As an oil-cursed citizen I object the Revenue Watch Index 2010... They do recall cars, don't they?

The 2010 Revenue Watch Index on the transparency of governments in oil gas and mining industries prepared by Revenue Watch and Transparency International was released on October 2010.

And there I see that my country Venezuela ranked 14th among 41 countries with 63.0 points out of 100 possible. What does that mean? I have no idea except being absolutely sure it does not mean what it is supposed to mean.

The first and foremost reason is that there either is sufficient information for a citizen to have a reasonable understanding of what the government is up to, or there is not. What would happened if auditors could rank companies in terms of how much of the information they would need to complete an audit they receive?

I have insufficient knowledge of other countries but what is absolutely certain is that in Venezuela the citizen is not receiving the information he would require to even have a sketchy idea of what its oil industry is really up to and how it is doing. And so I absolutely object to the ranking and declare that the ranking itself is extremely little transparent.

Besides:

A fact such that the Venezuelan Government, even if it wants to market itself under the brand of 21st Century Socialism, gives away gas at the pumps for around US$ 5 cents per gallon and with that disappears a big chunk of Venezuela’s GDP, from those having nothing of nothing and gives it to the motorists, is not even reflected on the Index. Just that fact alone should have placed Venezuela among the last.

As an oil cursed citizen who knows that the absolute worst part of the oil-curse is the creation of an independently wealthy government for which the citizens are almost a nuisance, what I would like to see standing out in any applicable index, is how much of the oil revenues are turned over to the citizens in cash, no questions asked, no votes expected. This has not even been referred to in the Index.

Finally if you really want to be transparent on oil, you would have to complement this index with a report of how much the foreign taxman receives from taxing gasoline because that income often exceeds the whole oil income an oil extracting country receives for sacrificing its natural resources.

I truly understand and believe that Revenue Watch and Transparency International produce this index with their best intentions, and I thank them for that, but unfortunately, when you are an oil-cursed citizen all the best intentions of the world do not cut it.

I shiver to think how many oiligarchs and petrocrats can and will use the index to convince their poor oil-cursed citizens that they are doing a great job, comparable to what the other resource countries do, and, if off-track, this is only marginally so… as the figures indicate.

I respectfully request the Revenue Watch Index 2010 to be immediately recalled because of serious and dangerous malfunctioning! They do recall cars, don't they?

Ps. If further proof about the index being totally faulty is required, it suffices to mention that in the just published Corruption Perception Index 2010, published by Transparency International my country appears as number 164 among 178.

Ps. During the recent conference “Extractive Industries and sustainable Development” organized by the Vale Columbia Center on Sustainable International Investment I had the opportunity to make some of the observation against the 2010 Revenue Watch Index to Karin Lissakers, the Director of Revenue Watch Institute. She admitted they also had serious doubts about it. But if they had serious doubts, why did they then go ahead and publish it? Have they never heard of “do no harm”?

Has the US Congress now sided with the petrocrats and the oiligarchs of the world?

The recently approved ‘‘Dodd-Frank Wall Street Reform and Consumer Protection Act’’… includes in SEC. 1504. Disclosure of Payments by Resource Extraction Issuers, a rule, sponsored by Senators Benjamin Cardin and Richard Lugar, which obliges US-listed companies engaged in oil, gas or minerals extraction anywhere in the world to report how much they pay to governments in their annual filing to the Securities and Exchange Commission. To be able to access the US capital market, companies - US and foreign - must publicly disclose all royalties, taxes, and other payments, project by project and country by country.

Since I am for transparency I see nothing wrong with that. In fact, as a citizen of an oil cursed country, Venezuela, I obtained the crucial information I needed on some of its investments only because its oil company, PDVSA, had to file that information with the SEC. (And that was even before the hugo chávez’ years).

BUT, according to this Act, those payments as determined by the Commission should be “consistent with the guidelines of the Extractive Industries Transparency Initiative (to the extent practicable)”, AND the Extractive Industries Transparency Initiative (EITI), for reasons that are unexplained, specifically states as its 2nd 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.”

Which, as I read it, means that the US Congress, though most of the oil in the US has been exploited by the private sector, and it adheres to free market principles, is lending credibility to an organization that is lending credibility to the notion that oil revenues should be managed by authoritarian petrocrats and oilygarchs like hugo chávez.

That does not make it easier for those who like me are fighting for the sharing of the oil net income directly with the citizens of a country, as the single most important factor that could help to diminish the negative consequences of the oil-curse.

Besides EITI is little by little becoming just another Basel Committee, monopolizing the rulemaking and the debate, without anyone outside comprehending sufficiently where their globally reaching authority really springs from.

Like oil-cursed citizens

The asymmetrical empowerment of the authorities is by far the worst part of the natural resource curse.

Today I assisted another conference arranged by Oxfam and where they presented a report titled “People, Power, and Pipelines: Lessons from Peru in the governance of gas production revenues” This report tried to analyze what had happened to the about $1.13 billion in revenues generated by the Camisea natural gas project that were transferred to local governments between 2004 and 2009.

It is a good report and it reaches many correct conclusions. Unfortunately, when it quite traditionally ends with recommending “building subnational governments (SNGs) capacity for extractive industry revenue management” it evidences that this NGO at least has not yet achieved sufficient understanding of the “resource curse”, probably because most of their member have never been resource-cursed themselves.

In the villages of the Amazon which were studied, before the SNGs received the resources, the villagers were most certainly very poor, but they were still an important part of society, and their collaboration must have been of great importance for their then similarly poor SNGs. But then the natural resource revenues empowered unduly their SNGs, and since then the citizens are not any longer needed and are most often treated as mere nuisances who just expect favors. It is precisely this asymmetric empowerment of the authorities that causes the absolutely worst part of the resource curse.

And so if SNGs (or central authorities) have been asymmetrically empowered with excessive resources, then those we really need to empower with the capacity of managing the resource curse are the citizens.

The last thing we want to hear is those SNGs who are already in possession of the resource moneys, also telling the citizens: “We are the ones who have been capacitated to manage these by the World Bank and Oxfam (or any other in the list of willing capacity builders). Therefore, if you do not understand the hedging of our Muni-fund exposure to the yen, don’t worry, be happy, and remember that it is in your best interests to vote for us next time too, since frankly you would never even begin to understand the level of sophistication that is required and that we have achieved.”

What do I propose? For a starter, in order to increase accountability and place expectations in a more correct perspective, to give each citizen a receipt that indicates exactly what is their share of the natural resource revenues that has been received in their name by their SNG; followed up by giving them more and more of the revenues generated, in cash, for the same reason you are better off giving the citizens a fishing rod for them to learn how to fish, than giving them the fish you so carefully and so very lovingly selected for them. It is always better to have capable citizens than capable governments!

Friends in Oxfam, please follow up the current report with one that specifically analyzes how the natural resource empowered SNG’s behave when compared to those less “blessed”. It might be an eye-opener! It might help to capacitate you on the true meaning of the natural resource curse.

A war with the neighbor is awful but less bad than a civil war

I just read a post in a blog that seemed to imply that Ghana and the Ivory Coast might fight over some border oil. No matter how sad that sounds it is nonetheless a thousand times better than the internal low intensity civil or uncivil wars for the oil revenues that will occur within the countries themselves… unless they can find an expedite and just way to distribute the oil revenues directly to the citizens.

A partial objection to the S. 2971 ‘Energy Security Through Transparency Act' currently being discussed in the US senate:

The Act reads: "SEC. 408. SENSE OF CONGRESS RELATING TO TRANSPARENCY FOR EXTRACTIVE INDUSTRIES: (2) the United States Government should commit to global leadership of transparency in extractive industries by supporting-- (A) multilateral pro-transparency efforts, such as the Extractive Industries Transparency Initiative, in revenue collection, budgeting, expenditure, and wealth management"

Now the Extractive Industries Transparency Initiative has, as it 2nd Principle, “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.”

Given that the oil in the US was and is exploited mainly by the private sector we do not understand how the US could lend support to such a principle.

And many of us oil-cursed citizens, though we certainly support and are appreciative of some of the initiatives of EITI, we do hope that the US will not support anything that has as a stated principle that oiligarchs, petrocrats or vulgar oil-thugs, and who feel themselves independently wealthy and consider most often us citizens as a nuisance, have to manage the natural resources in our interest.

EITI and Natural Resource Charter, I dare you to do a Full Monty on oil revenue transparency!

You, oil consumers of Europe wanting to solve our oil-curse with more transparency, why do you not dare to be real transparent about it and confess that you at your gas pumps are capturing much more of its value than what is received by the country who sacrifices its natural resource for ever… often only to end up depositing those lesser funds in the consuming countries banks.

You tell me… NGOs from Europe, why should I trust you good hearted oil curse fighters from consumer nations? Have you ever spoken out against your governments capturing too much of the value of the gasoline/petrol we give up for ever at your pumps?

What might be lost to corruption in the transaction between oil companies and the petrocrats, oligarchs or simple oil thugs of our governments, is but a fraction of what you collect in gasoline/petrol consumptions taxes at your pumps… often pouring salt in the injury arguing it is because you want to protect the environment, while at the same time subsidizing your dirty coal behind our backs.

The little receipt!

During the recent World Bank meetings in Washington (spring 2010), there were again several conferences relating to the question of why abundant natural resource richness translates into such poor results for their respective countries.

And again I had to submit to the smirking smiles with which those who have not the faintest idea of what an oil curse really means try courteously to hide they think it has to do with us being third class citizens.

And again I had to hear the barrage of arrogant and wise solutions offered by those who have never lived an oil curse.

And again I felt the so Venezuelan conflict of knowing oneself so chévere (great) and by the day being able to show less and less evidence of that. Heck even our hydro-electrical dam Guri, recently a source of national pride has with the electricity crisis turned into another symbol of ineptitude. What are we left with? Our beautiful women and the Ibis Escarlata?

And the worst part was that all of the solutions offered, outside and inside Venezuela, all sound like all recipes for the cooking by a distant great aunt whose food we never liked but of which we became fed up of as children.

“You need to diversify the economy; more agriculture; more manufacturing industries; you have to increase tax collections form the non-natural resource sector, even if that makes it more difficult to develop the non-natural resource sector; you must reduce income volatility by setting up funds; you need to invest in education”. Yes, yes and yes!

Bankrupted iron steel and aluminum industries; industrial zones that seem like desert towns in the wild west; tremendous education programs that have our professors teaching in the best universities abroad; investment funds with no funds?... well no, no and no! We have to find something new to do about it.

And having written so much on the subject and even promoting a global alliance of oil-cursed citizens I feel I would be satisfied if only those who always manage and sow the oil in our name, because they are such great sowers and we’re not, would only give, each one of us Venezuelans, a little receipt.

Mrs. Juana Rivera. Shack # 17, Path The Miracle; Village The Hope, Municipality The Fortune, State of Barinas, Venezuela

Dear Mrs. Rivera: In the name of our glorious Venezuelan nation allow me to inform you that last year, as administrators, we received in your name, in income from that your non-renewable oil, the amount of 178.98 US dollars per month, free and clear of all costs.

In relation to the same we also include here five receipts exactly the same and which correspond to your five children. The receipt of your husband is kept in our archives, as we have not been able to locate him.

Respectfully and expressing again the gratefulness in the name of our glorious nation your generopus contribution we remain,

Your sincerely

Your oiligarch, petrocrat or oil thug in turn.

From El Universal

What’s more important for a nation, good citizens or good governments?

Friends

March 3 and 4, 2010, I participated in a very interesting conference titled “Oil and Gas in Federal Systems” held at the World Bank in Washington D.C. organized by the World Bank and the Forum of Federations, with sponsorship from NORAD.

I believe all participants learned a lot about issues and facts related to how oil and gas revenues are and should be distributed to central governments, states and municipalities. I know I certainly did. Thank you all!


Unfortunately, the sharing of the oil and gas revenues directly with those citizens whom are always told that these resources belong to them was not considered, not even as a possibility.

I did my best to remind those present that if we were to heed the wise words of Amartya Sen telling us to look for the things we share instead of what separates us, we should remember that at the last count, we are all citizens. Sadly, this did not impress many of the aspiring government, state or municipalities’ consultants, or authorities present, and so I felt that, as an oil cursed-citizen, I needed to intervene more actively. I hope the organizers will still invite me the next time.

I spoke out along the following lines:

What is more important for the future of a country, good governments or good citizens? I have no doubts whatsoever that the right answer is “good citizens”. Therefore, in an oil rich country, it is more important that the citizens learn to manage the oil-richness than thyat their governments do. But how can the citizens learn when governments thinking them to be the experts and the responsible for us, insist on managing all those resources?

Only those who have lived as cursed citizens know what the oil-curse is really all about. Only they know what it is to have an independently wealthy government which often considers the citizens to be more of a nuisance standing in the way of their grandiose plans. Only they know how easy it is for the citizens to succumb to be simple observers holding immense expectations about what oil and gas revenues will bring them.

Constitutions are written in order to defend the citizens from the excessive powers of their government. Should therefore not any methodology of sharing oil revenues between central governments, states and municipalities have as its absolute first priority that of avoiding accumulating excessive powers anywhere?

Yes I am all for transparency but, let us be sincere, quite often we know perfectly well we are being taken for a ride without needing to know the details. On occasions I have held that for an oil-cursed citizen more transparency is sometimes like having the right of also seeing when ones nails are extracted by the torturer.

Having been an Executive Director at the World Bank (2003-2004) I am perfectly aware that the World Bank works directly for the governments and only indirectly for the citizens. That said I find no reason why the World Banks needs to be so accommodative to the governments so as to sign up on the 2nd principle of the Extractive Industry Review (EITI) which 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.”

The Iraq Study Group Report of May 2006 stated: “There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation’s chief natural resource, but it would take time to develop a fair distribution system.... There is no institution in Iraq at present that could properly implement such a distribution system. It would take substantial time to establish, and would have to be based on a well-developed state census and income tax system, which Iraq currently lacks.”

Is it not exactly for this type of challenges that we have in the World Bank a “knowledge bank”? We all know that if there was a real will, a system to do exactly that could be designed and put in place quite expeditiously.

Finally I spend some time voicing some “wise” bullets and thumb rules.

When accounting for the government’s share, you must include what they give away, like for instance the value of the 25 percent of Venezuelan oil production that at US$ 8 cents per gallon is just given away to those who drive cars.

Having been there, I cannot see one single new proposal related to have centralized governments make better use of oil and gas revenues that has not been tried and proven to fail before.

Having been there, as a manager in the initial stages of the Venezuelan Investment Fund 1974, I know about the total worthlessness of any oil and gas fund that the governments could influence in even the most minor way… so please do not sell false potions.

Would Norway be today's Norway had they found their oil when kings were kings?

Please do not let perfection become the enemy of the good by working on turning oil and gas revenues into a blessing. Most of us citizens would feel more than blessed were we able to avoid just the worst parts of the curse.

The best way for citizens to guarantee their freedom is paying for their governments. No central government, state or municipality should receive more than 10 percent of their revenues from any other source that is not direct tax payments by the citizens.

Never provide a ruler or a bureaucrat with income that he feels he cannot be contested or held really accountable for. If governments need the revenues let them pay the full per capita oil or gas revenue check to the citizens and then explicitly withhold the taxes on such payments.

Corruption is not acceptable whether centralized or decentralized and bullies are bullies, whether in the central government, states or municipalities.

Any government that receives more than four percent of GDP in fiscal resources that have not passed through a taxpayer’s pocket becomes de-facto a communist state.

The problem is not about producing the miracle of a government that puts centralized oil and gas revenues to good use for a country and its citizens… It is about being able to repeat that miracle over and over again.

Friends, I thank you in advance for listening to me and I appreciate immensely any echoing of my voice by resending this message to anyone who could be interested in it… and to many of those who are not but should be.

Best regards

Per Kurowski
Just another oil-cursed citizen

PS. I told the conference that two of my daughters had moved to Canada, one to Ontario and the other to Quebec and that, after reading about Alberta’s centralized oil revenues, I was thankful they had not moved into another future Venezuela. Someone replied that in Alberta they would not have to pay taxes. He did not really get my drift… paying taxes is the only way a citizen can have a government that works for him... and not the other way round.