Sri Lanka and Oil

by Michael Patrick O'Leary

This article appeared in Ceylon Today on Thursday April 19 2018.

 

In his treatise Petroleo y Dependencia, Juan Pablo Pérez Alfonzo, principle architect of OPEC, wrote: “Oil will bring us ruin. It’s the devil’s excrement. We are drowning in the devil’s excrement.”

Groundhog Day

Oh no! Here we go again!

Sri Lanka is once again toying with the idea of exploring for oil. Apparently, an “interested investor” has made a proposal which has led the Sri Lankan government to believe that it can award exploration rights to at least two shallow water blocks off the north east coast. The two blocks, identified as C1 and M1 are in the Mannar Basin to the West, and the Cauvery Basin surrounding the Jaffna peninsula. A competitive bidding round for exploration of a deep-water block where gas has already been found will begin in May.

One can see why the Sri Lankan Government would like to have its own oil. Each year, Sri Lanka imports nearly 30 million barrels of oil at a cost of US$ 2.2 billion, Oil is used to generate electricity as well as for transport. One can add to this the cost of subsidies, and the knock-on effect of transport and electricity costs on the price of everything. Back in 2015, I reported in these pages that the minister for power and energy, Patali Champika Ranawaka, had announced that Sri Lanka will stop importing fuel by 2020. Way back in August 2007, the then Petroleum Resources Development Minister AHM Fowzie met a slew of representatives of oil companies on a junket to Baku. According to Mr Fowzie, Sri Lanka was going to produce oil by 2010. Still waiting.

 

Muddy Waters

The current government (specifically Ranil Wickremesinghe) has hit on a spiffing wheeze (or cunning plan, as Baldrick might call it) called “Swiss Challenge”. This wheeze has been tried out in the Philippines, some African countries and India. The idea is to formalize unsolicited proposals from prospective investors by allowing others to bid on the proposal and then ask the original proposer to match the best bid. If the original proposer does not match the best bid, it is awarded to the best bid. It has been reported that there is growing concern in the Sri Lankan business community about this new policy. This is another of those dirty tricks associated with public /private finance scams that I have written about so often. Swiss Challenge, according to the Sri Lankan government, “allows for an innovative unsolicited proposal by a company to the government to be made public, to allow other competitors a chance to match it.” The Vijay Kelkar committee was set up to evaluate public-private partnership (PPP) models in India. The committee’s report said that Swiss Challenge proposals must be “actively discouraged” as “they bring information asymmetries in the procurement process and result in lack of transparency and in the fair and equal treatment of potential bidders in the procurement process”.

The Trouble with Oil

The trouble with oil is that it encourages corruption. The trouble with PPP is that it encourages corruption. When you put oil and PPP together you get a lot of trouble. As long ago as 2004, Transparency International estimated that billions of dollars were lost to bribery in public purchasing and oil seemed to absolutely guarantee corruption. Saudi Arabia, Angola, Azerbaijan, Chad, Ecuador, Indonesia, Iran, Iraq, Kazakhstan, Libya, Nigeria, Russia, Sudan, Venezuela and Yemen were highly corrupt.

Mr Fowzie’s friend, the president of Azerbaijan, long ago promised to cut poverty and create 200,000 jobs, but about half of Azerbaijan’s population still lives below the poverty line. A ruling dynasty has been established and oil-rich families from the clan networks of Nakhichevan retain their power base by resorting to arrests, torture and media suppression. Do we want a despotic ruling dynasty in Sri Lanka?

Oil generates US$ 17 billion each year for Nigeria. If that were shared it would provide 15 years of wages for every man, woman and child in the country. The proportion of Nigerians living in poverty rose to 66 per cent by 1996. Nigeria has emphatically shown that oil can bring poverty, corruption, environmental damage, conflict, foreign exploitation, and erosion of human rights

New Zealand

The prime minister of New Zealand, Jacinda Ardern, recently announced that her government will ban new permits for offshore oil exploration to “protect future generations from climate change”.

 

 

 

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