RESOURCES

1
RESOURCES and RIGHTS
Terry Karl Stanford University
2
Extractives are Essential
The supply of oil, gas and minerals is necessary
for development.
No modern economy can function without adequate,
affordable and secure access to these raw
materials at least until alternatives are found.

3
A North-South Issue?
Oil and minerals historically tend to be exported
from the South for consumption in the North.

• In metal mining, 15 of the 25 leading companies
  in 2005, ranked
• by their share in the value of world
  production, were
• headquartered in developed countries.

• In oil and gas, private companies remain the
  largest corporations
• in terms of foreign assets.

Nonetheless, there are signs of change.

• Brazils CVRD is now the largest metallic mineral
  producer in the
• world.

• In 2005, the three largest oil and gas producers
  were all state-owned
• enterprises based in developing or transition
  economies
• Saudi Aramco, Gazprom (Russian Federation), and
  the
• National Iranian Oil Company.

• Saudi Aramco?s annual production in 2005 was more
  than double
• that of the largest privately owned oil and gas
  producer, ExxonMobil.

4
Developing and transition economies with highest
dependency on mineral exports
(Percent of total exports, 5-year average
(2000-2004))
5
Index of Oil Dependent States
Oil-dependence is measured as fuel-based exports
as a percent of merchandise exports. (Figures
are for 2004 except where a different year is
noted.)
World Bank, World Development Indicators, 2006
6
The Development Challenge
The development impact is determined by the
ability of LDC governments to 1) capture the
value of their resource and 2) make the best use
of the revenues generated through their effective
management, distribution and utilization.
Both of these processes, in turn, reflect
relative bargaining power between companies and
governments, on the one hand, and governments and
organized constituencies, on the other.

7
Concentration in Extractive Industries
The share of total global non-energy production
of the top ten metal mining companies has grown
from 26 in 1995 to 33 in 2006.
The top ten oil and gas producers control 41 of
the worlds production. This concentration is
even heavier in oil alone.

8
Top 25 metal mining companies, 2005

9
Distribution of Proven Oil Reserves (Countries
with gt2 billion barrel oil reserves)
264.2
10 Countries hold more than 80 of the Worlds
Proved Oil Reserves
BP Statistical Review of World Energy 2006
10
Reserves, production, consumption, and
exploration of oil and natural gas,
by region, 1995 and 2005
11
Distribution of Proven Oil Reserves in billions
of barrels
BP Statistical Review of World Energy 2003
12
Oil, Governance, Security
25 countries account for 95 of all known reserves
5 countries (Australia, Canada, Norway, the UK,
and the US) rank at the top of a variety of
governance indicators, but they hold only 5 of
all proven reserves
12 countries (Algeria, Angola, China, Iran, Iraq,
Kazakhstan, Libya, Nigeria, Russia, Saudi Arabia,
Venezuela, Yemen) rank at the very bottom of
governance indicators, but they hold more than
68 of the worlds proven reserves
In the first three months of 2003, nearly half
(46) of all U.S. oil imports came from 11 of the
12 petroleum-exporting countries listed in the
lowest quartile for a variety of governance
indicators
BP Statistical Review of World Energy
2006 Petroleum Industry Research Center, World
Bank 2003 Transparency International Global
Corruption Report 2006
13
World Price Trends
Mineral prices have been very volatile since
World War II.
From 1974, oil prices climbed steadily, then
declined in real terms since 1985, reversing this
dynamic in 1999. In 2006, oil prices were 10
times their 1998 figure.
Metal prices, to the contrary, went into a long
term decline in 1974, not to recover until 2003.
Depressed prices meant that they were treated as
simple commodities, rather than strategic assets
until recently.
Prices rises, fueled by rapidly growing demand
especially in China and India, have renewed the
strategic lens for viewing of both minerals and
oil. In the case of oil, high prices may
represent a permanent structural shift in the
market.
BP Statistical Review of World Energy
2006 Petroleum Industry Research Center, World
Bank 2003 Transparency International Global
Corruption Report 2006
14
Real Price Index of Crude Oil and Metallic
Minerals, 1948-2006
19
15
The Resource Curse
The resource curse refers to the inverse
association between growth and natural resource
abundance, especially minerals and oil abundance.
Between 1970 and 1993 countries which were
resource-poor grew four times more rapidly than
countries which were resource-rich, despite the
fact that these resource-poor countries had half
the savings.
Between 1965 and 1998 OPEC members experienced an
average 1.3 decrease in their per capita GNP,
whereas lower and middle-income developing
countries as a whole grew by an average rate of
2.2 over the same time period.
Auty, "Natural Resources, the State and
Development Strategy," Journal of International
Development (9,1997), pp.651-663


Gylfason, Lessons from the Dutch disease
Causes, treatment, and cures in Paradox of
Plenty The Management of Oil Wealth, Report
12/02, ECON, Centre for Economic Analysis, Oslo,
2002.
16
The Resource Curse
Simply put, OPEC members saw per capita income
decline by 35 between 1965 and 1998,

while lower and
middle-income developing countries experienced a
105 increase in their per capita GNP.
105 increase in per capita income
OPEC members
Low and middle income developing countries
35 decrease in per capita income

Gylfason, Lessons from the Dutch disease
Causes, treatment, and cures in Paradox of
Plenty The Management of Oil Wealth, Report
12/02, ECON, Centre for Economic Analysis, Oslo,
2002.
17
Change in Per Capita GDP in Oil Dependent
States, 1980 2004
Per capita GDP measured in constant 2000 US
World Bank, World Development Indicators, 2006
18
Average Growth in per capita GDP, 1990-2001
Azerbaijan
Kazakhstan
Norway
Russia
Canada
Algeria
Mexico
Venezuela
Brunei
Nigeria
Iran
Colombia
Cameroon
Gulf States
Ecuador
Gabon
Saudi Arabia
Congo, Rep.
Indonesia
Angola
Iraq
Less than 0.0
No Data
3.0 or more
2.0-2.9
1.0-1.9
0.0-0.9
World Bank, http//www.worldbank.org/data/maps/ima
ges/gdp-growth.gif
19
Prices of Primary Commodities, 1960-2005 (annual
average of price indices, 2000100)
Source UNCTAD, Commodity Price Statistics, 2006
20
Oil Price Volatility
BP Statistical Review of World Energy 2006
21
The Dutch Disease Food Exports as of GDP
Oil-dependent states
Non-oil states
World Bank, World Development Indicators, 2003
22
The Dutch Disease Manufacturing Exports as of
GDP
Oil-dependent states
Non-oil states
World Bank, World Development Indicators, 2003
World Bank, World Development Indicators, 2003
23
Magnitude of Extractive Industries Oil vs.
Metallic Metals (2005)
Global production of crude oil and natural gas is
estimated at 2.3 trillion.
Global production of metal mining is estimated at
265 billion.
Source UNCTAD, World Investment Report, 2007
24
Profitability of Global Fortune 500 companies
extractive industries and median,
1995-2006 (Profits in percentage of revenues)
Source UNCTAD, based on data from the Global
Fortune 500 (various years).
25
The Rentier State Corruption in Oil Dependent
States
Highly corrupt
Highly clean
Transparency International Global Corruption
Report 2006
26
Oil and Debt
Mineral exporters incur debt more suddenly and
rapidly than most other borrowers, with debt
service mounting for an increasing percentage of
their GDP
Six of the worlds most oil-dependent countries
rank among the World Banks most highly indebted
poor countries.
Six of the top ten most indebted African
countries are major oil-exporters
Twelve of the worlds most mineral-dependent
countries rank among the World Banks most
highly indebted poor countries.
Two of the top four indebted Latin American
countries are major oil-exporters
World Development Indicators 2003, Karl 1997
27
Rentier States and Regimes
Oil is associated with authoritarian rule
Of the 20 major exporters in 2000, only Mexico
and Venezuela are democracies, and both have
experienced prolonged periods of authoritarian
rule.
Oil hinders democracy
Oil breaks the link between taxation and
state-building
Spending on patronage weakens pressures for
representation and accountability

Karl, Paradox of Plenty
28
The Oil/Polity Paradox Stability and Instability
Oil dependence is robustly associated with regime
durability
In most cases, oil helps regimes, especially
authoritarian regimes, last longer, e.g.
Saddam Hussein (35 years)
But dependence on oil is also robustly associated
with war
Oil countries are more likely to have civil wars
than their resource-poor counterparts
These wars are more likely to be secessionist

Karl, Paradox of Plenty

Collier and Hoeffler, Ross, LeBillon
29
Poor Quality of Life
Oil dependence is linked to poor quality of life.
Oil-rich states have unusually high rates of

• infant mortality

• child malnutrition

• low life expectancy

• poor health care

Oil dependent countries spend less money on
programs that address quality of life issues
In the area of education, oil-dependent countries
perform poorly in the area of education

• OPEC spends less than 4 of GDP on education
  compared with the world average of almost 5

• In OPEC countries, only 57 of all children go to
  secondary school compared with 64 for the world
  as a whole

Ross, How does Mineral Wealth Affect the Poor?

Gylfason, Natural Resources and Economic Growth
What is the Connection?
30
Accumulating Grievances
Dependence on oil is robustly associated with
grounds for grievances, especially at the
regional and local levels
Oil income inflates local prices on key goods and
services, significantly increasing the cost of
living, even for those not sharing in the
benefits of oil
Influx of migrants, often from other countries,
ethnic groups, or religions, who seek oil related
jobs, causes resentment
Oil-rich locales suffer from increased
prostitution, sexually transmitted diseases, and
crime
Oil exploration, extraction, and transportation
cause severe environmental destruction

• pollution of villages, their water sources, and
  the air

• devastation of farmland, fishing and game areas

• destruction of medicinal plants and biodiversity

31
Exploration Impacts
Conflicts of interest for landowner or government
between profit and environmental stewardship are
typical, and all impacts flow downstream. Habitat
destruction by seismic testing
in ANWR
Seismic impact lines from 1984-1985 Alaska
National Wildlife Refuge
Road building that prompts other extraction like
logging and mining
Discharge of toxic drilling mud wastes
Militarization of territory to control land
32
Production Impacts
Habitat destruction
Discharge of oily salt water that contaminates
soil and fresh water supplies
Oil spills and sludge pits
Drilling in Peruvian rainforest
Unlined pit built by Texaco in Ecuador
Flaring of associated gas
Release of hydrogen sulfide and methane gas from
wells
Contaminated local food chain
Ogoniland in Nigeria where Shell has been
operating for 30 years.
Military intervention to control production
33
Environmental Damage in Mining Sites
34
Transport Impacts
Pipeline corridors
Oil spills on land and in the ocean Worst oil
spill in world history Persian Gulf War 1991
240 million gallons
Unocal pipeline through Burma
Tanker off cost of Galapagos Islands
Vulnerability to pipeline corrosion and disruption
Transport routes become military targets
35
San Francisco Oil Spill
36
Oil and Environmental Destruction
Ogoniland in Nigeria
after 30 years of Shell operations
37
The Militarization of Oil Exporters
Oil dependence is closely associated with
military spending and the creation of vast
repressive apparatuses
As a group, oil exporters spend much more money
and a greater percentage of their revenues on
their military and security forces than do
non-mineral dependent countries

Karl, Encyclopedia of Energy
38
Recent Civil Wars in Oil and Mineral Dependent
States
39
Crude Oil Prices Since 1861
BP Statistical Review of World Energy 2006
40
Human Rights and Extractive Industries
Human rights risks are related to

• Repressive regimes or weak governance/rule of law

• Revenue mismanagement and corruption

• Security arrangements and company roles in
  conflict zones

• Indigenous rights and labor rights

Abuses include
- disappearances, arbitrary detention and torture,

• loss of land and livelihoods without
  negotiation,
• representation or compensation,

- forced resettlement
- destruction of culturally significant sites
- labor rights violations
41
Key Standards to Safeguard Rights
Standards exist, but all are essentially
voluntary or not legally binding.

• Universal Declaration of Human Rights,
  International Covenant on Civil and
• Political Rights and Economic, Cultural and
  Social Rights

• International Labor Organization labor standards

• Indigenous Rights Conventions

• Voluntary Principles on Security and Human Rights

• OECD Guidelines on Multinational Enterprises and
  on Combating Corruption

• UN Global Compact

Mandatory legislation is required.
42
Top oil transnational corporations participating
in selected international initiatives, June 2007

43
Top mining transnational corporations
participating in selected international
initiatives, June 2007

44
The Fair Share Issue
Lack of transparency makes the determination of
fair shares very difficult.
But countries seldom get the fair share of their
resources, especially when commodity prices are
low.

• In Chile, the total copper exports of the 10
  largest private mining
• companies (nine of which are foreign owned)
  during 1991-2003 were
• estimated at 33 billion, while their tax
  payments were 2.1 billion
• (6.5 percent of their copper export revenues).
  This was renegotiated as
• prices rose to 16.3 percent by 2005.

• In Peru, income taxes from mining were very
  small throughout the
• 1990s, but between 2000 and 2006, as prices
  climbed, annual income
• tax revenues rose from 70 million to 1.8
  billion. During the same
• period, the annual income tax revenue from the
  oil and gas industry
• rose from 35 million to 296 million.

45
Latin American Policy Assertiveness
Reversing the liberalization policies of the
1990s, Latin American countries are revising
contracts and/or tax regimes to secure a greater
share of the windfall profits resulting from
rising commodity prices or gaining greater
control over extractive industries.
?Venezuela has taken majority control of marginal
oil fiends managed by foreign companies (2006)
and given PDVSA a majority equity share and
operational control of four join ventures in the
Orinoco River Basin (2007).
?Bolivia has converted unfavorable
production-sharing contracts into operating
contracts and nationalized its oil and gas
resources (2006).
?Peru has asked mining companies to make
voluntary contributions for social development
in order to avoid tax increases.
?Argentina increased taxes on natural gas exports
from 20-45 and Mendoza lawmakers have voted to
block all mining activity unless a clear plan is
presented to mitigate environmental costs in
their province.
?Colombia is an exception, privatizing part of
the state-owned Ecopetrol and reducing corporate
income taxes from 38.5 to 33 in 2008.
Source UNCTAD, World Investment Report, 2007
46
(No Transcript)
47
The Cost of Dependence
Dependence is closely linked to declines in per
capita income.
Today, Algeria, Angola, Congo, Ecuador, Gabon,
Iran, Iraq, Kuwait, Libya, Qatar, Saudi Arabia,
Trinidad and Tobago are at their 1970s income
levels
Nigeria and Venezuela are at their 1960s income
levels
Despite the more than 300 billion in oil profits
generated over the last 25 years, the proportion
of Nigerian households living below the United
Nations absolute poverty line of 1/day grew
from 27 to 66 by 1996.

Karl, Encyclopedia of Energy
48
Impact of Oil and Mineral Dependence on Life
Expectancy at Birth

Oxfam America, Extractive Sectors and the Poor
49
Impact of Oil and Mineral Dependence on Infant
and Child Mortality (deaths per
thousand)

Oxfam America, Extractive Sectors and the Poor
50
Share of foreign companies in the oil and gas
production of selected major oil- and
gas-producing economies, 2005
(Percent)