The World Bank’s Successful Intervention in Petroleum Exploration in Developing Countries
Thomas E. O’connor, 2000. "The World Bank’s Successful Intervention in Petroleum Exploration in Developing Countries", International Oil and Gas Ventures: A Business Perspective, George E. Kronman, Don B. Felio, Thomas E. O’Connor, Mindy S. Kronman
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Development banking, as exemplified by the World Bank Group, has had a significant impact in international oil and gas exploration and development since the second oil price shock in the late 1970s. This involvement includes the World Bank itself, which lends to central governments to assist them in improving their business practices and to build capacity in their technical departments that deal with the international oil companies. The International Finance Corporation often will take an equity position in an international petroleum venture as a nonoperating partner in order to provide financial stability and political risk offset. The Multilateral Investment Guarantee Agency provides guarantees against losses caused by noncommercial risks. This intervention between the governments of developing countries on the one hand, and the international oil industry on the other hand, has had the overall objective of seeing that win-win contracts are negotiated. The purpose of this intervention is to see that the legitimate objectives of both parties are met. To a large extent this intervention has had a significant positive effect on the conduct of business in the developing nations around the world.
A significant outcome of this process has been a reduction in nationalism and an opening of national economies to the world of international commerce, including that of the international oil business. The tools that are used in these interventions often take the form of Technical Assistance loans and credits that provide expert advice and assistance to the central government in the form of Exploration Promotions. As part of these promotions are the organization of the government’s petroleum sector, its database, improvements to the business-enabling environment, creation of a regulatory agency, and environmental standards. Lastly, this process includes a sophisticated advertising campaign on the part of the government directed toward the oil industry and often includes assistance with the subsequent negotiations and contractual compliance of the resulting petroleum agreements.
This process of opening up to the international oil industry is complicated and is often highly charged with political overtones that must be understood by both parties if satisfactory agreements are to be reached. The governments need to become more aware of the objectives of the oil companies, and for their part, the companies need to be cognizant of the governments’ objectives and expectations for sharing in the development of their natural resource endowment. If this process of coming to a common understanding is done well, a mutually profitable agreement that will last through several decades of production will result.
Information is provided regarding how to access the World Bank Group’s publications, and methods of seeking more direct information are provided in the reference section, as well as throughout the paper itself.
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