on transparency are not consistent with what we see in the first of these petroleum bills. The bill is much more secretive and does not allow as much disclosure on production and revenue as the president has promised or that’s in the national oil policy. So we’re a little nervous.

The Norwegians are providing guidance to the [Ugandan] government and that bodes well, because the Norwegians have done well at managing their oil. So if you have anybody in there advising the government, that’s probably a good set of actors to do so. There’s a very active NGO society, and parliamentarians are beginning to speak up on these issues. Even the High Court. For example, several years ago, Ken Kakuru took a case to the High Court to have a Power Purchase Agreement for a dam declared a public document. He won. Yet, recently, a Magistrate Court ruled that the oil Production Sharing Agreements (PSAs) do not need to be released. I believe Ken will win his up-coming case in the High Court regarding the PSAs. It has made some rulings that would suggest that they have some independence from the executive branch on these matters.

EIA Energy Price Projections by Policy Scenario (2014–2020)

Maggie Barron — Fri, 11 Feb 2011 14:33:29 -0500

In Standard & Poor’s view, the profitability of commodity chemicals production is highly correlated to energy and raw materials prices because these costs often make up the majority of a chemical company’s production cost base, and competitive advantage is largely based on a company’s ability to maintain low costs of production.

Under each of the EIA’s scenarios, WRI notes that energy price changes due to policy vary - in some cases substantially. EIA’s modeling of cap-and-trade legislation projects higher demand for natural gas and lower demand for petroleum products and coal as the economy responds to the price on GHG emissions and shifts away from GHG-intensive fuels.

Under the three EIA scenarios, natural gas prices drive energy-related costs for the 13 subsectors. In the three scenarios, natural gas well-head prices are 4% to 25% higher relative to no policy, while coal, LPG, and residual fuel oil prices are lower relative to no policy in 2016 (2% to 8% lower, see figure). This increase/decrease is magnified depending on carbon price projections in each of the scenarios. Companies with fundamental dependencies on natural gas for feedstock and fuel, such as nitrogenous fertilizer companies, and companies that use basic chemicals derived from natural gas (such as commodity petrochemical companies) are likely to see cost increases under the EIA’s scenarios. Across the economy, companies dependent on coal and petroleum products are likely to switch (depending on the nature of products and ability to deploy capital) to natural gas to reduce compliance costs, so it is also likely that natural gas will feature more prominently in many chemicals companies’ cost structures.

In Deep Water: Weak Governance and the Gulf Oil Spill, a 30-Year Timeline

Maggie Barron — Fri, 11 Feb 2011 11:19:28 -0500

Summary

The Deepwater Horizon Blowout last April in the Gulf of Mexico is the largest oil spill in U.S. history. It will be many years before we know the full extent of the disaster in terms of its impact on the environment and the economy.

Regardless of the final damage tally, the system put in place to avoid these types of disasters has proven inadequate. This is evident from the investigations and recommendations of the National Oil Spill Commission, established by President Obama, whose report was published on January 11, 2011. It was also implicit in the immediate response by the federal government to restructure and rename the agency responsible for regulating the oil and gas industry – formerly the Minerals Management Service, now the Bureau of Ocean Energy Management, Regulation and Enforcement.

How did we reach this point? As a new timeline of events from WRI shows, the governance problems that allowed the spill to happen began long before the blowout, and long before the Deepwater Horizon well was authorized.

A Thematic Timeline

The World Resources Institute (WRI) has conducted a wide-ranging review of the decisions, policies, participants and events that formed the backdrop to the April 2010 oil spill in the Gulf. This timeline is intended to serve as a resource and reference tool for policymakers, academics and journalists interested in a larger accounting of the oil drilling governance and regulatory system, going back to 1978. The research draws from, and references, a broad range of primary sources including congressional testimony, federal agency and commission reports, documents released through Freedom of Information Act requests, and secondary news sources.

Key recurring governance failures highlighted over the 30-year timeline include:

Efforts by government agencies to keep pace with the risks associated with new drilling technologies were undermined as new guidelines were not adopted or enforced.
Lack of transparency and accountability over the collection and expenditure of oil revenues led to mismanagement of royalty fees owed to the American people.
A revolving door culture between the public and private sector coincided with the failure of the U.S. Attorney’s Office to prosecute ethical breaches.

Key Policy Issues

The timeline is accompanied by thematic icons to highlight specific streams of influence and decision-making areas that contributed to the complex system failure.

Moving Forward

This timeline seeks to shed light on the circumstances, policies and decisions that helped enable America’s worst oil spill. It does not provide recommendations, but rather highlights key governance issues that need to be addressed if the U.S. is to avoid another such disaster. The National Oil Spill Commission Report, released early January 2011, clearly states the extent of governance reform required:

To assure human safety and environmental protection, regulatory oversight of leasing, energy exploration, and production require reforms even beyond those significant reforms already initiated since the Deepwater Horizon disaster. Fundamental reform will be needed in both the structure of those in charge of regulatory oversight and their internal decision-making process to ensure their political autonomy, technical expertise, and their full consideration of environmental protection concerns.

The report goes on to make detailed recommendations ranging from technical standards to auditing and permitting requirements. These recommendations will take time and resources to integrate and, as the new 112th Congress settles into office, proposed budget cuts and calls for regulatory reform may pose a challenge. It is therefore critical that non-governmental organizations play an active role in ensuring that environmental resources are managed safely and fairly and that the lessons of the last 30 years regarding U.S. deepwater oil extraction are learned and acted upon.

Avoiding the Resource Curse: Spotlight on Oil in Uganda

Maggie Barron — Mon, 24 Jan 2011 16:49:34 -0500

Uganda has made significant progress in codifying the rights of access to information (ATI) and participation, and toward putting in place the institutional infrastructure, including a regulatory framework, for the oil sector. Political roll-backs that are re-concentrating power in the executive branch of government and the growing scale of known oil reserves, however, may jeopardize these advances.

In this context, the passage of a new law in the United States requiring companies that file annual reports with the U.S. Securities and Exchange Commission (SEC) to disclose the payments they make to host governments for the extraction of oil, natural gas and minerals, could help shore up transparency around investment in Uganda’s extractives industry and avoid the failures in governance that have exposed other countries to the “resource curse.”

Download WRI’s Comments on Uganda’s Access to Information Regulations

Update: On 21 April 2011, the government of Uganda signed into law new regulations for implementing Uganda’s Access to Information (ATI) Act of 2005. The ATI Regulations were long awaited and widely welcomed, since many local and international advocates believed their absence had hindered full implementation of the Act, and stymied efforts to increase transparency and accountability. The Regulations support implementation of the ATI Act in a number of important ways. For example, they establish procedures for citizens to request government-held information and for government to respond to citizen requests. But the Regulations also include a number of burdensome provisions that make access unnecessarily costly and difficult and, as such, they are not in the spirit of the strong right to information provision found in Uganda’s Constitution. Read WRI’s full comments on the Regulations (PDF, 211 Kb)

Avoiding the Resource Curse: Spotlight on Uganda Oil

Janet Ranganathan — Tue, 19 Oct 2010 11:17:18 -0400

Can new SEC disclosure rules help bring transparency to Uganda’s oil sector?

This piece originally appeared on the Huffington Post.

Nestled near the end of the Wall Street Reform and Consumer Protection Act (HR 4173) is Section 1504, two and half pages of text that aim to bring much needed transparency to the extractive resources industry, especially its operations in the developing world.

President Obama’s recent speech on international development to the UN General Assembly highlighted the role of transparency and accountability as ways to improve government institutions. The financial reform bill provides one such mechanism by strengthening business and government accountability in the extractive sector.

The law requires domestic and foreign companies that submit annual reports with the Securities and Exchange Commission (SEC) to publish annually how much money they pay to U.S. and foreign governments for extracting oil, gas, and minerals.

Why does this matter?

Read the Working Paper on Uganda and the SEC Rules

This type of disclosure is critical. Lack of transparency around transactions between extractive industries and governments can lead to corruption and mismanagement of both resources and the associated revenues. The result, all too often, is the so-called “resource curse”: a paradox in which countries abundant in natural resources enjoy less economic growth and poorer development outcomes than countries with fewer natural resources. By requiring transparency around how much companies pay to foreign governments for these valuable resources, SEC disclosure will empower public interest groups to track funds more accurately and hold governments accountable.

Given its great potential, what impact will this law have in practice? Uganda, one of Africa’s newest petro-states, could provide a first test case.

Uganda and the Shadow of the ‘Resource Curse’

Uganda, a country rich in natural resources, is building a foundation for a progressive democracy. For example, it is one of a handful of countries in Africa that grants its citizens the right of access to information. But the discovery of oil in 2006 has some advocates concerned that Uganda may still fall victim to the “resource curse”.

The oil discoveries in the northern part of Uganda’s Albertine Rift spurred significant investment by foreign oil companies. As of 2009, over $700 million has been spent on oil exploration in the region. Companies have so far drilled only three of the nine exploration blocks, but have already found more than two and a half billion barrels of oil, raising high expectations for when full production begins, as early as this fall.

A Lack of Transparency

As oil production and extraction ramp up in Uganda, local NGOs have campaigned to gain access to Production Share Agreements (PSAs), the contracts between governments and resource extraction companies that dictate what percentage of revenues will go to the government. PSAs provide critical information which NGOs can use to calculate production amounts and track revenues.

However, the Ugandan government has refused to make these public, claiming that doing so would undermine the government’s negotiating position in allocating the remaining oil exploration blocks.

Since 2007, journalists have filed at least three pleadings in Ugandan courts over the release of PSAs—two in magistrate courts and one in the High Court. In the first case, heard in February of 2010, the Magistrate ruled in favor of the government by declaring that the PSAs are confidential documents based on an interpretation of the country’s Access to Information Act. In pleadings to the High Court in 2010, Greenwatch (a public-interest environmental law NGO) argued that it needs access to the PSAs in order to assess oil project impacts on the environment and public health to protect citizens’ Constitutional right to a clean and healthy environment. This case is scheduled to be heard shortly.

Help from the SEC?

Given these developments in Uganda at the national level, civil society groups in Uganda may need to look to the international arena for legislation such as the Dodd-Frank Act to gain transparency around the oil sector. The SEC rule-making period, which lasts until April 2011, will be critical in determining how the Act will play out on the ground.

Tullow Oil, the major oil exploration company with concessions in Uganda, is listed primarily on the London Stock Exchange and does not file annual reports with SEC. Tullow, however, is seeking to sell one-third of its shares to Total S.A., a French extractives company, and another one-third of its shares to the China National Offshore Oil Company (CNOOC), which are both registered with the SEC and file annual reports.

If the SEC rule-making process establishes regulations that cast a wide net, it will help Ugandan civil society get the information they need to hold their government accountable. WRI and partners will continue to track these issues and collaborate on how to build capacity of advocates, local NGO leaders and parliamentarians to learn how to acquire this information from the SEC. Only then can this new U.S. law help shift the balance of power from the government of Uganda to its citizens, and enable civil society to use this data to work with the government to improve environmental governance.

Download WRI’s Comments on the SEC Draft Regulations for Section 1504 (PDF, 124 Kb)

REDD Alert: Lessons from Peru’s Camisea Pipeline Project

Janet Ranganathan — Mon, 02 Aug 2010 11:48:31 -0400

Can forest-rich countries learn from the mistakes of extractive projects and avoid unleashing their own resource curse?

For poor developing countries, exploiting natural wealth such as minerals and metals should prove a blessing, offering the potential to generate huge revenues and help lift them out of poverty. Instead many have been inflicted by the “natural resource curse”, in which countries with an abundance of natural resources enjoy less economic growth and worse development outcomes than those endowed with less of Nature’s bounty.

Despite efforts to improve governance and oversight related to extractive industries projects, the natural resource curse persists today. A recent WRI, Oxfam and Bank Information Center report shines the spotlight on the Camisea natural gas project in Peru and highlights the importance of investing in sub-national governance and capacity building before scaling up investments in natural resource projects.

$1 billion in gas revenue, but poverty remains

The findings of the report, People, Power and Pipelines, as described in this article, have implications not only for extractive industry projects, but also for forest management in developing countries. In particular, international financial institutions, national governments and other stakeholders involved in REDD - that seek to reduce emissions from deforestation and forest degradation - should learn from the mistakes of extractive projects and avoid unleashing their own resource curse.

Read the Report

The massive Camisea project’s gas production infrastructure and pipeline physically impacted five of Peru’s 24 regions, three of which are among the poorest in the country. Between 2004 and 2009, over $1 billion in gas revenues were distributed to sub-national governments. Yet the social benefits have arguably been slight. In 2008 close to 60% of Peru’s rural population remained mired in poverty, including regions benefiting from pipeline revenues, and despite the fact that national poverty levels declined steadily from 2006 through 2008. In addition, the project took a heavy toll on local ecosystems with three major oil spills occurring within the first 15 months of construction.

Local governments unprepared for influx of funds

Peru embarked on a substantial decentralization process in 2002, handing more political and fiscal control to sub-national governments. This meant that provincial and district governments in the vicinity of the project were unprepared, only two years later, either to manage the significant social and environmental risks associated with a major gas pipeline or to effectively deploy the massive revenues generated.

Peru: Camisea Pipeline Path and Poverty

Against this backdrop, People, Power and Pipelines analyzed the experience of sub-national government in the Cusco region in managing the natural gas project’s impact and associated revenues between 2005 and 2007, researching public records and conducting interviews with key players. The report’s findings highlight five challenges, stemming largely from weaknesses in sub-national planning and capacity, which may provide an instructive lesson for similar situations in other countries and sectors.

Significant surplus revenues were carried over from year to year by sub-national Governments, without applying an investment strategy. This resulted in missed opportunities to gain returns on these funds, address the risks of oil price volatility and to prepare for the eventual decrease in gas revenues.
While institutions, procedures and plans for fiscal management were in place, interviews with municipal officials suggested that these were rarely used in day to day administration.
A lack of strategic planning hindered municipal governments’ ability to coordinate large land use projects, plan for the future, and manage the impacts of infrastructure expansion in environmentally and socially sensitive regions. For example, a road was built through the Megantoni National Sanctuary without assessments of impacts on the local environment or on indigenous populations.
Visible investments, such as roads and buildings, were favored over less visible investments that would enhance social capital such as health, education, and agriculture.
Public access to information on how gas revenues were being used was limited and insufficient for citizens to hold government accountable.

Lessons for REDD Revenues

Peru’s experiences from the Camisea project could prove instructive for REDD as the international community ramps up efforts to provide a financial compensation mechanism for developing country actions to reduce emissions from forest loss. Although funding for REDD will likely take different forms, a frontrunner option is to link it to carbon markets in developed countries. Companies would then meet their emission reduction commitments by channeling funding to REDD projects in forest-rich countries.

If REDD does not work as intended, its failure could not only undermine climate reduction goals in developed countries but also inflict a new kind of resource curse on developing nations.

Like Camisea, and extractive projects more broadly, carbon markets would generate funding for poor, but natural- resource- rich, nations, at a scale rarely seen before. There is a risk, though. If REDD does not work as intended, its failure could not only undermine climate reduction goals in developed countries but also inflict a new kind of resource curse on developing nations.

Drawing on Peru’s Camisea experience, international financial institutions and others designing REDD should therefore:

Withhold access to carbon markets until in-country governance and capacity is sufficient to manage the scale up of funds. Indicators developed by WRI’s Governance of Forests Initiative (GFI), for example, can be used to assess the strengths and weaknesses of forest governance in a given country.
Support sub-national capacity building for long-term strategic planning and programs that strengthen transparency and accountability mechanisms for tracking revenues and expenditures in areas where REDD funds are channeled.
Draw on and adapt best practices from successful extractive industry projects to avoid known pitfalls.

Above all, careful sequencing of governance and capacity building should be employed before scaling up revenue flows. This will help ensure that urgently needed REDD and extractive industry payments are used in a way that generates long term development benefits, especially for the poor. It will create incentives for strengthening developing country governance and capacity. And it will help architects of REDD avoid inflicting a new “REDD resource curse” on nations whose wealth lies in forests.

Linnea Laestadius is an intern with the Office of the Vice President for Science and Research at WRI. She is a PhD student in Health and Public Policy and a CLF Farming the Future Fellow at the Johns Hopkins Bloomberg School of Public Health.

Ecosystem Services and the Gulf Disaster

John Talberth — Wed, 07 Jul 2010 11:23:22 -0400

The BP oil spill will degrade critical ecosystem services and their economic benefits for decades to come.

BP’s massive oil spill jeopardizes the underpinning of economic wealth in the Gulf of Mexico region – the diverse coastal and marine ecosystems that generate a bounty of goods and services for communities from the Yucatan peninsula to Key West. Ecosystem services, or the benefits that humans receive from nature, form the backbone of the recreation, tourism, and fishing industries, enhance property values along the coast, sequester carbon dioxide and provide storm and hurricane protection. The Gulf’s ecosystems provide all of these services free of charge, but they are not without value, and the massive BP oil spill has now put many of those ecosystems in great jeopardy.

Ecosystem Services and Economic Impact

A recently-released study by Earth Economics (PDF, 3.0 Mb) estimates that the Mississippi Delta’s ecological communities currently generate up to $13,000 per acre in ecosystem services each year. Over the next hundred years, this estimate, for just the Mississippi Delta region, translates into a present value of $330 billion to $1.3 trillion, the wide range owing to uncertainties about the value of ecosystem services over that time period. Exposure to residual oil over the course of decades will diminish the value of ecosystem services generated by marshes, wetlands, and coastal waters in the spill’s path.

The loss of ecosystem service values from the BP spill will be felt in both the short and long term, both onshore and offshore. In the short term, for example, the CoStar Group predicts that the spill may drive down shore-area property value in the Gulf by ten percent over at least three years– a $4.3 billion loss. The spill’s effects on other services will endure for much longer. According to the Exxon Valdez Oil Spill Trustee Council, ecosystem services affected by that disaster are still recovering twenty years later (PDF, 588 Kb). Using Earth Economics figures, a twenty percent reduction in ecosystem service values along the Gulf coast from the Louisiana-Texas border to St. George Island, Florida would equate to $15 to $60 billion in economic damages over a similar, twenty-year period, not counting losses to those directly affected by spill related closures in the short term.

Primary Production and the Oil Spill

Perhaps the most pernicious impact of the spill, according to Dr. Thomas Shirley of Texas A&M, may occur offshore, affecting what is known as primary production. In the Gulf and other ocean basins, primary production is the very basis for the marine food chain. It is the process by which organisms turn carbon dioxide into organic compounds, mostly through photosynthesis. Coral reefs, sea grasses and algae are the most visible primary producers in coastal zones, but most oceanic primary production comes from microscopic planktonic algae, or “phytoplankton.” The Millennium Ecosystem Assessment identified primary production as one of the most important “supporting” ecosystem services.

In the Gulf, primary production—measured in milligrams carbon per square meter per day – ranges from near zero to 7,300 near the Mississippi Delta at its peak in June and July. The annual average is 417 for the Gulf marine ecosystem as a whole. Tragically, the oil spill, which currently covers over 38,000 square kilometers lies almost directly across the area of highest primary productivity at the time of its monthly maximum.

(Click here to view the map).

What effect could a severe decrease in primary production have on the Gulf? Newly published research indicates that each 1 percent increase in primary productivity corresponds to a 1.3 percent increase in the fishery catch. The dockside value of fish brought in from the Gulf is approximately $997 million per year. If we assume that this value can be distributed according to primary production levels, each square kilometer currently under the spill can be thought of as generating $3,261 in annual commercial fisheries value . A twenty percent loss of this ecosystem service value over a twenty year period would imply a present value loss on the order of $350 million, or $875 million if loss of value is closer to 50%, which is the upper end of the range considered in the Earth Economics study. This simple calculation doesn’t account for the loss of jobs, income, and tax revenues when the catch is processed inland. Nonetheless, it is suggestive of ecosystem service damages at sea that are significant and long-lived.

Including Ecosystem Services in Risk Assessments

Decision-makers considering offshore leases must be cognizant of the potential economic damages associated with low probability/high impact events such as the Deepwater Horizon spill. Risk assessment needs to be comprehensive in nature, capturing potential impacts to coastal, nearshore, and offshore marine ecosystems from both a market and non-market perspective. This requires quantification of ecosystem service values and potential damages. Presently, the expected value of these natural resource damages is not included in the various economic analyses conducted by public agencies managing offshore oil and gas programs. Until this happens, our society will continue to undervalue ecosystem services and take on an unacceptable level of risk in pursuit of energy resources.

Stephen Posner works with the People and Ecosystems Program conducting ecosystem service valuation studies for business. He is currently in a PhD program in engineering and environmental sciences at Dartmouth.

Oil Spill Permeates the Gulf's Most Productive Environments

Tim Herzog — Wed, 07 Jul 2010 11:13:30 -0400

Downloads

Large Size
Print-ready Version (PDF, 322 Kb)

Overview

According to WRI estimates, the potential damage to marine ecosystem services as a result of the Deepwater Horizon oil spill in the Gulf of Mexico could be up to $875 million for marine ecosystems and up to $60 billion for coastal ecosystems. This map shows the ecosystems most at risk – coastal marshes and wetlands, plus productive ocean areas near-shore. Coastal ecosystems provide vital ecosystems services including shoreline protection from hurricanes, erosion protection, fisheries, and recreation. Ocean productivity is estimated by measuring the amount of solar energy captured in organic compounds by microscopic aquatic plants called phytoplankton. This process is known as primary production. This energy stored through primary production becomes the foundation for ocean food chains. Scientists estimate net primary production in the ocean using satellite imagery to measure chlorophyll, which is the pigment in plants responsible for photosynthesis. As shown in the map, the Deepwater Horizon oil spill is occurring in some of the most productive ocean areas of the Gulf of Mexico during peak production months and in close proximity to a huge swath of the Gulf Coast’s vital coastal marshes and wetlands.

Data Sources

Net primary production: Behrenfield and Falkowski (PDF, 4.8 Mb) and Ocean Productivity
Wetlands and marshes: GAP Analysis Program (GAP)
Oil spill area: NOAA Office of Response and Restoration
State and country boundaries: ESRI Data & Maps collection

Copyright

This work is licensed under the Creative Commons Attribution License. Cite “World Resources Institute.”

Other Featured WRI Maps

Maps From Other Organizations

This map is part of a continuing project to produce maps that shed light on significant environmental issues throughout the world.

People, Power, and Pipelines: Lessons from Peru in the Governance of Gas Production Revenues

admin — Wed, 30 Jun 2010 00:00:00 -0400

Countering the resource curse

For poor countries with abundant natural resources, extractive industries offer the potential of generating enormous revenues. These revenues can fuel economic growth and be directed to combat poverty and improve the well-being of local communities. Experience has shown, however, that large-scale mining and oil and gas prospecting and extraction carry serious environmental and social risks for host countries, with many of the impacts borne by local communities. Host countries also face the risk of the “resource curse,” where poor management of the revenues generated from extractive industries slows economic growth, increases economic volatility and corruption, and sometimes leads to conflict, rather than creating prosperity.

Developing countries that are advancing their extractive industries sectors face the challenges of managing and mitigating the associated risks of development, while ensuring that the economic benefits are channeled to alleviate poverty. Many of these countries are taking measures to address these risks with help from public international financial institutions (IFIs), such as the World Bank and the Inter-American Development Bank (IDB).1 In this context, these institutions can play an important role by offering support for public-sector reforms to improve the transparency and accountability of extractive sectors at the national level.

Where fiscal decentralization schemes are in place, subnational governments (SNGs) assume a particularly vital role in managing extractive industry revenues. IFIs can help build the capacity, transparency, and accountability of SNGs, so SNGs can manage extractive industry revenues in a manner that provides long-term benefits to local communities. In many countries, IFIs also lend money to governments and the private sector in direct support of extractive projects, which enables them to use their influence as lenders and investors to empower government agencies to promote revenue-distribution schemes that benefit local community areas affected by projects.

This report suggests ways in which IFIs can improve their role in the extractives sector by giving greater support to SNGs in managing extractive industry risks and revenues and by drawing lessons from recent experiences in Peru. For IFI-supported initiatives in the extractive industries to be successful in reducing poverty and improving well-being, the initiatives must be linked to and preceded by support for programs to increase government capacity to regulate activities with high social and environmental risks and to manage revenue flows at both the national and subnational levels. Without this support, government agencies may find themselves unable to manage a myriad of challenges at each stage in the development of large-scale projects. The 2004 Extractive Industries Review (EIR),2 an independent review of the World Bank’s extractive industry lending, concluded that for the World Bank’s interventions to lead to sustainable development, governance systems must be strengthened before investments in extractive industries sector are made. The EIR spurred a number of initiatives to strengthen the quality of governance by increasing the transparency of private and public extractive industry revenue flows at the national level (see Box 1). Nevertheless, more attention is needed— particularly from the IFIs—on building the capacity of SNGs to manage these flows and to ensure that revenues are invested in the well-being of local communities.

In context: Peru

Peru—which is highly dependent on income from extractive industries revenue—has been undergoing an aggressive process of political and fiscal decentralization and introduced policies to increase the transparency of its subnational revenue flows. As a result, SNGs3 in Peru must play a crucial role in managing the risks associated with extractive industries within their jurisdictions, while also ensuring that the revenues generated by the sector support local development that alleviates poverty and improves the well-being of local communities.

IFIs have supported the process of political and economic decentralization in Peru and have also invested in the extractive industries sector. They have provided technical and financial support to public-sector agencies, including support for public revenue management systems. IFIs also directly finance a number of extractive industries projects. The decentralization reforms and the expansion of extractive industries projects have increased the volume of funds being transferred to rural areas. However, official figures show that while national poverty rates declined steadily between 2005 and 2008 in Peru, as of 2008 close to 60 percent of the rural population remained in poverty.4 Given the important role IFIs have played in shaping this sector in Peru, they are well positioned to diagnose why poverty persists in the context of such wealth and to determine the role that IFIs, Peru’s national government, and SNGs each should play to address this challenge.

To inform such a diagnosis, this report examines Peru’s Camisea natural gas project and draws lessons from the challenges faced by SNGs in managing the revenues from that project. Between 2004 and 2009, the Camisea project generated approximately $1.13 billion5 in public revenues for SNGs, which the Peruvian national government distributed through mechanisms called “the gas Canon” and the Camisea Fund for Socioeconomic Development (FOCAM). The Peruvian national government uses gas and mining Canons (transfers of natural-resource-based revenues) to distribute half the revenue it collects from extractive industries to SNGs. The government created the FOCAM inter-governmental transfer to allow all regions impacted by the Camisea project—not just those containing physical gas reserves—to receive compensation.

The Camisea project—the largest producer of hydrocarbons in Peru— benefited from both public and private financing. The public banks that provided financing included the IDB, the Andean Development Corporation, Brazilian National Development Bank, and Peru’s Banco de Crédito. A second phase of the project, the Peru Liquefied Natural Gas Project (Peru LNG, also known as Camisea II) supports the export of natural gas from the Camisea fields through a new pipeline to a natural gas liquefaction plant on the Pacific coast. This $3.9 billion project, due for completion in 2010, received financing from a consortium of lenders, including the IDB, International Finance Corporation (IFC), Export-Import Bank of the United States, Export-Import Bank of Korea, and SACE S.p.A. of Italy.

To put the Camisea project into context, the report describes Peru’s turbulent history with extractive industries development as well as the recent decentralization process that has devolved revenue management authority to subnational governments. The report also examines the risks and governance challenges posed by the project and the mechanisms by which its revenues are distributed to subnational governments. Finally, the report analyzes SNG management of Camisea revenues generated between 2005 and 2007.

The report finds that planning failures by both the Peruvian national government and IFIs undermined governance by not building greater SNG capacity before massive extractives revenue transfers began to flow in 2006. The fragile SNG capacity places in question the long-term development impact of Camisea wealth.

IFIs have played an important role in catalyzing and providing investment in oil and mining projects, and thus they share with the Peruvian government the responsibility to ensure that the financial benefits of extractive industries projects are directed towards poverty alleviation and sustainable development. By highlighting the challenges of promoting good governance at the subnational level in the context of dramatic increases in revenue transfers in a region with limited strategic planning capacity, this report informs the design of future IFI investments in similar contexts.

In this report

Section 1 briefly examines the context of extractive industries development in Peru, including the decentralization process—which created regional governments and devolved authority and resources to local governments—and the role of public IFIs.
Section 2 provides an overview of the Camisea natural gas project, including its structure and financing and the associated risks and challenges. An overview of selected IFI programs to support SNGs revenue management capacity can be found in Annex 4.
Section 3 describes how Camisea project revenues are distributed to the regions directly and indirectly impacted by the project’s operations.
Section 4 outlines key findings from the evaluation of SNG experiences in the region of Cusco in managing revenues from the Camisea project between 2005 and 2007. The evaluation examines government performance in managing these revenues at three levels: regional, district, and project. This section also provides an overview of the Cusco case study scope, methodology, and limitations.
Section 5 outlines recommendations for specific areas where IFIs could target their efforts as they support programs to increase the effectiveness and efficiency of SNG management of public revenues.
Section 6 suggests next steps that IFIs could take to address the report findings.
Section 7 provides a summary statement.

Key findings

The report findings—which inform efforts to support subnational government capacity building by IFIs and others—address SNG capacities for strategic planning, fiscal administration, and operational management.

They also provide insights into SNG mechanisms for transparency and public accountability, as well as into local citizen awareness of Camisea revenue transfers.

The study produced a number of findings related to the management of gas production revenues from the Camisea project in Peru:

SNG expenditures have increased substantially, with the majority of investment spending in infrastructure. However, SNGs are carrying over significant surplus revenues from year to year and are missing opportunities to address risks of oil price volatility and to prepare for the eventual decrease in gas revenues.
SNGs have made progress in establishing the institutions and procedures needed for effective fiscal management.
A lack of planning documents at the municipal level suggests that SNG strategic planning capacity is weak and that investment choices have not been based on a medium-to-long-term view or on a coherent strategy.
SNGs have made progress in designing mechanisms for providing public access to information, but these mechanisms still fall short of what is required by Peruvian law and of what is necessary to enable citizens to hold SNGs accountable. Also, public knowledge of the gas Canon among urban residents of the municipalities benefiting from Camisea revenue is limited, decreasing citizens’ ability to monitor public spending and to hold local governments to account.

Recommendations

Our analysis suggests a number of actions by IFIs to address the findings documented in this report:

Withhold project support to commercial extractive industry companies until in-country governance conditions and government capacity is sufficient to manage the financial windfall associated with these projects for development and poverty-reduction purposes. This recommendation is in line with the recommendations of the World Bank’s independent EIR. Prior to investment, IFIs should determine minimum threshold governance indicators and disclose their assessment prior to project financing. When IFIs do chose to finance extractive industry projects, they should consistently include in their loans accountability performance indicators focused on local outcomes.
Provide support for programs to build SNG capacity for long-term strategic planning that are designed to address poverty alleviation while minimizing the environmental and social tradeoffs of infrastructure investments.
Provide support for programs that strengthen the transparency and accountability mechanisms that promote and facilitate public oversight at the local level in areas with extractive industries.
Provide support for initiatives that help SNGs review their progress, document lessons learned, and exchange this information with peer institutions and the public.
Evaluate and share lessons learned across IFI programs and projects aimed at building SNG capacity for extractive industry revenue management and foster multi-stakeholder dialogue to replicate successful approaches.