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FIGHTING THE EFFECTS OF THE CURSE OF RESOURCES

Mark Jenkins, Prospect Energy

In order to mitigate the security risks to my client in the Balkans I recommended that strenuous attempts were made to restore the company’s Social License to Operate by tackling the root causes of the problem: the negative effects of the Curse of Resources.

The first requirement was the correct identification of local stakeholders. This is not always straightforward, especially in former communist bloc countries where traditional sources of authority were often eliminated over the course of the twentieth century.

In Africa the problem is slightly different. In his book “What went Wrong with Africa” Roel van der Veen argued that the decision of various colonial powers to hand power over to urbanised elites, trained and educated in the west, rather than to traditional sources of authority with a reputation for leadership and moral excellence, rooted in the provinces rather than the capital city, and deeply integrated into the local culture, is at the heart of the current leadership crisis in Africa. It is not a coincidence that two of the most respected post colonial African leaders, Nelson Mandela and Julius Nyere, both came from traditional leadership backgrounds. Mandela was of royal ancestry, and Nyere was the son of a tribal chief. Both regarded the village as the backbone of a healthy society.

The point is attempts to build a Social License to Operate can only work if the right kind of people are identified as partners, and it is often the case that such partners come from very traditional backgrounds. The Emir of Kano and the Sultan of Sokoto in Northern Nigeria are examples of two such leaders, and it is interesting to note that the current Emir of Kano established a reputation for fighting corruption during his time at the helm of the Nigerian banking system.

Once the client had worked out who the local stakeholders were, and from that who was most likely to be an effective partner, the next step would be to invest in local business, so that the local community came to see the client as a partner.

  • Investment in Local Business– it was recommended that the client invests in local businesses. Suggestions included the establishment of a scrap metal dealer to deal with the client’s waste, and sustainable local cottage industries including jam and incense factories. The businesses needed to be sustainable ones that would continue to exist long after the oil industry had gone from the area, and which would, ideally, provide the local community with food.
  • Security – security procedures were adapted to reflect CSR concerns. For example, dismounted patrols were introduced in built up areas in order to gather intelligence and win over local hearts and minds. Drivers were ordered to restrict their speed limits to 30mph in built up areas in order to minimise RTAs. Local police chiefs were integrated into planning meetings.
  • Environmental– an audit of all equipment was recommended in order to minimise possible environmental damage as a result of spillages or explosions. This included ensuring that pipes were buried, and robust security measures to prevent bunkering.
  • Rebranding – some kind of re-branding exercise was recommended to deal with public perception that oil was now being extracted by a foreign company for the benefit of foreign shareholders.

LEOPOLD KOHR – “THE BREAKDOWN OF NATIONS”                                                                                                                                                        

29. Leopold Kohr was an economist and political scientist known for his opposition to the “cult of bigness” in social organisation. He said:

“..there seems to be only one cause behind all forms of social misery: bigness. Oversimplified as this may seem, we shall find the idea more easily acceptable if we consider that bigness, or oversize, is really much more than a social problem. It appears to be the one and only problem permeating all creation. Whenever something is wrong, something is too big..(and) if the body of a people becomes diseased with the fever of aggression, brutality, collectivism, or massive idiocy, it is not because it has fallen victim to bad leadership or mental derangement. It is because human beings, so charming as individuals or in small aggregations, have become welded into over-concentrated social units.”

30. Kohr argued:

  • against massive external aid to poorer nations, which he believed stifled local initiatives and participation.
  • for a dissolution of centralised political and economic structures in favour of local control.

31. It is worth noting here that one of Africa’s most respected post-colonial leaders, Julius Nyerere, also understood the value of small, as opposed to large structures and the need for self-reliance. Self-reliance and the value of small-scale as opposed to large scale economic structures were at the heart of his policies in support of villages.

EF SCHUMACHER “SMALL IS BEAUTIFUL – ECONOMICS AS IF PEOPLE MATTERED”

31. EF Schumacher was a well-respected economist who worked with Keynes and Galbraith when he was Chief Economist to the NCB. He was also heavily influenced by Islamic economics which, confusingly, he called Buddhist economics. Schumacher argued for:

  • workplaces that are dignified and meaningful,
  • small, appropriate technologies that empower people,
  • “smallness within bigness,”
  • decentralisation,
  • the unsustainable nature of the modern economy – natural resources are treated as expendable income when they should be treated as capital, since they are not renewable,
  • the principle of sufficiency, and that government efforts should be concentrated on sustainable development,
  • against the notions that growth is good- and that bigger is better,
  • against  the appropriateness of using mass production in developing countries- promoting instead “production by the masses,”
  • against the appropriateness of using GNP to measure human well-being,
  • the view that “the aim ought to be to obtain the maximum amount of well-being with the minimum amount of consumption.”

Introduction to Prospect Energy, Prospect Law and Mark Jenkins

Prospect Law and Prospect Energy provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resource projects in the UK and internationally.

This article is not intended to constitute legal advice and Prospect Law and Prospect Energy accepts no responsibility for loss or damage incurred as a result of reliance on its content. Specific legal advice should be taken in relation to any issues or concerns of readers which are raised by this article.

This article remains the copyright property of Prospect Law and Prospect Energy and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Energy.

Mark Jenkins advises clients on how to achieve commercial resilience in high-risk/non permissive environments. Among Mark’s specialist areas of expertise are the management and motivation of traditional communities such as Bedouin tribesmen in the Sinai Desert, Somali Muslims in NE Kenya and Eastern Orthodox Christians in remote parts of Eastern Europe. He has a particular interest in Islamic culture and has worked on the staff of HRH Prince Ghazi bin Muhammed bin Talal, Special Advisor and Personal Envoy to HM the Hashemite King of Jordan. Other interests of Mark’s include renewable energy, especially solar power, and economic solutions which are based on the principle of sufficiency, rather than consumption.

For a PDF of this blog click here

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THE CURSE OF RESOURCES IN ACTION: THE LOSS OF A SOCIAL LICENSE TO OPERATE

Mark Jenkins, Prospect Energy

A few years ago I travelled to a remote part of the Balkans to deliver risk management support to a client from the extractive industry.

The client’s corporate security officer told me that commercial operations were being hindered by sabotage and theft, reputational attacks in the social media as a consequence of those acts of sabotage and theft.

The client believed that the best way to mitigate its risk was through the delivery of security solutions based around CCTV, armed guards and drones.

I travelled to the remote, mountainous area where the acts of theft and sabotage were occurring.

It immediately became clear that the root cause of the trouble lay in the symptoms of Dutch Disease/the Curse of resources, which had led to a complete collapse of the client’s Social License to Operate.

The SLO exists at different levels. These can be categorized as follows:Untitled

In the case of the client I was supporting it was clear to me that their SLO was at the lowest level, rejection/withdrawal, and they were facing the consequences of that in the form of violence, protests, legal challenges, blockages and sabotage.

It was obvious that the most effective way to mitigate the risk to the client’s commercial operations would be to apply the principles of good CSR in order to mitigate the effects of Dutch Disease, and increase its Social License to Operate to a point where the level of security risk it was facing subsided.

We could have put a security guard on every oil well, but theft would have continued if the community from which those guards came, and the many former employees who lived in the neighbour-hood, had remained antagonistic in their feelings towards the client.

Furthermore, modern social media methods meant that anyone with a grievance about the client had a global audience. It was clear to me that the client needed to engage in a process of self-analysis. As Woody Allen once said: “I’ve seen the enemy. It’s us.”

Symptoms of the loss of the SLO

The most immediate risk posed to the client was severe reputational damage. Acts of theft and sabotage, in the form of the bunkering of gas pipes, had resulted in a series of explosions in the area of a local playground, through which many of the pipes ran. A large banner had been erected across the front of a house which overlooked the playground, photographs of which had appeared on social media sites across the world. The banner described the client as “being the essence of explosion.”

Significant financial loss was being incurred by the client; locals were stealing copper wire from electrical equipment, which had resulted in a loss of production and the expenditure necessary to repair the consequent damage. Furthermore, the damage to equipment exposed the client to reputational damage caused by equipment malfunction.

Locals were bunkering oil and gas pipelines, incurring financial penalties for the client caused by loss of production, as well as possible reputational damage caused by the strong likelihood off damaged pipelines exploding – as referred to above.

The client’s physical infrastructure was also being systematically looted, as locals stole equipment, and pipes to sell for scrap on the black market.

As I looked further into the situation it seed to me that the root causes of the client’s loss of a SLO lay in issues related to the Curse of Resources.

Environmental concerns

First, there were environmental concerns. Locals felt that the oil and gas company had prioritized profit over concern for the environment. For example, the pipes in use were over thirty years old, and in many places had not even been buried, let alone secured. Thus those pipes were very vulnerable to being bunkered.

Lack of partnership

Second there was no real cooperation, or partnership with the local population. Much of the problem for the oil and gas company was that they had not worked out a plan for effective identification of suitable local stakeholders. The decision makers they had established relationships with had little moral authority in their community, and often their interests were national, rather than local.

Non local profit making

Record profit levels had been announced at the same time as mass redundancies; almost all of whom had come from local employees and contractor. Furthermore, and concurrent to the redundancy programme, an extravagant new headquarters had been established in the capital city with a big recruitment drive among urban based young professionals. These factors all combined to make locals feels that the client’s interests were those of an urban based elite, rather than traditional, local stakeholders.

Capitalism versus communism

This issue, the sense that locals were not benefitting from the exploitation of their resources, fuelled a backlash. In the days of communism there had been a big emphasison the importance of “mucking in,” the sense that everyone in the country should benefit –in a limited way – from resources exploited from within the respective regions.

The replacement of communism with free market capitalism meant that a much smaller percentage of the population – the shareholders, many of whom were foreigners, was benefitting from these profits, and to a much greater extent. This meant that the locals were now much more proprietorial about what was now perceived to be “their” wealth, rather than the country’s as a whole.

During my tour of local villages I met an old lady who was filling up her bucket with oil from one of the client’s oil wells in her village. When I asked her why she was doing this she pointed at the water well, and said that when she wanted water she went there, and when she wanted oil she went to the oil well.

Land rights

Similarly, locals had spent a lot of time and money researching land rights issues which had been forgotten during the communist era. Now that huge profits were being made there was serious incentive for people to stake claims to tiny pieces of land, in which there might be an oil well. There were a number of on-going disputes between the client and locals, who had staked a claim to a local piece of land, and set up home around the oil well on that land, refusing to allow the client access to that well.

Introduction to Prospect Energy, Prospect Law and Mark Jenkins

This article is not intended to constitute legal advice and Prospect Law and Prospect Energy accepts no responsibility for loss or damage incurred as a result of reliance on its content. Specific legal advice should be taken in relation to any issues or concerns of readers which are raised by this article.

Prospect Law and Prospect Energy provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resource projects in the UK and internationally.

Mark Jenkins advises clients on how to achieve commercial resilience in high-risk/non permissive environments. Among Mark’s specialist areas of expertise are the management and motivation of traditional communities such as Bedouin tribesmen in the Sinai Desert, Somali Muslims in NE Kenya and Eastern Orthodox Christians in remote parts of Eastern Europe. He has a particular interest in Islamic culture and has worked on the staff of HRH Prince Ghazi bin Muhammed bin Talal, Special Advisor and Personal Envoy to HM the Hashemite King of Jordan. Other interests of Mark’s include renewable energy, especially solar power, and economic solutions which are based on the principle of sufficiency, rather than consumption.

For a PDF of this blog click here

 

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DIFFERENT APPROACHES TO CORPORATE SOCIAL RESPONSIBILITY (CSR)

Mark Jenkins, Prospect Energy
The philosophy behind western approaches to CSR

Western approaches to the formulation of Corporate Social Responsibility strategy are overwhelmingly secular. They tend to flow out of one of a number of paradigms. We can perhaps categorise these paradigms as follows:

Read More

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MITIGATING THE EFFECTS OF THE CURSE OF RESOURCES: CSR STRATEGY

Mark Jenkins, Prospect Energy

In my last blog I looked at some of the security consequences of the Curse of Resources; using the specific examples of Nigeria and Egypt.

In this blog I will look at some of the social consequences of the Curse of Resources, and consider the role that can be played by Corporate Social Responsibility (CSR) in mitigating these consequences.

Undermining the local social fabric

The initial arrival of oil companies in Chad generated significant impact on the country’s social fabric. Eleven primary schools were closed as teachers left their posts to seek employment as middle managers in the oil industry – on infinitely better terms.

There was a sudden growth in prostitution. The clients came from expatriate oil workers, and local farmers who were suddenly extremely rich as a result of compensatory payments given to them by oil companies, for access to their land.

There was an increase in paramilitary activity, both in regard to the protection of oil assets, and also as a result of local “bunkerers” purchasing arms with the profits they had made as a result of selling oil on the black market.

The decline in local agricultural activity generated a sharp rise in the local price of millet and food. Unemployment among locals living in the vicinity of exploration and production activities occurred at the same time as the sharp rise in food prices.

Social License to Operate (SLO)

The term Social License to Operate (SLO) refers to a stakeholder perception of the legitimacy of a project, a company or an industry. Ernst and Young have said that a failure to achieve a SLO represents the fourth biggest risk to the success of commercial operations in the extractive industry.

Corporate Social Responsibility (CSR)

A Social License to Operate is often expressed using terms such as CSR, Community Acceptance and Reputation. Kenya is an example of a country which, keen to avoid the kinds of problems inflicted by the Curse of Resources on countries such as Nigeria and Egypt, has enshrined the principle of public participation in its constitution, under Article 10, (2) and Article 69 (d).

Escalating social and economic problems brought about by globalisation have raised new questions – as well as expectations – about corporate governance and ethical and social responsibilities.

In general CSR is taken to denote corporate activities – beyond profit making – which include issues such as protecting the environment, caring for employees and conducting ethical trade and community investment policies.

The increased interest in CSR that currently exists throughout Europe, especially Scandinavia, reflects a growing discontent with corporate self-interest and self-indulgence.

A role for multi-national corporations in resource rich countries

Multi-national corporations are increasingly encouraged to resolve economic and social problems, especially in frontier/emerging markets, many of which are resource rich.

In such situations multi-national corporations are capable of resolving economic and social problems in a way not possible for national governments, especially if those countries are suffering from the typical effects of “resource curse” such as a rentier mentality, corruption, over-centralisation and a collapse of local industry.

Exploration and production operations of the oil and gas industry tend to take place in remote locations. Consequently, the extractive industry tends to have an especially acute awareness of the issues faced in remote areas where the government’s writ does not apply, and the challenge of acquiring a social licence to operate is significant.

The empowerment of local communities

Renewed contemporary interest in CSR is also due to factors such as growing market pressure for CSR principles to drive commercial activity, increasing regulatory pressure (especially from NGOs concerned about environmental damage and the rights of workers), the prevalence of social media – empowering local communities whose voices previously were not heard, and the increasingly competitive edge given to companies who implement CSR driven policies.

Issues to be addressed by CSR when combating the effects of the Curse of Resources

There is a connection between the Curse of Resources and CSR. Many of the effects of the Curse of Resources are exactly the kinds of issues that CSR policies seek to address. Examples include:

  • The environment. Usually local communities are especially concerned about matters such as air and water pollution, water extraction, impacts on bio diversity and waste management. As we have seen one of the effects of the Curse of Resources is increased pollution of the environment.
  • Business conduct. CSR policies strive for transparency and ethical commercial practice. One of the effects of the Curse of Resources is less transparency and increased levels of corruption.
  • Workers rights and safety. CSR policies strive for better rights and safety conditions for workers. One of the effects of the Curse of Resources is reduced safety measures and rights for workers.
  • Community relationships. CSR policies cover matters such as land access and ownership, equitable sharing of benefits and human rights violations by security forces. We have seen that the features of the Curse of Resources involves violent disputes over land access and ownership, a failure to ensure equitable sharing of benefits, and human rights violations by security forces.

 

Introduction to Prospect Energy, Prospect Law and Mark Jenkins

Prospect Energy is an energy specialist technical consultancy firm based in London and the Midlands of the UK. It is a sister company of Prospect Law. The two firms provide advice on energy development projects and energy related litigation for clients in the UK and internationally.

Mark Jenkins advises clients on how to achieve commercial resilience in high-risk/non permissive environments. Among Mark’s specialist areas of expertise are the management and motivation of traditional communities such as Bedouin tribesmen in the Sinai Desert, Somali Muslims in NE Kenya and Eastern Orthodox Christians in remote parts of Eastern Europe. He has a particular interest in Islamic culture and has worked on the staff of HRH Prince Ghazi bin Muhammed bin Talal, Special Advisor and Personal Envoy to HM the Hashemite King of Jordan. Other interests of Mark’s include renewable energy, especially solar power, and economic solutions which are based on the principle of sufficiency, rather than consumption.

For a PDF of this blog click here

For more information please contact us on 01332 818 785 or by email on: info@prospectenergy.co.uk.

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EXAMPLES OF THE CURSE OF RESOURCES AT WORK

Mark Jenkins, Prospect Energy

Nigeria and Egypt are two good examples of countries suffering from the effects of the Curse of Resources.

The Curse of Resources in action – Nigeria
Since Nigeria achieved independence in 1960 it has experienced a civil war resulting in the death of over one million people, military rule for thirty years, and four failed and six successful military coups.

Corruption has been endemic. It has been estimated that Nigeria’s rulers have stolen somewhere between $400 billion USD in the period between 1969 and 2000.

Illegal bunkering has stolen between 5–10% of the country’s oil produce. Bunkering is the process whereby pipelines are illegally tapped in order to fill plastic jerry cans with crude oil, which is then shipped abroad.

In the meantime the country’s economy has shrunk, despite the wealth of the country’s resources. Despite the fact that Nigeria is the world’s seventh biggest producer of oil, 57% of its population live on less than $1 USD a day. In the Niger Delta, the area producing 100% of Nigeria’s on-shore oil, local residents do not have either electricity or running water.

The environmental damage caused by oil production has been massive. More than 1.5 million tons of oil has been spilled in the Niger Delta over the course of fifty years of oil extraction. Combining the effects of this with the toxic effect of gas flaring, it is not surprising to see that the Niger Delta has become one of the most polluted places on the planet.

The situation in the Niger Delta is a classic example of the destabilising security consequences of Dutch Disease.

Destabilising security conditions

The Movement for the Emancipation of the Niger Delta (MEND) is a terrorist grouping which sees itself as fighting on behalf of the Ijaw tribesmen of the Niger Delta. MEND’s leader has said he is fighting for:

“..the economic emancipation of the people of the Niger Delta, who have suffered decades of criminal neglect, brazen theft and damage to their environment by the Nigeria state and the oil majors. The problem in Nigeria has a very simple solution. Let the people of the Niger Delta control their resources. Our enemies comprise anyone, state of corporate body standing in the way of that.”

Let us now turn our attention to another country where the Curse of Resources has caused huge damage – Egypt.

The Curse of Resources in action – Egypt

Egypt’s oil production peaked in 1996 and since then has declined by approximately 26%. Since the 1960s Egypt has moved from complete food self-sufficiency to excessive dependence on imports subsidised by oil revenues. Egypt currently imports 75% of its wheat.

Declining oil revenues have increasingly impacted food and fuel subsidies. Food prices are generally underpinned by high oil prices because energy accounts for over a third of the costs of grain production. This has further contributed to surging global food prices.

Food price hikes have coincided with devastating climate change impacts in the form of extreme weather in key food basket regions.

Since 2010 there have been droughts and heat waves in the US, Russia and China leading to a dramatic fall in wheat yields, on which Egypt is heavily dependent. The subsequent doubling of global wheat prices directly affected millions of Egyptians who already spend approximately 40% of their income on food.

In many ways Egypt is a microcosm of current global challenges. In a time of climate extremes and population growth there will continue to be increases in food prices, particularly when oil prices are not cheap. For the last few years the food price index in Egypt has fluctuated above the critical threshold for probability of civil unrest.

Bearing this in mind it is not unreasonable to assume that the civil unrest that drove the Arab Spring was precipitated by hunger, rather than high-minded philosophical musings about the supposed benefits of western democracy.

Resource rich countries that depend, like Egypt, on imports to maintain their food supplies will suffer, unless they take as many proactive measures as they can to protect their agricultural sector.

Introduction to Prospect Energy, Prospect Law and Mark Jenkins

Prospect Energy is an energy specialist technical consultancy firm based in London and the Midlands of the UK. It is a sister company of Prospect Law. The two firms provide advice on energy development projects and energy related litigation for clients in the UK and internationally.

Mark Jenkins advises clients on how to achieve commercial resilience in high-risk/non permissive environments. Among Mark’s specialist areas of expertise are the management and motivation of traditional communities such as Bedouin tribesmen in the Sinai Desert, Somali Muslims in NE Kenya and Eastern Orthodox Christians in remote parts of Eastern Europe. He has a particular interest in Islamic culture and has worked on the staff of HRH Prince Ghazi bin Muhammed bin Talal, Special Advisor and Personal Envoy to HM the Hashemite King of Jordan. Other interests of Mark’s include renewable energy, especially solar power, and economic solutions which are based on the principle of sufficiency, rather than consumption.

For a PDF of this blog click here

For more information please contact us on 01332 818 785, or by email on: info@prospectenergy.co.uk.

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INDICATIONS THAT A COUNTRY IS SUFFERING FROM THE CURSE OF RESOURCES

 

Mark Jenkins, Prospect Energy

Some indications that a country is suffering from Dutch Disease/the Curse of Resources are as follows:

First, there is a glut of foreign exchange, inflating the value of the country’s currency. Imported goods become cheaper than domestic ones.

Second, cottage industries collapse, especially in rural areas. This means a crisis when the natural resources run out. Furthermore, the collapse of cottage industries reflects the country’s move from being a productive economy, to an “allocation” one. Concurrent to this a rentier mentality takes over the country, corruption explodes and the state militarises in order to secure its mineral wealth for the country’s elite. There is an influx of wealthy foreign workers whose presence inevitably becomes exploitative. The issue of land rights suddenly becomes a source of tension as people stake claims to the ownership of land from which oil is being produced.

All these factors quickly combine to undermine the country’s security. The inevitable resentment of those, especially the local communities, unable to benefit from the discovered resources is quickly exploited by individuals and groups who wish to cause trouble – often for entirely selfish reasons such as financial gain, or the furtherance of their own radical political agenda.

 

The Curse of Resources at work?

In early November 2013 protests by local residents forced a two week shut-down of an oil company’s operations in Northern Kenya. Locals claimed that the company had failed to deliver an effective community investment programme.

A local politician said: “There is a need for the community to be provided with knowledge and training to protect themselves from up-coming hazards to these resources.”

A particular source of tension related to the matter of who was going to benefit from economic opportunities. It was decided that the oil company would open local offices to enable communication with local stakeholders, and that a concerted effort would be made to give casual, and skilled work to locals.

A committee of local community leaders was formed to decide where contracts should be awarded. The committee has, however, found it difficult to avoid charges of nepotism and corruption. This is a problem that is frequently faced in such situations.

Not all the locals are convinced that sufficient efforts have been made to prevent the impact of the Curse of Resources on their community. Positive developments such as the obvious benefits that will accrue in the form of the benefits of visible investment, and new jobs, are outweighed, it has been claimed, by local perceptions of injustice and heightened insecurity.

New hotels have opened in the areas as a result of increased local growth rates, but non locals who have gained employment have reported local resentment at their success, and there are widespread complaints about a rise in the crime rate. There have been reports that the discovery of oil has exacerbated long-standing tensions between local tribes.

The loss of seasonal grazing lands around the oil-fields, has led to arguments relating to land ownership. This has resulted in cattle rustling incidents, such as one that caused the death of four people, and the driving away of large quantities of livestock.

In order to deal with incidents such as this the Kenyan Government has transferred large numbers of security personnel to protect oil infrastructure installations. This makes people think that the Government values the security of oil assets more than it does people and communities.

Locals are certainly not uniform in their opinions about the nature of the situation they are faced with.

However, there is certainly a strong sense among many that most of the revenue from the oil will not go to them, that they will suffer negative environmental impacts, that jobs and contracts go to well-connected outsiders, that increased local insecurity has been caused by issues relating to land rights -generated by the stampede by local tribes to benefit from oil revenue.

 

Kenya and the principle of Public Participation

From the very beginning of oil exploration in Kenya – the authorities have been keen to tackle the problems caused by the Curse of Resources. In fact the principle of public participation was conferred by the Kenyan constitution under Article 10 (2) and Article 69 (d), specifically to help combat the effects of the Curse of Resources.

Over the next few months I will be blogging on the subject of the Curse of Resources. First, I will look in detail at the specific problems that are caused by the Curse of Resources, then I will look at ways in which the effects of those problems can be successfully mitigated, using appropriate CSR policies in order to achieve a Social License to Operate among communities resident in areas of extractive operations.

 

Introduction to Prospect Energy, Prospect Law and Mark Jenkins

Prospect Energy is an energy specialist technical consultancy firm based in London and the Midlands of the UK. It is a sister company of Prospect Law. The two firms provide advice on energy development projects and energy related litigation for clients in the UK and internationally.

Mark Jenkins advises clients on how to achieve commercial resilience in high-risk/non permissive environments. Among Mark’s specialist areas of expertise are the management and motivation of traditional communities such as Bedouin tribesmen in the Sinai Desert, Somali Muslims in NE Kenya and Eastern Orthodox Christians in remote parts of Eastern Europe. He has a particular interest in Islamic culture and has worked on the staff of HRH Prince Ghazi bin Muhammed bin Talal, Special Advisor and Personal Envoy to HM the Hashemite King of Jordan. Other interests of Mark’s include renewable energy, especially solar power, and economic solutions which are based on the principle of sufficiency, rather than consumption.

For a PDF of this blog click here

 

For more information please contact us on 01332 818 785, or by email on: info@prospectenergy.co.uk.

 

 

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THE CURSE OF RESOURCES AND LOSS OF A SOCIAL LICENSE TO OPERATE

 

Mark Jenkins, Prospect Energy

Some years ago I was asked by a client from the oil and gas industry to produce a risk assessment, and security plan for some of its operations in Eastern Europe. A particular focus of attention was an oil-field the size of Cornwall situated in a mountainous area inhabited by traditional, Eastern Orthodox communities.

The client had called me in because acts of theft, and sabotage of the company’s assets had become so endemic that its operations there were becoming commercially unviable.

Arriving at the company’s corporate headquarters I was given a brief by the corporate security officer. The suggestion was made that the problems could only be resolved through increased security measures; ie more drones, barbed wire and security guards.

The following day I travelled up to the oil-field. It quickly became very clear to me that increased security measures would not improve the situation, and that what the company needed to do was restore its relationships with the local communities.

The Company had lost its Social License to Operate, the root cause of the vast majority of security problems faced by the extractive industry.

In my experience as a risk management consultant – operating across some of the world’s most high-risk environments – the root causes of the collapse of a company’s Social License to Operate are invariably to be found in the phenomenon known as Dutch Disease/the Curse of Resources.

 

What is Dutch Disease/the Curse of Resources?

In 1959 – three years after Royal Dutch struck oil in commercial quantities in the Nigerian Delta – another well was sunk by the company in the village of Slochteren in the northern Netherlands, in partnership with Exxon of the USA.

The biggest gas field in Europe was discovered.

Soon after, however, people outside the industry began to lose their jobs. Other sectors in the Dutch economy slumped. In 1977 the Economist coined the term “Dutch Disease” to describe the phenomenon.

“Dutch Disease” refers to the apparent relationship between the increase in the economic development of natural resources, and a decline in the manufacturing/agricultural sector.

Dutch Disease enters a country through its currency. Basically, an increase in revenues from natural resources makes a nation’s currency stronger, compared to that of other countries.

Consequently, the nation’s other exports become more expensive for other countries to buy. Imports become cheaper making the affected country’s manufacturing/agricultural sector less competitive. Arable land lies fallow as local farmers find that imported fare has replaced their produce.

Dutch Disease most often occurs in relation to natural resource discoveries. Mines and oil fields require huge investments of capital, but employ few people compared with the agricultural or manufacturing industries. Furthermore, natural resources discovered in Africa tend to go abroad in raw form so that other countries benefit from the value accrued, rather than the countries from which those resources came.

A cycle sets in, and as other parts of the economy decay, there is an increased dependency on natural resources by the affected country. As poverty breeds elsewhere the resource industry becomes an enclave of plenty for its leaders. Telecoms and financial services boom, while the process of industrialisation falters and then drops away.

When the oil runs out there is a crisis because the traditional industries no longer exist. Thus there is nothing for the country’s economy to fall back on. Furthermore, the loss of traditional cottage industries represents a serious undermining of a country’s identity, closely related as they usually are to a country’s cultural heritage. Their loss undermines the health of village economies, so that their populations migrate to the city. These communities fragment, and their unemployed youth are quickly radicalized or criminalized.

In his book “Untapped: The Scramble for Africa’s Oil” John Ghazvinian visited a supermarket in the oil producing state of Gabon. French cheeses and foie gras are available for sale, but bananas are not. During his stay in Gabon Ghazvinian was able to eat an abundance of fine French food and wine. But he never managed to find a banana, despite the fact Gabon is largely virgin rainforest, packed full of banana trees.

The phrase “Curse of Resources” refers to the observable phenomenon that resource rich countries grow more slowly, more corruptly, less equitably, more violently and with more authoritarian governments than others do. It is undeniably the case that there is a link between the existence of resource wealth, and an increased likelihood of weak democratic development, corruption and civil war. The greater the percentage of states revenues derived from natural resources, then the more pronounced these trends become.

 

Introduction to Prospect Energy, Prospect Law and Mark Jenkins

Prospect Energy is an energy specialist technical consultancy firm based in London and the Midlands of the UK. It is a sister company of Prospect Law. The two firms provide advice on energy development projects and energy related litigation for clients in the UK and internationally.

Mark Jenkins advises clients on how to achieve commercial resilience in high-risk/non permissive environments. Among Mark’s specialist areas of expertise are the management and motivation of traditional communities such as Bedouin tribesmen in the Sinai Desert, Somali Muslims in NE Kenya and Eastern Orthodox Christians in remote parts of Eastern Europe. He has a particular interest in Islamic culture and has worked on the staff of HRH Prince Ghazi bin Muhammed bin Talal, Special Advisor and Personal Envoy to HM the Hashemite King of Jordan. Other interests of Mark’s include renewable energy, especially solar power, and economic solutions which are based on the principle of sufficiency, rather than consumption.

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For more information please contact us on 01332 818 785, or by email on: info@prospectenergy.co.uk.