Thursday, May 16, 2013

Managing Natural Resources

I haven’t time to read the report, but via this Reuters article printed in The Star, comes another NGO looking at global issues of governance (excerpt):

The 2013 Resource Governance Index

The Resource Governance Index (RGI) measures the quality of governance in the oil, gas and mining sector of 58 countries. From highly ranked countries like Norway, the United Kingdom and Brazil to lowranking countries like Qatar, Turkmenistan and Myanmar, the Index identifies critical achievements and challenges in natural resource governance.

The 58 countries produce 85 percent of the world's petroleum, 90 percent of diamonds and 80 percent of copper. Profits from their extractive sector totaled more than $2.6 trillion in 2010. In 41 of these countries, the extractive sector contributed a third of gross domestic product and half of total exports on average. Revenues from natural resources dwarf international aid: In 2011, oil revenues for Nigeria alone were 60 percent higher than total international aid to all of sub-Saharan Africa. The future of these countries depends on how well they manage their oil, gas and minerals.

Mismanagement and corruption have many manifestations and can have dire consequences. Some countries negotiate poor terms with extractive companies, forsaking potential long-term benefits. Many countries do not collect resource revenues effectively. And even when resource revenues do end up in government coffers, they aren't always spent in ways that benefit the public. Too often, governments keep citizens and civil society leaders in the dark regarding government contracts and resource revenues. This opacity deprives the public of a voice or even representation in basic decisions on natural resources.

The RGI is based on the premise that good governance of natural resources is necessary for the successful development of countries with abundant oil, gas and minerals. It provides a diagnostic tool to help identify good practices as well as governance shortcomings...

Malaysia is ranked tied-32nd out of 58 countries surveyed, with a composite score of 46, which is considered “weak”. The RGI is made up of four components, with Malaysia having a borderline “fail” grade in two (institutional & legal setting, and safeguards & quality controls) , and a “partial” in one (enabling environment).

Only three countries (Norway, the US and the UK) have a “satisfactory” grade in all four components, and only 11 have an overall “satisfactory” score. At the bottom of the table, 15 countries have an overall “fail” grade, including such luminaries as Myanmar and Zimbabwe, but also Saudi Arabia and Qatar.

Note that this index looks at governance issues only – basically, transparency and reporting of contracts, operations and revenues, not on actual or perceived corruption or how well these extractive industries are actually run or managed.

On that basis, I don’t think it will take much to substantially improve Malaysia’s score, especially since this report is focused largely on the major extractive industries (oil & gas in Malaysia’s case) rather than the smaller, and even more opaque ones, such as forestry or other minerals.


  1. Calls for greater transparency in oil revenues have been made much earlier in the 1990s as part of an anticorruption advocacy campaign launched by British NGO- GLOBAL WITNESS and international financier George Soros, demanding that oil companies 'publish what they pay' to governments. Tony Blair launched in 2002 the extractive industries transparency initiative (EITI) whereby governments agree to minimal criteria of revenue transparency required to gain compliance status. This requires state oil companies to publish what they pay to governments and be subjected to audits to verify its authenticity. EITI has validated 11 countries with 24 others working towards conpliance. What about Petronas? Working towards compliance?

    Joe Black

    1. @Joe,

      Petronas currently and for some time discloses total payments to central and state governments in its annual report. In addition, the total outlay for the gas subsidy (which supports IPPs, TNB and consumers) is also disclosed.

    2. Government Revenues should not be confused with the flow of benefits to citizens. The government's 'take' is not necessarily the public's 'take'.Many oil producing countries rank well below their GDP per capita ranking in terms of the Human Development Index (HDI). We don't have to go far...Singapore is not an Oil Prducer compared to Malaysia and Indonesia but are way above in HDI ranking.

      Oil Revenues also tend to result in massive economic distortions that can increase oil dependence over time. And this is what is currently happening to Malaysia.Corruption and misuse of oil revenue can lead to the collapse of governance and the rise of authoritarian rule. (Will the minister who thinks that only he can decide who stays and who leaves this country stand up?).

      Joe Black