While the US Interior Dept loses royalties, Bolivia raises its rate
Some leaders get the public's share of oil revenue -- some don’t
Oil makes a tiny sliver of humanity enormously powerful whereas it could -- were we to share its value -- make all of humanity more comfortable. We trim three 2007 articles on governments negotiating royalties: (1) “US Sells Itself Short on Royalties” by the Associated Press (Dec 18), (2) “State hauls in half-billion in fed oil, gas royalties” by Cornelia de Bruin in New Mexico’s Daily Times (Dec 14), and (3) “BC shale gas set to be next generation's oil sands” by Patrick Brethour in Canada’s main daily, the Globe & Mail (Dec 14). Also (4) “Who Owns Bolivia's Oil and Gas?” by Joseph E. Stiglitz, a Nobel laureate in economics, Professor of Economics at Columbia University, ex-Chairman of the Council of Economic Advisers to President Clinton, and ex-Chief Economist and Senior Vice President at the World Bank, posted by Project Syndicate, 2006.
by Jeffery J. SmithAP: In 2007, leasing oil, natural gas, and other minerals on federal lands provided more than $11 billion to the US Treasury. Nevertheless, the federal government is shorting itself when doing businesses with corporations that extract the public’s natural resources, found an independent panel co-chaired by former Democratic Sen. Bob Kerrey and former Republican Sen. Jake Garn.
In September, the Interior Department's inspector general released a scathing report that said the royalty collection process was riddled with mismanagement, ethical lapses, and conflicting relationships with the energy industry. The agency was also losing millions of dollars in uncollected interest on overdue royalty payments.
JJS: When the feds do recover some resource rent, they share it with states. But who all should be included in receiving benefits?
de Bruin: New Mexico, for the second-straight year, has received more than one-half billion dollars from the federal government for oil and gas extraction within its borders. The state royalties were $552.9 million. Last year royalty payments to New Mexico totaled $573.4 billion. Fiscal year 2006 marked the first time the state's payment exceeded a half-billion dollars.
Only one other state, Wyoming, received more than New Mexico in royalty payments: $925.2 million of the total $1.97 billion paid by Mineral Management Service to the 34 states that extract oil, natural gas and coal on federal lands. The agency pays disbursements to states on a monthly basis.
JJS: Not only figuring out how to fairly share the recovered rent, but also knowing how high to set the royalty percentage is a challenge.
Brethour: Canada’s province of British Columbia had its single most successful auction of oil and gas exploration rights in nearly three decades, a $401-million haul that pushed the year's tally past $1-billion. Two-thirds of the payout came from four parcels near Dawson Creek in northeastern BC.
Both technology and revised policy spurred corporate interest. New methods of examining old data make it easier to determine the most promising areas in the shale. Horizontal drilling techniques can free gas molecules stuck to shale. And the other oil-rich Canadian province, Alberta, decided to hike its royalties in 2009. Companies are edging out of Alberta, where land sales have plummeted 60% this year, just as B.C. marks its best year ever.
Eleven years ago, Alberta slashed royalties on the oil sands, which pulled tens of billions in capital into the Fort McMurray area and gave birth to a major new branch of the energy industry. Now a decade later, Alberta and its royalty regime seem set to duplicate that success -- this time, by pushing capital into the waiting arms of BC.
JJS: Even though Anglo nations like America, Canada, Australia, and Great Britain own much of the oil within their borders, somehow it becomes controversial when Latin nations claim resources within their borders.
Stiglitz: Indigenous groups constitute 62% of Bolivia’s population, and those with mixed blood another 30%, but for 500 years Bolivians had been ruled by colonial powers and their descendants. Well into the twentieth century, indigenous groups were effectively deprived of a vote and a voice. Aymara and Quechua, their languages, were not recognized for conducting public business.
Under former President Gonzalo “Goni” Sanchez de Lozada, privatizations left Bolivia receiving only 18% of the petrol proceeds.
* Foreign investments of some $3 billion would return 82% of the country’s gas reserves estimated to be worth $250 billion. It appears that investors would, at the old terms, have recouped all their money within just four years.
* It costs no more to extract oil or gas today than it did when prices were one-third of their current level. If foreign oil companies get 82% of the increase, in the case of oil this would amount to a windfall of $32 a barrel or more.
When Evo Morales became Bolivia‘s first democratically elected indigenous head of state, he simply reversed the percentages, pending renegotiation of the contracts: the companies operating in the two largest fields would get 18% of the production for themselves. His nationalization of Bolivia’s oil and gas fields sent shock waves through the international community.
Many previous deals were done in secret and without the approval of Congress. Because Bolivia’s Constitution requires the approval of Congress, Morales is not nationalizing anything if the assets were never properly sold. When a country is robbed of a national art treasure, we don’t call its return “re-nationalization,” because it belonged to the country all along.
Jeffery J. Smith runs the Forum on Geonomics.
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