EITI, please change your 2nd principle

I am an oil cursed citizen who has seen my homeland waste immense non-renewable natural resources for nothing and destroy all its social structures, all as a direct consequence of the oil revenues going directly to the state coffers making our governments independently wealthy and powerful.

And then the Extractive Industries Transparency Initiative (EITI) 2nd principle states:

“We affirm that management of natural resource wealth for the benefit of a country’s citizens is in the domain of sovereign governments to be exercised in the interests of their national development.”

To me any moment a government receives, for example, more than 4 percent of its GDP in fiscal income which does not proceed from the taxpayers, it is de-facto turned into a natural resource autocracy, a central planned economy and a communist state.

I cannot believe that the people supporting EITI are really aware about this, but if so, and they still agree with it, then we must fight against EITI, since it is clear that it will only serve as an instrument to create the illusions of change, to be used by the oil-autocrats to keep us citizen down.

The sum of many individual decisions on what to do each one with their part of the oil revenues is always going to be better long term that the central-planned decisions by some autocrats.

But if the oil revenues have to go to the government then, as a minimum, they have to take the route of first pass through the tax-payer’s pockets.

Most of the oil curse does not have its origin in the oil revenues per se but in their distribution. Distributing the oil revenues directly to the citizens will stop the citizens from becoming beggars of favours and the governments from becoming haughty grantors of favours.

My comments to EITI

This http://bit.ly/8JUZQP is what Jonas Moberg, the Head of the Secretariat of the Extractive Industries Transparency Initiative (EITI) wrote and below my comments:

In “EITI necessary but not sufficient” you say “I therefore find it disappointing when the impressive implementation work done in many EITI countries is criticised for not being the solution.”

Since I include myself among those criticizing EITI, in what I intend to be a constructive way, let me be clear that the critique has nothing to do with “the impressive implementation work done in many EITI countries.”

What I do criticise is that your 2nd principle establish “We affirm that management of natural resource wealth for the benefit of a country’s citizens is in the domain of sovereign governments to be exercised in the interests of their national development.”

That principle, inasmuch as it concentrates excessive power in the state, power that does not flow from the citizens, turns the countries into de-facto centrally planned statist nations, and there are many of us citizens that profoundly object to that.

You also say “we don’t consider that an initiative with big private companies and small NGOs on its board should be issuing requirements on how governments spend their money. It is for the citizens of that country, through democratic processes, to decide how public money should be spent.”

Indeed that is correct but just the same you must be totally aware that this is exactly what is happening and what many NGO´s are directly pursuing. In a recent conference on oil-curse a representative of one of the major NGOs and that appears among EITI supporters explicitly spoke about “a tripartite agreement between companies, governments and NGOs”. I do not hold that this is EITI´s direct responsibility but EITI must be aware that some major international NGOs are effectively usurping the rights of representation of the local citizens and act accordingly.

Indeed, to be even more specific, EITI's principle # 12 establishes “In seeking solutions, we believe that all stakeholders have important and relevant contributions to make – including governments and their agencies, extractive industry companies, service companies, multilateral organisations, financial organisations, investors, and non-governmental organisations.” And the question is... where is the citizen?

If EITI really wants to help the citizens in resource-cursed countries then the only thing it should be doing is empowering the citizens of those countries to fight the fights they need to fight on their own. Otherwise, sadly, there are objective reasons for us citizens to suspect you are more interested in imposing an ideological agenda or creating “opportunities” for your own supporters.

Time and time again EITI honestly declares that it is not the final cure but only an aspirin. Many thanks for that, but please do not forget that an aspirin a day can keep the final cure away.

You ask “those that mainly seem to find flaws with the EITI: Is it better to be negative about the world around us and keep dreaming of a silver bullet solution, or to actually contribute towards a real solution by building on the incremental changes that initiatives like the EITI are generating?”

I reject the implied tone of “those that mainly seem to find flaws with EITI” since as oil-cursed citizens we are much more directly affected by this than any of you policymakers there at EITI, and so we have the right and the duty to speak out as loud as we can.

If we think that finding systems by which to transfer to the citizens the power that is generated by the extraction of natural resources is a must, it is not because we are thinking of it in terms of a silver bullet but in terms of a prerequisite for any sustainable real solution. For instance, in Norway you have been able to find a way for controlling strictly how the oil resources flows to your government...and so why don´t you replace your 2nd principle with that?

An open letter to His Majesty King Norodom Sihamoni of Cambodia from an oil cursed citizen

Your Majesty:

I recently had the opportunity to attend a conference in Washington, D.C., arranged by Oxfam an international Civil Society Organization, an NGO. The conference was titled “Managing Cambodia’s Oil and Mineral Resources: Opportunities and Challenges for Development.”

While listening to the excellent presentations made by Your Ambassador and by one of the spokesmen of the host organization, I felt tears coming to my eyes, hearing of exactly the same dreams and illusions that I had heard in my own country, Venezuela, thirty-five years ago, when oil prices increased dramatically. Those dreams have now been horrendously shattered by the awful realities of what is known as the oil-curse.

Of course both speakers duly addressed the challenges and explained what “had to be done” in order to avoid this oil-curse, but the arguments; such as the need for transparency, good long term investments and setting aside funds for the future; and the determination with which they were made were also identical to those we made thirty-five years ago. All of it proved far from sufficient, did not serve us well and in fact only provided for the excuse of going down the wrong path.

The real problem is that not one single of the precautions suggested has a real chance to stand up against the darkest forces of the oil-curse. No matter what you do, the fact is that oil revenues, when they are both generous and centralized in the hands of the State, provide for an independently wealthy government which does not need the citizens, and therefore becomes arrogant, and cruelly turns the citizens with very high expectations into beggars for favours.

May I therefore respectfully beg of your Majesty to support the possibility that Cambodia’s net oil revenues be paid directly to the Cambodian citizens, in full and from the very first day.

That article 58 of your Constitution states that mineral resources are the property of the State is no impediment for the results of the exploitation of those resources being paid out directly to the citizens. On the contrary, if the oil revenues were to remain in the hand of the State, that would effectively impede complying with article 56 that states “The Kingdom of Cambodia shall adopt a market-economy system” and, much more important, with article 51 that states “The Cambodian people are the masters of their country.”

I am no one to remind a King of his duties, nor do I wish to presume to have royal wisdom, but having read in your Constitution that the King shall be the protector of rights and freedom for all citizens and shall assume the august role of arbitrator to ensure the faithful execution of public powers, let me in all humility say that, if I were the King of Cambodia, there would be no better legacy I could dream of leaving to my people and country than freeing it forever from the darkest side of an oil-curse.

If there is an absolutely urgent need to initiate government projects, then allow the citizens to have the right to pay for these projects by giving back as income taxes a certain percentage of any oil revenues received, but please help your subjects to be and feel relevant to the future of their nation.

Your Majesty, I would deeply appreciate any attention you give this letter and, if it is considered an undue intrusion into the affairs of Cambodia, please know that it has been written with utmost sincerity, thinking of a country that has gone through much suffering and destruction, and therefore truly deserves that oil helps, in the words of its Constitution, to turn “Cambodia into an “Island of Peace” . . . moving toward perpetual progress, development, prosperity, and glory” instead of forcing it to face new nation-destroying hardships.

Sincerely, I remain, your Majesty’s humble friend,

Per Kurowski

Just another oil-cursed citizen.

The Phnom Penh Post

Oil revenues belong to the citizens and should not be used to pay them off.

The single reason why I who have so actively been supporting oil revenue sharing by the citizen for years do not feel too optimistic about Nigeria’s current plan to pay 10 percent of the revenues directly to the Niger Delta citizens, is that it smells too much of a payoff, a societal bribe to some Nigerians; and leaves too much in the hand of too few.

Pay out 100 percent of the net oil revenues to all the Nigerians and if needed retain a percentage in taxes. That is the only way to put the citizens in charge of a democracy, as they are supposed to be in a democracy.

The frontier of curse-land

Any moment the State receives more than 5% of GDP in fiscal income directly from any extractive industry or similar, then the State has become too independently wealthy and the balance of powers needs to be restored by paying out all exceeding revenues directly to the citizens.

A letter to the Extractive Industries Transparency Initiative (EITI)

Dear friends,

By now you must know that though I harbor some reservations I support most of your initiatives, and most specially their spirit. That said…

In the video “Making resources work for people” that is posted on your web Obiagely “Oby” Ezekwesili says that “It ought to be the case that these revenues [from natural resources] can transform the life of the citizens but then you see the opposite happen.. It is the challenge to move the benefits of the natural resources out of the hold of a smaller club of people and instead diversify the opportunity that it offers to a larger number of people that is what will reverse the curse and that is the most important issue of the day for mineral rich countries.”

I could not agree more. And that is why I hereby express my deepest reservation about your second principle that says:

“We affirm that management of natural resource wealth for the benefit of a country’s citizens is in the domain of sovereign governments to be exercised in the interests of their national development.”

The management of natural resource wealth for the benefit of a country’s citizens should be managed by the country’s citizens... otherwise, how will they ever learn how to manage it? The role of the government is to provide government not manage wealth for the voters.

Also, in the same video, Peter Sutherland Chairman of the Board of BP, talking sort of both for the consumers and the producers of oil, expresses that a steady predictable supply of natural resources at a reasonable price is in the interest of everyone... and that stability and predictability is dependent on good governance... for which transparency is a very important component.

I agree completely, on the first part, but instead of transparency on the status quo, and which I have equated to being able to see when the torturer extract your nails, I would much rather prefer that Peter Sutherland would help intermediate between oil producing and oil consuming countries in order to offer directly to all the citizens of an oil producing country, the true shareholders of oil, long term take up contracts, which would provide them with equitable and stable dividends and the consumers with equitable and stable oil prices.

Sincerely yours

Per Kurowski

An oil cursed citizen.

We don’t need more transparency

A new group of well intention academicians who want to help those countries blessed with natural resources to transform these in development and wealth for their citizens has recently been created. This group will summarize its conclusions in something named “The Natural Resource Charter”.

Just like the Extractive Industries Transparency Initiative, EITI, one of its guiding principles is that helping make more transparent the information of the origin and destiny of the funds obtained from the natural resources, will make the citizens request better results. Forget it!

We Venezuelans do not need more transparency to be absolutely sure that we are anchored in an infamous oil feudalism where or feudal lord on duty keeps all the seeds and shares out what is left or what he has digested. More transparency would be like the tortured clamoring for their rights to also be seeing how they extract their fingernails.

We Venezuelans do not need more transparency to be absolutely sure that the most we can expect substituting for the feudal lord on duty with another from the same tribe of the getoutoftheway-toplacemyselfs is that he will hopefully do just what the previous did a little bit better, though always running the risk he will do it worse.

We Venezuelans do not need more transparency to be absolutely sure that our lives are wasted fighting among each other for a share in our own net oil results, wallowing in a sort of eternal piñata at the feet of the benevolent on duty who distractedly observes us with a sarcastic smile.

We Venezuelans do not need more transparency to be absolutely sure that instead of a feudal system that administers our own net oil results we need a normal government that governs our country.

We Venezuelans do not need more transparency to be absolutely sure that we are much better off trusting each one of us a little, instead of trusting a chief so much that we elevated him to be our feudal lord.

In conclusion we Venezuelans do not need the slightest bit of more transparency to be absolutely sure that what we most need is the strength and will to free ourselves from this feudal oil state in which we are trapped by requesting they give us our oil results directly, so that we can plant them… instead of discussing so many stupidities and believing in so many pregnant birds.

Translated from “El Universal” Caracas, Venezuela, April 9 2009.

Plain awful

It is plain awful to be a citizen where the government is independently wealthy because of income from national resources and does not really need the citizens.

EITI´s unacceptable principle.

The Extractive Industries Transparency Initiative states as its 2nd EITI Principle the following:

“We affirm that management of natural resource wealth for the benefit of a country’s citizens is in the domain of sovereign governments to be exercised in the interests of their national development.”

That, to me, a resource cursed citizen, is an unacceptable principle.

I hold that the individual citizens will always be better, on average, at making the most out of any resource blessings than any government managing all of them.

A letter to The Natural Resource Charter from an oil-cursed citizen

Friends, you say in your precept 2 “Extractive resources are public assets and decisions around their exploitation and use should be subject to public oversight.”

Let me introduce myself. I am one of those millions of oil cursed citizens t and I do have some serious reservations with respect to this precept 2 draft. Let me explain.

Let us suppose that all the net results of the exploitation of any extractive resources placed by providence in a country had been equally divided among the citizens, those who arguably are the most legitimate owners of said funds. Let us then suppose that the central government requests the citizens to give to it all the net results in their possession... what would we have? We would have the mother of all the regressive tax systems, with the marginal tax rate for the poorest being 100%.

Would anyone of you in the Natural Resource Charter support such a regressive tax system? I don’t think so. And so why then do you take it as a big given, without even putting it up for discussion, that “extractive resources are public assets”?

In Venezuela, in 1974, the Oil Boom I of my time, Carlos Andres Perez´ time, as a rookie MBA I was appointed diversification manager in the Venezuelan Investment Fund that was being set up in order to safeguard the oil income that the country had no chance to digest in a reasonable way. It took me less than a month to discover that the whole set-up was doomed to fail and so I quit, the same day my new desk arrived. I thereafter worked as a financial and strategic consultant in Venezuela for 28 years.

In 2002 as a result of some almost inexplicable events, like being recruited for it on the web, I was appointed for two years an Executive Director at the World Bank. I have since suffered and witnessed in detail, though from a sufficient distance to see the forest, the Oil Boom II of my time, Hugo Chavez´ time. Frankly I know more than most what the oil curse is really all about and I pray for and do the most that I can in order to find a way for my country of not wasting Oil Boom III whenever it comes.

This week I assisted the “Improving Extractive Industries Benefits for the Poor” (those taxed at 100%) organized by the World Bank´s Oil and, Gas and Mining Policy Division. There were many interesting conferences but, with respect of how to avoid the oil-curse, I heard no new lessons derived from Oil Boom II that I had not previously learnt from Oil Boom I.

The main explanation for it might be very difficult for anyone who has not lived under the oil curse to really understand it.

Though it is great having transparency, like that promoted by EITI, whose efforts I fully support , the real oil curse is not about the lack of transparency; the real oil curse is about a nation of citizens sitting down and expecting their government to sow the oil revenues and harvest something good for them, without given the slightest thought about taking that responsibility upon themselves; the real oil-curse is the citizens handing over through elections the check book containing their own oil revenues to the chief in turn just in order to fight among themselves the next years for a larger share of these or to have to bow to the chief to get something of those net revenues back.

As I see it the only way we citizens have to escape the oil curse is by avoiding centralizing the net oil revenues in the hands of the government, at least during an oil boom. The way I, an oil cursed citizen, would start visualizing a solution, is in terms of having any net oil revenues that represents more than a percentage of GDP and that is distributed, being paid out in cash, directly to the citizens instead of to the government.

Friends, we oil cursed citizens have had enough with our government finding itself to be independently wealthy during an oil boom and therefore having no fiscal income incentive to even keep up the appearances of a responsible behavior.

May I therefore respectfully ask the Natural Resource Charter not to start tackling this issue as if the oil revenues were given to the States by God and instead try to side with the citizens. Frankly our politicians do not deserve having more policymakers endorsing their populist promises.

There is no such thing as an oil-cursed politicians, oil-cursed governments or oil cursed policymakers, on the contrary they are all most often shining examples of oil blessings... there are only oil-cursed citizens.

Please!

http://www.eluniversal.com/2009/03/12/opi_art_nosotros,-los-maldec_12A2250731.shtml

The only way

The only way we citizens have to escape the oil curse is avoiding the centralization of the net oil revenues in the hands of the government, at least during an oil boom.

The way I, an oil cursed citizen, would start visualizing a solution, is in terms of having any net oil revenues that represents more than a percentage of GDP and that is distributed, being paid out in cash, directly to the citizens instead of to the government.

The mother of all regressive tax systems

Let us suppose that all the net results of the exploitation of any extractive resources that were placed by providence in a country had been equally divided among the citizens, those who arguably are the most legitimate owners of said funds.

Let us then suppose that the central government requests the citizens to give to it all the net results in their possession... what would we have? We would have the mother of all the regressive tax systems, with the marginal tax rate for the poorest being 100%.

Would anyone of you support such a regressive tax system? I don’t think so.

My minimum minimorum on exiting Iraq!

I was never in favor of the invasion of Iraq but, once it occurred, I pleaded for a scheme that would put its oil revenues directly into the pockets of all the Iraqis, and thereby set an example that could help to empower the democracy in all the other countries that are cursed with the centralization of their oil revenues… the mother of all oil curses. Unfortunately, the supposed builders of democracy forgot to bring with them to Iraq such a fundamental building block.

Now, when exiting Iraq, as a minimum minimorum, we should at least aspire that the next Saddam Hussein, whenever he will appear, should not find it easier to be the next Saddam Hussein… much the same like the next Bush, whenever he will appear, should not find it easier to be the next Bush.

http://www.policyinnovations.org/ideas/commentary/data/000083

Let us sit down and talk about oil!

On June 26, 2008 I published in Caracas an imaginary letter from Arnold Schwarzenegger to the citizens of Venezuela and in which he offers to buy, on a rolling five years average price, 2 million of oil barrels per day, so as to satisfy the needs of his California constituency and also to take the worst of that volatility out of the market that keeps his electorate running crazed between Hummers and hybrids.

To provide the Venezuelans with the incentives to entering into such a contract Arnold is offering to pay an equal share of the proceeds, to each one of the 26 million citizens of Venezuela, in the currency and in the account each one of them would order… instead of giving all that money to chávez.

Economics is about making the most out of scarce resources and so when seeing the oil suppliers in OPEP exercising their powers successfully, which is OK since oil in a non renewable resource and since the world at large should benefit from consuming less of it, one cannot help but ask why the consumers do not exploit their powers as consumers. I suspect because there are some not wanting them to do that.

I wonder what the Venezuelans would say if they would formally receive such an offer from Arnold since today the primary reason for which Venezuela is not exporting more oil, even though its citizens might need the money, is that its government gets more oil revenues than it can handle… in fact so much that they even give away some of the oil to London and Boston.

Fellow citizens from oil supplying and oil consuming countries, why do we not sit down and talk about it all, without intermediaries like oil companies or oil dictators?

Please... while you are busy leaving Iraq

The search for transparency in an oil-consuming world

Sir, There has been a lot of talk lately about a curse that, through corruption and other distortions, is stopping oil-rich countries from turning income into development. The Extractive Industries Transparency Initiative, championed by the United Kingdom and endorsed by the World Bank, has been named an exorcist and is starting the rites by applying a much-welcomed transparency to projects such as the Chad-Cameroon pipeline.

In the name of that same transparency, let us also remember that for every $1 received by any oil-producing country (which forever sacrifices a nonrenewable asset), the public treasury of many oil-consuming countries receives, net, at least $4 and is therefore a likely victim of the same curse, albeit stricken by different symptoms. For instance, in many oil-consuming developed countries, the curse has now created such an addiction to petrol taxes that their whole fiscal structures would be completely unsustainable without them.

Transparency would also, perhaps, not be a bad rite to use to exorcise this tax man’s curse, since most of the gasoline consumers in these countries are not remotely aware of the real extent of the taxes and much less of how the proceeds are used.

For instance, having been told that these taxes were environmental, they would be surprised to learn that probably less than 0.5 per cent of the 100,000 million dollars collected yearly in Europe, just in taxes on lead-free gasoline, goes to the environment; and, worse, that much of it goes in subsidies to the even less environmentally friendly coal.

Also, today, as the possibilities of satisfying the world’s demands for energy seem quite uncertain and the world becomes more aware that the ultimate cost of cutting, or not cutting, the trees of the Amazon will be paid by all, whether they like it or not, it is clear that the world needs to become much more penny-wise when developing alternative energies; and we all know that the best and only companion of the penny-wisest is transparency.

So, after the pipelines, when do we start with the Exchequer’s bag?

The Financial Times

On Transparency and Curses

Lately there has been a lot of talk about a curse that, through corruption and other distortions, is stopping oil-rich countries from turning income into development. The Extractive Industries Transparency Initiative, championed by the UK and endorsed by the World Bank, has been named exorcist and is starting its rites by applying a much welcomed transparency to projects such as the Chad-Cameroon pipeline.

In the name of that same transparency, let us also remember that for every single dollar received gross by any oil producing country (who forever sacrifices a non-renewable asset), the public treasury of many oil consuming countries receives, net, at least four dollars, and is therefore a likely victim of the same curse, albeit stricken by different symptoms. For instance, in the oil-consuming developed countries, the curse has now created such an addiction to gasoline taxes, that their whole fiscal structures would be completely unsustainable without them.

To exorcise the taxman’s curse transparency would also be a good starting point as most of the consumers in these countries are not remotely aware of the real extent of the gasoline taxes, and even less of how the proceeds are used. For instance, having always been told that these taxes were environmental, they would be surprised to learn that probably less than half a percent of the US$100 billion collected yearly in Europe, just in taxes on lead-free gasoline, goes to the environment and, worse, that much of it goes in subsidies to the even less environmentally-friendly coal.

Also, today, as the possibilities of satisfying the world’s demands of energy seem quite uncertain and the world is becoming more aware of the final cost of cutting or not the trees of the Amazon will be paid by all, whether they like it or not, it is clear that the world needs to become much more penny-wise when developing alternative energies… and we all know that the penny-wisest best and sole companion, is transparency.

So, after the pipelines, when do we start with the Exchequer’s bag?

El Universal, Caracas

The Oil Referendum

WOULD YOU BE IN AGREEMENT if the Bolivarian Republic of Venezuela were to sign an oil contract with the United States of America (U.S.A.) under the following conditions?

The U.S.A. and Venezuela agree that starting today and for the next 50 years, the U.S.A. would buy and Venezuela would sell three million barrels of oil per day with Venezuelan characteristics. The Reference Price (RP) would be US $25 per barrel, indexed to the U.S.A. inflation rate, plus or minus an adjustment equivalent to 50% of the difference between the RP and the spot-market price.

As a consideration, Venezuela would also keep an additional 2 million barrels per day at the preferential availability of the U.S.A., which could be bought by the U.S.A. at spot-market prices, provided there were an emergency that made those prices exceed the RP by at least 100%.

In order to guarantee to the U.S.A. that Venezuela would always be in a position to meet its supply obligations, Venezuela would agree that it would not, under any circumstances, contract a new public debt, so as to make sure that the oil revenues to be received over the next 50 years would not be given as guarantees for new fresh loans today, and thereby risk wiping away the value of those reserves in a mere 50 days.

In order to ensure the enthusiastic applause of environmentalists, Venezuela would earmark 3% of oil revenues to planting trees in our country, trees which would capture carbon from oil emissions.

In order to ensure that the Venezuelan citizenry would get its fair share of the revenues (and vote “YES”), 30% of Venezuela’s gross oil revenues would be directly distributed in equal amounts to each Venezuelan. That distribution could be made in cash or in vouchers for health and education services.

If the “YES” vote were to win the hypothetical referendum described above, Venezuela would have macroeconomic stability, enabling it to formulate a true development plan, and the U.S.A. would have a larger, more secure supply of energy.

But so long as the natural market for our oil, the United States of America, remains incapable of gauging its interests beyond the current quarter, and doesn’t care if oil falls to 7 dollars a barrel, and prefers to create costly strategic reserves by burying crude oil or exploiting environmentally delicate areas, then any Venezuelan president trying to defend his or her country and keep the price of oil somewhere above the miserable marginal cost of extraction has no alternative but to strengthen OPEC and seek alternatives elsewhere, if for no other reason than to incite jealousy.

To the best of my understanding, this is what geopolitics is all about; and that’s why it might not be such a bad idea for the United States to study realpolitik—especially when, as happened forty years ago on a Caribbean island, they flunked that subject royally.

Published in El Universal, Caracas, June 7, 2001

P.S. The above is what I wrote in 2001, but no one in the U.S.A. picked up on the idea or proposed anything similar. That is why today, when oil is up around 60 dollars, I don’t care a lot about some of the crybabies.

P.S. Now, in 2009, after having seen another oil-boom gone to naught in my country I would as a citizen not settle for the 30% mentioned above but request 90%, not in vouchers but in cash!