Thursday, October 20, 2011

Cairn oil strike: All Gas and no Sh*t?

There was a relatively small news item almost three weeks ago announcing that Cairn Lanka had struck gas. After that announcement, there has been near silence on the matter.

When blocks from the Mannar basin were initially offered to bidders, we were treated to banner headlines, for weeks on end, about the enormous wealth that would flow from this. The regime is a great exponent of the art of 'spin' so the muted response to the discovery is completely out of character.

Some have speculated that the discovery was bogus, a piece of 'spin' for the local government elections held that week. While this is certainly plausible it is untrue, Cairn has made a formal announcement of the fact and the discovery has been covered by the press elsewhere. In any case, Cairn is a reputed operator, they are highly unlikely to be making false announcements.

Could there be a problem in geopolitics? There seems to be an issue with India on tendering for the other blocks, but there does not seem to be a problem with the one that Cairn is exploring. There was a Reuters story that the Minister of Petroleum Industries announced that they intended calling for tenders, although I do not recall seeing this in the local press.

Behind the scenes however, there seems to be a flurry of activity with with rumours of all manner of strange characters appearing out of the woodwork and meeting various high ups. Natural resources have proved to be curse for most of the countries that have had the misfortune to stumble on them and one hopes that the lack of news is simply the lack of activity, not an attempt to keep people in the dark. It is a lot easier to loot under cover of darkness, which is why transparency is so despised.

Perhaps this is all speculation, our worst fears may never be realised but if the discovery is commercially viable how does a responsible government go about exploiting it? There is help at hand, the Natural Resource Charter provides an 11-point plan prepared by a group of high-profile economists, lawyers and political scientists, including Michael Spence, 2001 laureate of the Nobel prize in economics; Robert Conrad, an expert on natural resources economics at Duke University, and Tony Venables and Paul Collier, professors of economics at Oxford University.

"We want to provide a policy toolkit," says Collier, who is also the author of the 2008 book The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It. "We're not here to tell government off. We are saying to them: 'If you want to turn national assets into broad-based development, these are the key steps that you need to get right. These steps are not obvious, as governments and societies have got them wrong over the years." (Quote taken from here)

It is not hard to find the route to prosperity, the world has fifty years of experience, mostly bad, to chose from. The paths are well trodden, the choices are easy, if the wisdom and the political will are present.

For another interesting piece on the impact of a natural resource find have a look here.


Ratmale,Minneriya,Sri Lanka said...

I was also wondering about that fact. Whilst agreeing the timing seemed politically motivated, all the sources I could find, only said that it is still not clear how commercially viable the current discovery would be until further extensive work goes into it.

I am sorry, but I do not trust the current set of bandits to be transparent in the best interests of Sri Lanka, however if and when the stuff finally comes to market, another set of bandits, hopefully not as greedy will call the shots.

Jack Point said...

Thanks for visiting and that comment Ratmale.