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Sharing the benefits of natural resources |
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The huge inflow of royalties and taxes paid to Russian government by those exploiting its oil and gas resources “hasn’t translated into improved living standards” in the country, according to Vagit Alekperov, head of the Russian energy company Lukoil. “You can’t improve that just by increasing the amount of taxes” paid by companies like Lukoil in return for access to oil and gas fields, he added in a panel discussion titled Sharing the rewards of a resource-rich country, held during the EBRD Annual Meeting and Business Forum. “We need systemic change,” he said, adding that means reducing corruption, improving the judiciary, greater transparency in the use of national budgetary funds and a commitment to improved social services. In particular, he said, natural resource revenues now going into Russia’s Stabilisation Fund should be used to diversify the economy by supporting innovation and independent business. Resource curse The panellists discussed the ‘resource curse’, in which resource-rich countries end up desperately poor due to debilitating levels of corruption and the use of resource revenues by illegitimate governments to crush opposition and keep themselves in power. “There’s a big debate as to why some countries continue to prosper with natural resource wealth while others fall prey to the resource curse,” said Karin Lissakers, Director of Revenue Watch Institute. The institute monitors the payment and use of tax revenues from natural resource projects Research has concluded that what makes the difference is strong state institutions and government accountability. “Public availability of information is a key determinant of accountability,” she said. “It builds public trust and creates a better investment climate.” She lauded the Extractive Industries Transparency Initiative, which promotes public reporting of revenues paid by resource companies to governments and of revenues received by governments from such companies, and similar initiatives. Splitting rewards Tax allocation that favours national governments over local governments makes it hard for natural resource companies to build local support for mines or oil fields, the panellists agreed. Mr Alekperov illustrated the issue by pointing out that Lukoil paid $22 billion in taxes and royalties to the government in 2006. “We are the number one taxpayer in the Russian Federation,” he said, answering a question from a municipal official from oil-rich Siberia. “It would be better for us if more of that was kept in the region because it would help our relations with you. “We extract 10 billion cubic meters of natural gas each year but the local municipality is more interested in three little shops in its jurisdiction because it gets more tax revenue from those kiosks than from our 10 billion cubic meters of gas.” A number of speakers said they have to be good corporate citizens on the ground near their operations, not just because it’s the right thing to do but also to avoid potentially damaging conflict with locals which in some situations has shut down mines, oil rigs and pipelines. “I have to get my permits from that local government,” explained Mr Alekperov. Keeping locals happy Jonathan Goodman, President of the Canadian mining company Dundee Precious Metals, described his firm’s investment in social programmes near its mines in Armenia, Bulgaria and Serbia. At its Chelopech gold mine in Bulgaria, he said, the company funds the local school and hospital. “Each year we sign an agreement with the mayor” as to Dundee’s social support for the local community. “I don’t want to kid you. Building these relationships is the best way to make money in the long term” because local people feel they are getting something in return for the exploitation of their natural resources. It also helps him find and retain staff in an industry considered “a pariah”. He said that last winter Dundee came to the rescue when the nearby school ran out of funds for heating oil. “When we got the call from the mayor, it was a no-brainer.” But, he argued, the central government, to which Dundee pays substantial royalties and other taxes, should return some of those monies to the local community so Dundee doesn’t have to fill the gap as a charitable act. “This is clearly a global problem. I have yet to find a place where resource companies pay money to the federal government and the local communities are getting their fair share of those goods.” In Serbia, Mr Goodman said, World Bank advice to the national government about allocation of natural resource revenues resulted in 40 per cent of mining royalties being paid to the local community. “How many projects face local resistance that would be dealt with if the revenues remained local? You can’t lean on the company to completely take care of local communities” through corporate social responsibility programmes, he said. Mintimer Shaimiev, President of the Republic of Tatarstan which is host to the EBRD meeting, said a Russian law making renovation of dilapidated housing stock a municipal burden was unworkable because of the problem of revenue allocation. “However, recently, President Putin has given us hope that things will change.” Local responsibility The division of tax revenues between various levels of government is often a constitutional issue and thus difficult to change, said Ms Lissakers. Even when local governments do get a good cut of such revenues, she added, that doesn’t mean they manage them for the benefit of local people. She described a visit abroad to one regional government in a resource-rich area which does receive a good share of such revenues. “There were lavish new buildings for the regional government. Then we visited a health clinic on the outside of town, a cement hut with broken windows and a dirty table where midwives helped women to have their babies.”
By Kate Dunn, Senior Communications Adviser
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