NATIONAL OIL COMPANIES: GOOD OR
BAD? – A LITERATURE SURVEY
Professor Paul Stevens
Centre for Energy, Petroleum and Mineral
Law and Policy
University of Dundee
Scotland
World Bank Workshop
27th May 2003
Washington DC
THE ALLOCATION OF RESOURCES – THE CIRCLE OF FAILURE
1950s/1960s
MARKETS FAIL
-MARKET FAILURE
-KEYNES+ECONOMICS
-SOVIET PLANNING
GOVERNMENT MUST
INTERVENE
THE ALLOCATION OF RESOURCES – THE CIRCLE OF FAILURE
FOR NOCs REINFORCED
1950s/1960s *SOVEREIGNTY NEEDS
MARKETS FAIL A TOOL.
-MARKET FAILURE *PUBLIC VERSUS PRIVATE
-KEYNES+ECONOMICS OBJECTIVES.
-SOVIET PLANNING *INFORMATION ASYMMETRY
AND BARGAINING.
*TECHNOLOGY
TRANSFER.
GOVERNMENT MUST
*RENT CAPTURE.
INTERVENE
*LEADING SECTOR
NEED AN NOC
FOR DEVELOPMENT.
THE ARGUMENTS FOR AN NOC
• POLITICAL
– SOCIALISM AND THE COMMANDING HEIGHTS
– ECONOMIC NATIONALISM
– PERMANENT SOVEREIGNTY
– NEED TO FEED NATIONAL PRIDE
– FASHIONABLE
• ECONOMICS – MARKET FAILURE
– INFORMATION ASYMMETRIES
– CHANNEL FOR TRANSFER OF TECHNOLOGY
– SUB-OPTIMALITY OF FISCAL INSTRUMENTS
– STATE VERSUS PRIVATE INTERESTS
– ABILITY FOR ENERGY POLICY AND ENVIRONMENTAL
PROTECTION
– IOC’S INTERNATIONAL INTERESTS NOT NATIONAL
– LEADING DEVELOPMENT SECTOR
– DEPLETION POLICY
– SECURING ENERGY SUPPLIES
THE ALLOCATION OF RESOURCES – THE CIRCLE OF FAILURE
FOR NOCs REINFORCED
1950s/1960s *SOVEREIGNTY NEEDS
MARKETS FAIL A TOOL.
-MARKET FAILURE *PUBLIC VERSUS PRIVATE
-KEYNES+ECONOMICS OBJECTIVES.
-SOVIET PLANNING *INFORMATION ASYMMETRY
AND BARGAINING.
*TECHNOLOGY
MARKETS MUST TRANSFER.
GOVERNMENT MUST
INTERVENE *RENT CAPTURE.
INTERVENE
-WASHINGTON *LEADING SECTOR
NEED AN NOC
CONSENSUS FOR DEVELOPMENT.
1970s/1980s
GOVERNMENTS FAIL
-ECONOMIC THEORY
OF POLITICS
-THEORIES OF PUBLIC
CHOICE
-PRINCIPAL-AGENT
ANALYSIS
THE ALLOCATION OF RESOURCES – THE CIRCLE OF FAILURE
FOR NOCs REINFORCED
1950s/1960s *SOVEREIGNTY NEEDS
MARKETS FAIL A TOOL.
-MARKET FAILURE *PUBLIC VERSUS PRIVATE
-KEYNES+ECONOMICS OBJECTIVES.
-SOVIET PLANNING *INFORMATION ASYMMETRY
AND BARGAINING.
*TECHNOLOGY
MARKETS MUST TRANSFER.
GOVERNMENT MUST
INTERVENE *RENT CAPTURE.
INTERVENE
-WASHINGTON *LEADING SECTOR
NEED AN NOC
CONSENSUS FOR DEVELOPMENT.
1970s/1980s FOR NOC’S REINFORCED
GOVERNMENTS FAIL *PEMEX SYNDROME
-ECONOMIC THEORY *EFFICIENCY AND RENT
OF POLITICS SEEKING BEHAVIOUR
-THEORIES OF PUBLIC *INFORMATION ASYMMETRY
CHOICE *REGULATION AND PRIVATE
-PRINCIPAL-AGENT
ANALYSIS
SECTOR SUPERIOR
*NOC STARVED OF RESOURCES
*TWO-HAT PROBLEM
THE ARGUMENTS AGAINST AN NOC
• POLITICS
– CHANGE IN IDEOLOGY
– NOC’S BECOMING TOO POWERFUL
– POPULAR DISCONTENT
– CONFLICTING OBJECTIVES = INEFFICIENT OPERATION
– AN IMPOSSIBLE “NO WIN” DICHOTOMY
• ECONOMICS
– LOW EFFICIENCY AND RENT SEEKING
– EXPERTISE ACCRUES TO THE NOC NOT THE GOV’T
– CORRUPTION
– BEING STARVED OF RESOURCES
– NOC PRESENCE INHIBITS IOC INVESTMENT
– NOC OBJECTIVES BETTER VIA REGULATED PRIVATE
COMPANIES
THE ALLOCATION OF RESOURCES – THE CIRCLE OF FAILURE
FOR NOCs REINFORCED
1950s/1960s *SOVEREIGNTY NEEDS
MARKETS FAIL A TOOL.
-MARKET FAILURE *PUBLIC VERSUS PRIVATE
-KEYNES+ECONOMICS OBJECTIVES.
-SOVIET PLANNING *INFORMATION ASYMMETRY
AND BARGAINING.
*TECHNOLOGY
MARKETS MUST TRANSFER.
GOVERNMENT MUST
INTERVENE *RENT CAPTURE.
INTERVENE
-WASHINGTON *LEADING SECTOR
NEED AN NOC
CONSENSUS FOR DEVELOPMENT.
1970s/1980s FOR NOC’S REINFORCED
GOVERNMENTS FAIL *PEMEX SYNDROME
NOC REFORM -ECONOMIC THEORY *EFFICIENCY AND RENT
REQUIRES OF POLITICS SEEKING BEHAVIOUR
*ACCOUNTABILITY -THEORIES OF PUBLIC *INFORMATION ASYMMETRY
*BENCHMARKING CHOICE *REGULATION AND PRIVATE
-PRINCIPAL-AGENT
*COMPETITION SECTOR SUPERIOR
ANALYSIS
SOLUTIONS *NOC STARVED OF RESOURCES
*RESTRUCTURING *TWO-HAT PROBLEM
*PRIVATE SECTOR ENTRY
*PRIVATIZATION
THE ALLOCATION OF RESOURCES – THE CIRCLE OF FAILURE
IMPLICATIONS FOR NOCs REINFORCED
FOR THE ROLE 1950s/1960s *SOVEREIGNTY NEEDS
OF NOCs???? MARKETS FAIL A TOOL.
-MARKET FAILURE *PUBLIC VERSUS PRIVATE
-KEYNES+ECONOMICS OBJECTIVES.
-SOVIET PLANNING *INFORMATION ASYMMETRY
AND BARGAINING.
*TECHNOLOGY
MARKETS MUST TRANSFER.
GOVERNMENT MUST
INTERVENE *RENT CAPTURE.
INTERVENE
-WASHINGTON *LEADING SECTOR
NEED AN NOC
CONSENSUS FOR DEVELOPMENT.
1970s/1980s FOR NOC’S REINFORCED
GOVERNMENTS FAIL *PEMEX SYNDROME
NOC REFORM -ECONOMIC THEORY *EFFICIENCY AND RENT
REQUIRES OF POLITICS SEEKING BEHAVIOUR
*ACCOUNTABILITY -THEORIES OF PUBLIC *INFORMATION ASYMMETRY
*BENCHMARKING CHOICE *REGULATION AND PRIVATE
-PRINCIPAL-AGENT
*COMPETITION SECTOR SUPERIOR
ANALYSIS
SOLUTIONS *NOC STARVED OF RESOURCES
*RESTRUCTURING *TWO-HAT PROBLEM
*PRIVATE SECTOR ENTRY
*PRIVATIZATION