World Bank Involvement in Extractive Industries Paulo de Sa Manager Oil, Gas and mining Unit (SEGOM) November 5, 2013.

World Bank Involvement in Extractive Industries

Paulo de SaManager

Oil, Gas and mining Unit (SEGOM)

November 5, 2013

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End Extreme Poverty

Promote shared prosperity

1. Revenue Maximization, Transparency & Governance, Poverty Targeted ExpendituresEI provides one of the best sources of revenue for fighting poverty and dwarfs aid inflows. But it needs to be maximized and managed in a transparent manner (e.g. EITI) to ensure that the benefits reach the people.

TWIN WBG GOALS

EI THEMES IN SUPPORT

2. Leveraging Inclusive Growth, Local Content, Jobs, Infrastructure

The government, private sector and communities can create shared value. The more the local economy can participate in the EI operation and leverage its infrastructure, the larger and more inclusive the benefits. Direct employment is low due to mechanization but skills development will increase local employment in higher income positions. Roads, rail, ports and power needed by EI (and built by private sector) can be made for multiple uses.

3. Conflict Prevention and Managing FragilityThere is a high correlation between fragile and conflict affected states and EI. Deeper diagnosis and solutions to reduce and prevent conflict are essential to ensure poverty gains are not eroded.

4. Sustainability: Resources, Environmental and Social•EI development needs to take place with minimum environment/social footprint (e.g. GGFR), and specific consideration to community and gender issues.

The World Bank and Extractive industries

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Strategic Setting: Governance Challenges for Extractives

• Weak institutions, poor governance and lack of infrastructure remain major concerns.

• The lack of modern geological data and overall knowledge of mineral potential is one of the key barriers to improving the quality of resource deals (Collier).

• Lack of human capacity.

• Poor capacity to negotiate investment agreements and monitor contract enforcement.

• Weak Public Financial Management and Public Investment Management.

• Limited local economic SME capacity and insufficient local and regional strategic planning to harness the economic linkages.

• Weak track record in sharing benefits with local communities.

• Political and institutional dimensions are important determinants of how resource rich countries perform.

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1. Sector Governance and Reforma. Legal & regulatory framework and licensing/contracts /auctionsb. Institutional strengthening and capacity buildingc. Geodata Acquisitiond. Hydrocarbon resources data management e. Better governance and transparency (EITI agenda)

2. Oil, Gas and Poverty Alleviationa. Gas policies as part of a lower carbon energy growthb. Gas pricing, Gas Master Plan and development of domestic marketsc. Utilization of flared gas (GGFR)

3. Sustainable Livelihoodsa. Environmental and Social managementb. Local economic development planning, economic linkages and local

contentc. Health & Safetyd. Support for reducing energy poverty

SEGOM: Core Areas of Intervention

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The Extractive Industries Value Chain

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•Better deals that are better managed for more development impact

•World Bank has the capacity to support key links in the value chain

Transparency and Accountability across the whole chain

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Strategic Setting: Challenges for Gas

• Green Growth – leveraging gas as a transition to renewables: opportunity to optimize the use of gas in power systems, including intermittent renewables (e.g. integrated gas and renewables planning)

• Access to energy and diversification of energy sources: Links to the Sustainable Energy for All (SEFA) Agenda

• Trade: Foster exploration and an efficient use of gas at the country and regional level (e.g. infrastructure integration and/or demand pooling)

• Integration of Gas-to-Power Value Chain: Harmonization of policy, regulation, and tariff setting to assure that gas is properly valued and risks mitigated along the entire value chain.

• Harness new potential Shale Gas resources: Evaluate its potential and promote sound policy and regulation around its development

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Role of the World Bank in Gas-to-Power

GasProduction

PowerGeneration

ElectricityTransmission& Distribution

GasTransportation& Treatment

ElectricityConsumers

- Resource estimation- Fiscal terms/tax- Licensing- Regulation and monitoring- Reduction of flaring- Gas pricing- Investment (IFC/MIGA)

Gas Electricity

- Investment (private/public)- Tariffs- Regulation- Open access rules

- Investment (private/public)- IPP framework/bidding- Regulation and monitoring- Electricity pricing- Guarantees- Energy efficiency

- Investment- Regulation and monitoring- Electricity pricing- Guarantees- Efficiency- Integration of renewables

- Electricity pricing- Subsidies- Energy efficiency

Cross-cutting issues • Pricing & Tariffs• Credit support

• Reliability• Safeguards

• Policy and Regulation• Transparency

Gas as a Squandered ResourceResource: • Huge proved reserves in Nigeria• Predominantly associated gas

Rationale for Bank involvement:• Energy access• Flaring avoidance

Bank Interventions:• GGFR• Gas and power pricing reform• Contract guarantees• Infrastructure finance

Gas as an Agent of TransformationResource: • Huge undeveloped discoveries• Non-associated gas, LNG

Rationale for Bank involvement:• Governance, macro management • Industrial development

Bank Interventions:• Revenue management • Institutional capacity building• Local gas market development• Forward/backward linkages (SME’s)

Gas as an Alternative to CoalResource: • Potential increase in pipeline gas exports from Mozambique• Potential shale gas and coal-bed methane• Offshore exploration beginning

Rationale for Bank involvement:• Lower carbon growth strategy

Possible Bank Interventions:• Regional pipeline expansion• Regulation of shale gas activities

Gas Map of Africa: Where the Opportunities Are and how the Bank is Helping to Capture them

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Examples of an Integrated Approach - Mozambique

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SEGOM (Oil & Gas Unit):• Preparation of Gas Master Plan including downstream potential

(financed by AAPF and PGI)• EI-TAF grant for legal support for mining negotiations and gas

(LNG) negotiations• Direct/ immediate services to the government to improve sector

governance• TA Project preparation ($50 mln IDA + pledges of US$20+ mln

from at least two other donors for co-financing) for Government capacity building for both mining and gas

• EITI implementationFinance/Private Sector Development:

• Supply chain linkages (through Growth Poles Project)Economic Management:

• Fiscal and revenue management (PRSP series)• Demand Side Governance work (jointly with EITI and CSO support

grant)

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Examples of an Integrated Approach - Ghana

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SEGOM:• Oil & Gas Capacity Building Project supports 11 agencies with

responsibility for managing the sector ($38 mil)• Gas pricing policy study• EITI implementation

Africa Energy/SEGOM:• “Energizing Economic Growth in Ghana,” 2013 comprehensive

study of petroleum and power sectors• Policy advice and TA on LNG import options

SEGOM/Economic Management:• Revenue management and forecasting technical assistance

Africa Energy/SEGOM (AFTEG)• Power sector financing and TA• WAGP guarantees

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Summary Inventory of Our Oil and Gas Activities

Gas pricing policy development Ghana, Iraq, BangladeshGas master planning/domestic gas sector development

Mozambique, Ghana, Tanzania, Iraq

LNG import strategy Bangladesh, Lebanon, Vietnam, PhilippinesBalancing LNG Exports with domestic needs Yemen, TanzaniaShale gas and coal-bed methane policy and regulation

Poland, Botswana

Capacity Building Ghana, Tanzania, Mozambique, Kenya

Technical Assistance

Lending for gas-fired power plants Nigeria, Ghana, Bangladesh, Mauritania, Egypt

Partial risk guarantees for power/gas sales contracts

Nigeria, West African Gas Pipeline, Cote d’Ivoire

Gas distribution system efficiency improvement Pakistan, Ukraine

Gathering systems (including flare reduction) Kazakhstan,

Financing

Examples

Examples

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Global Programs and Facilities That Support the Work

Extractive Industries Transparency Initiative (EITI) Global standard for good governance in EI. Revenue

transparency, tripartite process and platform for governance and accountability.

Extractive Industries Technical Advisory Facility (EI-TAF) Better deals. Reducing asymmetry of information. Rapid

response and support for contract negotiations

Global Gas Flaring Reduction (GGFR) Capturing flared gas for energy access & power/industry

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• GGFR, a public-private partnership, supports national efforts to increase the use of associated natural gas, thus reducing gas flaring and venting which waste resources and increase global CO2 emissions. GGFR aims to improve energy efficiency, expand access to power by developing gas markets, and mitigate climate change through the reduction of greenhouse gas emissions from flaring.

• Since its inception, GGFR has received almost $45 million in donor contributions which have helped finance 40 projects/activities (mostly in the Africa region).

• GGFR has successfully contributed to a 20% decrease in global gas flaring the past seven years.

• Gas flared annually in Africa could produce 200 TWh electricity (more than twice AFR’s power consumption (excl. South Africa).

• GGFR Phase 4 began on January 1, 2013.

Global Gas Flaring Reduction (GGFR)

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Extractive Industries Transparency Initiative (EITI)

• EITI promotes and supports improved governance and transparency in resource-rich countries through the full publication and verification of company payments and government revenues.

• As of March 2011, 38 countries are implementing EITI of which 20 countries have been declared compliant.

• SEGOM manages a multi-donor trust fund that assists countries to implement the EITI. Since 2005, the EITI MDTF has received $61.5 million from 15 donors.

• Next rules - Broadening and deepening EITI:– Improving quality of reports– Enhancing CSOs participation– New agenda: licensing and contract transparency, tax

administration, budget transparency

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Extractive Industries Technical Advisory Facility (EI-TAF)

• EI-TAF assists developing resource-rich countries to structure extractive industry transactions and related sector policies. EI-TAF facilitates rapid-response, third-party advisory services and capacity building for resource policy frameworks and transactions.

• 14 on-going projects in Liberia, Sierra Leone, Mozambique, Kenya, Guinea, Rwanda and Mauritania, Colombia, Haiti, etc.

• Through its Knowledge Management window EI-TAF supports the production and dissemination of global knowledge products. The flagship product is the EI Source Book.

• Established in 2009, EI-TAF has received a total of $25 million in contributions from 7 donors. Next steps include expanding the facility and increasing funding to US$ 50 million.