How COVID-19 is changing the opportunities for oil and gas-led growth

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By Glada Lahn and Siân Bradley, Senior Research Fellows, Energy, Environment and Resources Programme


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


shutterstock_680622253For oil and gas exporters, COVID-19 has caused a downturn like no other. From early 2020, lockdowns sent global energy demand plummeting by over a quarter. Combined with the Saudi-Russia price war, oil prices hit their lowest levels in over two decades, down to less than $20 a barrel in April. Without strategic reserve filling, the collapse would have been even steeper. As lockdowns eased and June’s OPEC-plus agreement to cut production boosted oil prices (around $40/b in June), producer countries could be forgiven for hoping that the worst is over. However, as the pandemic hit, the fossil fuel market was already facing a grim prognosis.

From boom and bust to… bust

Five years ago, Chatham House began exploring what decarbonisation might mean for extractives-led development. To achieve the Paris Agreement’s commitment to limiting global warming to well below 2°C and as close as possible to 1.5°C, all credible pathways will require a radical reduction in fossil fuel use. With 76 per cent of all greenhouse gas emissions (GHGs) and close to 90% of CO2 emissions coming from the burning of coal, oil and gas, the implications for these markets are profound. We are no longer talking about a cycle of boom and bust, but about structural decline. Continue reading

Negotiating a royalty pricing agreement: lessons from Liberia

By Stephen E. Shay, Lecturer at Harvard Law School; Iain Steel, independent economics consultant; Gabrielle Beran, Governance and Program Manager, International Senior Lawyers Project-UK (ISLP-UK); Olumide Abimbola, Business Development Lead, CONNEX Support Unit.

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Mount Nimba, Liberia: an abandoned mining site and the highest point in West Africa

Countries often collect royalties on the sale of their natural resources, but how can they be sure that the price is right when a mining company sells iron ore to its own steel mills? This was the problem faced by Liberia with its largest iron ore mine – and a common problem around the world in mining and many other sectors.

Sales between “related parties”, where the companies share a common owner and are therefore not independent of each other, use a “transfer price[i]” that is supposed to reflect fair market value – the price two independent firms would have agreed transacting at arm’s length. In this article, we describe how governments can make use of pricing agreements with companies to determine transfer prices by reference to international benchmarks, and the importance of reviewing these agreements to ensure they remain fit for purpose over time. We also draw lessons for revenue authorities, host governments and donor partners from the recent renegotiation of a pricing agreement in Liberia. Continue reading

Face au COVID-19, les leçons d’Ebola et du secteur minier en Guinée

Par Nava Touré, Conseiller principal auprès du Ministre des Mines et de la Géologie, République de Guinée, et Ruya Perincek, Analyste des politiques, Ressources naturelles pour le développement, Centre de développement de l’OCDE


Ce blog fait partie d’une série sur la lutte contre le COVID-19 dans les pays en voie de développement. Visitez la page dédiée de l’OCDE pour accéder aux données, analyses et recommandations de l’OCDE sur les impacts sanitaires, économiques, financiers et sociétaux de COVID-19 dans le monde.


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Photo : Shutterstock

Alors que les pays à travers le monde, connaissent des réponses diversifiées à la pandémie de COVID-19 et anticipent des conséquences économiques sévères, la Guinée s’appuie essentiellement sur l’organisation qui a fait ses preuves pendant l’épidémie d’Ébola de 2014-2015 : des structures institutionnelles pour répondre aux crises sanitaires, en collaboration avec les partenaires internationaux et le secteur minier qui joue un rôle important dans l’économie nationale.  Cette expérience dans la réponse aux crises sanitaires et les mécanismes établis dans les contrats et conventions minières pour le contrôle des revenus tirés par l’État pourraient mettre le pays dans une meilleure position par rapport à d’autres pays en développement pour la riposte au COVID-19 et à la crise économique.

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Investing in Resource Efficiency – The Economics and Politics of Financing the Resource Transition

By Florian Flachenecker, Junior Economist, OECD, and Jun Rentschler, Economist, The World Bank1

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Various factors are putting increasing pressure on policy makers, researchers, firms and investors to explore pathways towards sustainable and efficient resource management. These factors include: high and volatile resource prices, uncertain supply prospects, rising demand, and environmental pressures. Moreover, rapid technological transitions that are changing lives for the better are also adding to the challenge. The significant increase in renewable energy technologies, such as solar power, electric vehicles and smart-phone use, are improving people’s lives. While these developments are in line with the Sustainable Development Goals (SDGs), they are also driving up demand for critical natural resources.

Resource efficiency investments could help solve these challenges, yielding substantial benefits both economically and environmentally. And yet, global resource efficiency has increased by a mere 1% per year over the past three decades. This is insufficient to counterbalance ever-increasing resource demand. Continue reading

What gets measured gets managed: Tapping into local procurement in the mining industry to advance development

By Luke Balleny, Manager, Role of Mining and Metals in Society, International Council on Mining and Metals

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Zambia – crusher for manufactured sand. Photo: Shutterstock

How do mining companies spend their money? If you didn’t know and listened only to the media, you might think such companies spend the most on taxes and royalties. However, you’d be wrong.

When minerals or metals are monetised, the revenue is shared between four main stakeholders in the following ways:

  1. 50–65% of mining revenue goes to operating and capital expenditure, such as the suppliers who are paid for their inputs.
  2. 15–20% goes to government, which receives its share through royalties and taxes.
  3. 15–20% goes to investors who receive profits, typically a residual after the other payments have been made.
  4. 10–20% goes to employees who are paid their wages.

A World Gold Council (WGC) study shows that out of the total annual spending in 2012 of USD 55 billion by the 15 WGC members studied, some USD 35 billion were payments to other businesses, mostly subcontracting and procurement. Less than USD 10 billion were royalty and tax payments to governments.

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Call for Comments: Maximising development outcomes from natural resources through public-private collaboration

By Lahra Liberti, Senior Advisor and Head of the Policy Dialogue on Natural Resource-based Development at the OECD Development Centre

Governments and extractive firms are increasingly looking at how natural resources can generate benefits for their economies and societies as a whole. In Zambia, for every 10 direct mining jobs, approximately seven are created in first-tier mining suppliers. In turn, the incomes generated in mining and supplier industries stimulate non-mining industries. Accordingly, the total amount of employment created through mining in Zambia is almost five times as high as direct employment in the sector. Similarly, in Ghana’s gold sector, 2.8 jobs are created in first-tier mining suppliers for each job directly created in mining. These are just two among other positive examples.

However, generating positive economic spinoffs from extractives is not always easy. Past lessons show that over-reliance and dependence on resources can adversely affect an economy’s long-term competitiveness given increased exposure to external shocks, severe price volatility and little economic diversification. The conditions can be challenging too: The world’s known mineral, oil and gas reserves are often found in tough contexts beset by geographic remoteness, political risk, weak technological and skills capabilities and environmental pressures ranging from water scarcity to climate change to competition for access to limited resources. In addition, conflicts with local communities as well as investment disputes between governments and extractive companies complicate matters.

Recognizing both the opportunities and the challenges, new efforts are emerging for exploiting commodities and at the same time promoting structural transformation for sustainable and inclusive development. Why? Public scrutiny and awareness are on the rise as citizens increasingly demand greater participation in their economies. Consumer demand across many emerging markets is driving an unprecedented sustained demand for raw materials. There is a growing realization that weak infrastructure and poor governance are showstoppers. And even the organisational structures of leading commodity firms have evolved. In the past, mining, oil and gas companies were self-sufficient and vertically integrated: They made the majority of the intermediate goods and services they needed.  Today, they are much more often using external suppliers. The need to reduce cost pressure and increase flexibility has prompted multinationals to make their operations more flexible, outsource non-core activities and diversify their supply chains. Yet, shortages of skills across technical and managerial levels limit their progress. All these factors provide a substantial opportunity for a win-win alliance between leading commodity firms, local economies and national governments.

Indeed, lack of skills, insufficient technological and innovation capabilities, inadequate local infrastructure and weak local institutions require long-term coordination and collaboration to effectively create shared natural resource-value. This means, among other things, fully engaging all parties, clearly defining roles and responsibilities and tapping governments and industry to evaluate together the potential for local value creation. In short, public-private coordinated responses are vital to effectively overcome structural obstacles and develop targeted, local and mutually beneficial solutions.

That is why the OECD Development Centre is hosting a multi-stakeholder process to develop a systemic approach to resource-based development as part of its Policy Dialogue on Natural Resource-based Development. What has emerged is an advanced draft of the Operational Framework on Public-Private Collaboration for Shared Resource-based Value Creation. Liberia and Norway led the inclusive and transparent multi-stakeholder drafting of the Framework with the active involvement of Switzerland, South Africa, the African Union Commission, AngloAmerican, Antofagasta Minerals, the Chilean Mining Council, the Columbia Center on Sustainable Investment, Eni, Exxon Mobil, the International Council on Mining and Metals (ICMM), IPIECA (the global oil and gas industry association for environmental and social issues), Shell, Social Clarity and Total.

This Framework works to shape collaborative public-private solutions to maximise socio-economic benefits along the entire value chain of extractives. It intends to effectively enable deeper collaboration among governments, non-governmental organizations, development partners, the private sector, and communities to explain how extractives can contribute to the sustainable management and efficient use of natural resources. By doing this, it seeks to boost the competitiveness of local economies and generate opportunities for local development and greater well-being that outlive the life-cycle of extractives.

What do you think of the Framework? Comments and feedback are welcomed from September 15th to October 30th as part of a broad public consultation now underway. Comments received will inform further revisions of the operational Framework’s final text for possible endorsement this December. Be a part of the process and send comments directly to: DEV.NaturalResources@oecd.org

This article should not be reported as representing the official views of the OECD, the OECD Development Centre or of their member countries. The opinions expressed and arguments employed are those of the author.