2. What type of Production management policy should the new and upcoming Oil and Gas Producer Countries adopt facing the world energy crisis? Bali ANDRIANTSEHENO b_andriantseheno@yahoo.com IDEAS GA, Amman April 2011

3. THE FACTS World Oil Reserves, 2009

4. THE FACTS World Oil and Gas Reserves, 2009 A huge concentration of Oil within OPEC: almost 83% of world reserves Gas: Russia (27%), Iran (15%), Qatar (15%) Group of countries Reserves (in billion barrels) % World Reserves Min/max Years of reserves NON OPEC 189,217,3%6 / 44 OPEC 901,782,7%10 / 166 TOTAL 1090,9

5. MORE FACTS Oil price keeps going up; it reached US$ 110/bbl on April 10, 2011 R&D for the use and exploitation of new energy sources are taking a very fast pace and the renewable energy production has been among the fastest growing businesses for the past 10 years now New world powers are emerging and are slowly taking control of the world economy (China, Brazil, …) and demanding more oil Everybody is looking for oil under its soil but a few countries are likely to become most probably new players in the oil producing industry such as Ghana, Liberia, Madagascar,... New initiatives have emerged to help those new players in the oil industry manage their reserve and production such as the Extractive Industry Transparency Initiative (EITI) financed by a multi donor trust fund managed by the World Bank

6. MORE FACTS Oil price evolution

7. MORE FACTS Natural Gas price evolution

8. MORE FACTS Evolution of Oil Demand

9. BASIC QUESTIONS How should those newcomers in the world oil production business operate in order for them not to get drained by the temptation of getting more profit in the short term as many of them are developing countries?

10. OIL RESERVES MANAGEMENT MODELS Differential in Exploitation Management in OPEC Countries Oil Reserves in Billion barrels Years of reserves Venezuela79,777 Saudi Arabia266,866 Iran132,586 Iraq115166 Koweït104107 United Arab Emirates97,895 Qatar15,238 Libya3962 Nigeria3638 Algeria11,415 Indonesia4,310 TOTAL OPEC 901,7

11. OIL PERMITS MANAGEMENT MODELS The Oil production management models in the world go from pure auction formats, in which the highest bidder is allocated the license, to purely discretionary regimes in which a government and a company of its choosing privately negotiate the terms and conditions for the direct award of a license The common character: ALL States keep a tight control of the fiscal resources deriving from the oil industry The main difference: the way each country manages its oil stock reserve through the delivery of exploitation permits

12. THE RISKS Policy serving the only interests of Government / State officials Process not clear enough and lets corruption reign Insufficient control capacity of the State lets resources get out of the country freely Priorities for the use of oil fiscal resources are either badly or not defined at all so that they are used in a manner that does not serve public interests and needs

13. The case of Madagascar The existence of oil and gas reserves has been confirmed since 1995 Developing Madagascar's oil and gas resources is a cornerstone of a government plan to liberalise and privatise the country's economy and move towards a free market Many exploration licenses were put on sale since 1995 Many Majors in the international Oil industry are operating in Madagascar: Triton Energy, Gulfstream Resources Canada, Total, Chevron, Texaco, and a few small/unknown companies (Madagascar Oil, …)

14. The License delivery policy and process in Madagascar A Petroleum Code has been adopted by the Parliament in 1996 and it says: Hydrocarbons reserves are national properties One Technical entity has to be implemented to supervise all exploration and exploitation operations and One State Company has to be created to manage oil production operations either on its own or in partnership with other companies. Tax and fiscal modalities are to be negotiated with the government Oil blocks bidding can be open or done at the sole Government’s discretion!

15. The actual situation in the Oil Industry in Madagascar The Technical entity to supervise all exploration and exploitation operations existed already The State Company supposed to manage oil production operations either on its own or in partnership with other companies has not been created yet. The Government negotiates Tax and fiscal modalities on a case by case basis ! Oil blocks bidding can be open (like for offshore operations) or done at the sole discretionary process of the Government But Licenses have been delivered on at least 11 blocks out of a potential of 296 !

16. The achievements in the License delivery policy and process in Madagascar Oil production of Madagascar

17. The achievements in the License delivery policy and process in Madagascar The MMH seems to be wanting to get back 4 block licenses already allocated to a company, Madagascar Oil. This case is tied to cases already seen in Ghana and Angola describing how a China NOC was exerting political influence in an effort to acquire a license that had been sold to another company! The Government has also suspended the bidding process on offshore operations! A contract allocated to Total gives too much advantages and benefits to that company: a split rate of 20/80 instead of the usual 50/50 or 40/60 seen on the world market!

18. Evaluation of Madagsacar’s oil policy Relevance: To what extent is the licensing process consistent with the country’s development requirements? Is it still appropriate given recent changes in the world demand and supply scheme? Like every developing country, Madagascar is suffering a lot from the Oil price trend in recent years but deeper reflexions and more evidence are needed to help the Government decide about the right path to follow on how to manage better its Oil Reserves!

19. Evaluation of Madagsacar’s oil policy Effectiveness: Is the licensing process implemented and operated as it was supposed to be from start? What changes have been brought in it (if any) and why? The Oil licensing process is operational but the Government holds a too much discretionary decision power that might easily open up large rooms for corruption!

20. Evaluation of Madagsacar’s oil policy Efficiency: what resources (funds, expertise, time, …) were programmed to be used in the implementation of the licensing process? Were they all made available to the process? Why? Were they converted to results / did they really help the process? Some structures, supposedly to be created as per the Petroleum Code, are still missing and the Government takes advantage of the situation to decide everything on its own and do as it intends! Many regulatory texts in application of the Petroleum Code are still missing!

21. Evaluation of Madagascar’s oil policy Sustainability: Is the licensing process sustainable? Was there any major development assistance? will there be continuation of benefits from the process even after major development assistance has been completed? => is sustainability tied with impacts? Or with foreign support? There was no major foreign support to implement the Oil licensing policy and process and it should be naturally self-sustainable as long as it benefits from a transparent governance! The Government doesn’t seem to have learned from the EITI process. The question is: no control of the Government decision power has been put down in the Petroleum Code so the Parliament should fight hard to be able to get a look into what is being done in the Oil industry!

22. Evaluation of Madagsacar’s oil policy Impact: what are the impacts of the process so far in the country’s management and life (fiscal revenues, population’s social welfare and benefits, population displacement, migration, land use, environment and biodiversity, … As the real production has not began yet, it is hard to say who is benefiting from what but the industry needs more transparency because the Government’s discretionary decision power might darken the country image in the international business community! The differential in the fiscal modalities negotiated on a case by case basis might hurt the government’s image and infringe the benefits that should come into the nation’s treasury! The Government also needs to publicly announce its plan on the potential use of the revenues from Oil industry!

23. PENDING QUESTIONS Does the government already have a plan on how long should Madagascar’s oil reserves last? What production pace should be imposed to oil producing companies? What is the Government’s choice: a faster revenue increase (faster exploitation of the oil reserves) or a more sustainable development (a slower oil exploitation pace, better concern for biodiversity conservation and wiser environmental management of natural resources)? Any projected use of the future oil revenues? Any anti-corruption fence?

24. CONCLUSIONS God gave it, Man might not know how to benefit best from it! Oil production can bring wealth but it might also take to disaster! Corruption, corruption, corruption … and partial decisions might lead to a civil war later!

25. Thank you all for your attention !