Sovereign Wealth Funds, Local Content Policies and CSR

Few issues surrounding public wealth management in Nigeria enjoy broad geo-political agreement and support. The most vexed question is that of which level of government ought to have control over extractive resources. Behind the resource control debates is the question of the appropriate resource revenue sharing formula the country ought to adopt. Under current arrangements, states receive 13% of the revenues generated from natural resources located within their territory, leaving the federal government with control of 87% of the country’s resource wealth. Agitations by oil-producing states for state resource ownership and control have been raging for decades but have not resulted in any change in resource ownership and control. Although the federal legislature has the constitutional authority to change the current sharing formula to give states more share than they currently have, it has not yet exercised that authority. In order to ensure that extractive companies pay adequate revenue to the state, the government imposes an assortment of fiscal instruments, including: royalties, petroleum profits tax, capital gains tax and value-added tax. In order to ensure that revenues generated from the resources benefit both present and future generations, the country operates a sovereign wealth fund. The operation of this fund has been riddled in managerial controversy, even its constitutionality has boggled the minds of Nigerian legal pundits. This chapter analyses these issues, proffering views on how they may be better understood and approached.

Countries that are endowed with extractive resources such as oil and gas can have tremendous impact to the economy if the emanating wealth is well managed, allocated, and distributed. Good governance of extractive resources creates employment thus improving well-being among national citizens. At the same time, for governments, this may generate new revenue streams and fund basic government services and stimulate further economic growth.

Since the first drill that struck oil in 1884, the extractive industry has been the key contributor to the Indonesian economy. Being blessed with natural resources, the Indonesian Constitution strictly mandates these resources to be used for the welfare of the people with the Government acting as the representative of the people, placed as the guardian of these natural resources. The regulatory regimes over the two main extractive sectors, oil and gas as well as minerals and coal, have experienced changes over the years. These changes correspond to the political changes that the country was experiencing, from being a newly independent nation to a reformed democracy with a focus of decentralising power.

In conjunction with expectations of an increase in revenue from the exploration of oil and gas after the discovery of Brazil’s pre-salt layer, important issues emerged on the best methods of administering public revenue in the benefit of current public interest and futures generations. In this context, the Executive Branch sent to the National Congress a proposal for a new regulatory framework for the formulation and implementation of public policies in the energy sector. As part of this policy a Social Fund of petroleum (i.e. a Sovereign Wealth Fund) was created in order to create a source of resources for social and regional development, through programs and projects aimed at combating poverty and stimulating development. In light of this, this chapter will describe the main aspects of Brazil’s Social Fund.

Iranian officials and planners have always been concerned about the optimum use of the country’s oil and gas revenues, as well as maintaining stability in the way those revenues are applied to the national budget. Various methods were implemented in pre-revolutionary development programs, including the establishment of a Planning and Budget Organization in 1948 to ensure the efficient use of these resources. Using oil revenues to build production and infrastructure capacity was an important incentive for the establishment of this organization; but from the very beginning, the government was forced to spend part of the natural resource proceeds.

This chapter provides an analysis of the legal and regulatory framework of both Trinidad and Tobago and Guyana’s sovereign wealth funds. It discusses the legal regime of ownership of the mineral estate in Trinidad and Tobago. It discusses the procedure to obtain the Exploration and Production (Public Petroleum Rights) Licence and the Exploration and Production (Private Petroleum Rights) Licence, as well as the system of private petroleum leases in Trinidad and Tobago. The establishment and management of the Heritage and Stabilisation fund in Trinidad and Tobago is examined. In the second part of the paper the ownership of the petroleum resources in Guyana is discussed and some of the main features of Guyana’s Natural Resource Fund Act 2019 is evaluated. Also, a critical analysis of the legal framework in Guyana is undertaken and lessons from Trinidad and Tobago which can be useful to Guyana are outlined.

This contribution considers the experience of creating and operating sovereign wealth funds in Russia, analyses the basic principles of the functioning of funds, the sources of their formation, as well as the processes of managing funds. The experience of reforming the Stabilization Fund in Russia and its transformation into the Reserve Fund and the National Welfare Fund (NWF) is considered. Finally, the contribution explores the problems of increasing the significance and effectiveness of involving the resources of sovereign wealth funds in solving the most significant issues of the structural development of the national economy of Russia.

Alaska is a unique petroleum-producing region in that it is a state within the USA and therefore both an independent oil-producing and gas-producing region with an independent State government as well as a region dependant on, and intertwined with, a more powerful developed U.S. economy and its U.S. Federal Government. As such, it is possible to better observe political characteristics in the formation of petroleum policies and how they relate to the larger governmental institutions since some policies are based on State government policies and therefore the State’s citizens’ desires. Moreover, some policies are driven by the more powerful U.S. Federal Government policies and its American citizens’ desires. The chapter looks at Alaska’s oil and gas fiscal system, the State’s petroleum industry, its petroleum institutions and its sovereign wealth fund and how all those items work together within the broader government functioning.

Canada possesses some of the world’s largest and most valuable non-renewable resource deposits. As of 2017, Canada was the world’s fourth largest natural gas producer, fifth largest crude oil producer and a significant producer of gold, copper, coal, potash and iron ore. Management of these resources is complex, but largely resides with subnational governments, whether provinces or territories. As such, fiscal regimes, environmental and social regulations, distribution of resource revenues, and management of resource revenues vary across the country. This chapter summarizes the management of oil, gas and mining resources and revenues in Canada, with a focus on subnational sovereign wealth fund governance. Among our conclusions, we highlight low average effective tax rates by global standards, limits to the benefits that can be captured by the territories and a tendency towards discretionary use of sovereign wealth funds. We present three subnational sovereign wealth fund case studies from British Columbia, the Northwest Territories and Quebec, since these funds are explicitly meant to be financed in part by resource revenues. The Alberta Heritage Savings Trust Fund is covered in a separate chapter, and the Manitoba Stabilization Fund is not explicitly financed by natural resource revenues nor resides in a resource-dependent province. While some funds, namely the Quebec fund, have incorporated many good global practices in sovereign wealth fund management, the case studies underscore the need for withdrawal rules that help governments smooth fiscal expenditures and promote intergenerational equity, along with a need for greater public oversight.

The Alberta Heritage Savings Trust Fund is Canada’s first and largest sovereign wealth fund. Like Norway’s oil fund, the Heritage Fund is fuelled by oil wealth. As one of the first funds of its kind, in 1976 it inspired many other countries to start funds of their own but unfortunately, it has experienced persistent challenges from the start. It has had different, and often conflicting objectives, low public buy-in, and inconsistent and discretionary deposit and withdrawal rules. With the current balance of the Heritage Fund standing at a mere $17.5 billion (CBC News 2004) (CDN), many argue that the Heritage Fund has largely failed to achieve its savings mandate, especially when compared to other funds around the world in countries with similar populations and resource profiles. However, while the Heritage Fund is much smaller than its Alaskan and Norwegian peers, Alberta has made key policy decisions that have set it on a unique path. It has chosen to maintain historically low tax rates (with no provincial value added tax), a competitive royalty framework, and historically has spent the most dollars per capita on public services for its citizens. This chapter explores the history, governance, oversight, investment policy, operational and deposit/withdrawal rules of the Heritage Fund. It also discusses how wealth is transferred from Alberta to other parts of Canada and offers some critical observations about the Fund’s successes and failures.

Sovereign wealth funds (SWFs) have gained traction in recent years as effective capital pools created by governments to invest surplus funds in markets, both internationally and domestically. This chapter looks at the role that SWFs can play in Australia’s next resources boom, and whether SWFs can provide a sustainable development pathway through an alternative and innovative investment structure such as social impact investing. We shed light on the dynamics and role of SWFs in promoting sustainable development in Australia and the role of impact investing for accelerating sustainable development.

Norway’s sovereign wealth fund (SWF), the Government Pension Fund Global (GPFG), has become the largest in the world. But size is not the most unique or interesting feature of Norway’s petroleum fund. This contribution describes how the Norwegian authorities took their time before committing to a SWF, deciding instead to spend the country’s first oil revenues on developing its welfare state and paying down its debts. Once established, the GPFG developed several unique characteristics. What is perhaps most remarkable about the GPFG is the way that its funds can (and cannot) be accessed by political officials. In this way, the GPFG plays an important role in protecting the Norwegian economy from some of the curses we often associate with resource wealth. Finally, this contribution examines the unique way in which Norway manages the GPFG, by including strong political and ethical components when determining where it will place its investments.

Most of Nigeria’s application of local content in the extractive industry is focused on the oil and gas sector, the mining sector receiving only marginal attention, without a well-established policy or legislation. In the oil and gas sector, local content is pursued through three key vehicles: state participation, the Oil and Gas Industry Local Content Development Act, 2010, and the marginal fields policy. These vehicles express the Nigerian government’s understanding of local content in the oil and gas sector, which is not limited to value addition. In its broadest sense, value addition is about what the industry as a whole can contribute to the wider economy, for instance, the contributions of oil and gas companies not only to the domestic oil and gas industry but also to the growth of other industries. The key vehicle being utilised to achieve value addition is the afore-mentioned Act. Nigeria’s local content policy, however, embraces the somewhat wider concept of ‘local participation’. Local participation aims to ensure that the citizens take charge of the development of the industry. The extent to which the content of the industry is local is therefore determined not only by the value brought to the local economy by the industry, but also by the extent to which the participants in the industry are ‘local’. The key vehicles being utilised to achieve local participation are state participation and the marginal fields policy. This chapter discusses each of the three vehicles, highlighting their successes and challenges.

The debate on local content has taken center stage since the discovery of commercial quantities of oil in 2012 by Tullow Oil that could generate up to $1.2 billion in revenue for the Kenyan government. This chapter follows the evolution of local content development in Kenya’s extractive sector, describing the existing legal, institutional and policy frameworks promoting local content in the industry. Defining the ‘local’ in local content has been a major source of conflict in the Kenyan context. From the existing legislation, it is apparent that ‘local’ is synonymous with ‘national content,’ meaning that inputs and skills can be sourced from anywhere in the host country as opposed to local sourcing from the resource rich regions. Development of favorable policies and legislation in the recent past have embolden the industry though it is not clear that they would automatically resolve these issues and address other glaring gaps. The chapter concludes that there is a need to prioritize the development of an overarching Local Content Development Policy in Kenya that will define the focus of local content, which should be based on the country’s priorities, needs, and specific contexts. It should also address the question of ‘community content’ verses ‘local content.’ The policy would take into consideration the actual state of local industry, noting that local content development is a long-term goal that needs to be phased to adapt to the demands of each stage of development of the resources.

As a net oil importer, the Government of Indonesia (GoI) put a lot of effort into attracting new investment for oil and gas exploration and exploitation. The gross split scheme was introduced in 2017 as an alternative to cost recovery. Meanwhile, the GoI has been setting up various regulations and a road map to increase local content to stimulate local manufacturers in the oil and gas supporting industries. How this significant policy change affects the local content requirement and implementation becomes the central focus of this chapter. In the cost recovery scheme, local content requirement was enforced through various regulations with close supervision from the government’s executive task force in upstream oil and gas business activities; meanwhile, the gross split scheme uses an incentive approach by incorporating local content as a part of variable split. The impact of new policy started to emerge in the form of new investments in the gross split scheme as well as the corresponding local content procurement. Challenges in the local content implementation include concerns over the quality and price of locally produced goods. Some cases suggested that locally procured goods are not yet up to the standard and specifications required by the contractors of cooperation contract, and yet, the price is higher than imported ones. As these challenges could hinder the target of local content realization, government, local manufacturers of oil and gas supporting industries and the contractors need to work together to overcome those.

Local content clause is the obligation of hiring a share of national goods, employment, as well as services in the exploration, development and production processes. If companies do not comply with this clause, they will incur a fine applied by government agents. The Brazilian oil and gas industry has used the local content clause since 2003. The clause and regulation is long, and the details allow the contractor to know each parameter before the bidding round, to be prepared, and to be aware of the penalty in case of disobeying. This chapter answers the following questions: (i) What are the main obligations related to local content in Brazil within the extractives resources industry? Are there any peculiarities? (ii) What are the main challenges that extractives resources are facing with regards to local content practices and local involvement? (iii) What are the best and worst experiences with local content requirements in the extractive resources sector in Brazil?

Iran has a large share of world's extractive resources including oil and gas. The economy of the country is extremely dependant on revenues from these resources. However, the management of these resources have been criticized. At different times, Iran has adopted different kind of policies and legal structures to manage these resources especially oil and gas resources. The required local contents for each of these policies are different. Here, the discussion goes around these policies and legal orders which require some obligations on Iran National Oil Company (NIOC), foreign and local companies through laws, development plans and specific kind of contracts.

This chapter discusses the main features of the legal framework regulating local content in Trinidad and Tobago and Guyana within the extractive industries. It also discusses the role that local content can play in the development of the two countries under review. The problem of illegal quarrying in Trinidad and Tobago and the incident where a major oil company in Trinidad and Tobago decided to withdraw a major project are discussed to demonstrate some of the problems associated with local content. A case study from Guyana concerning the dissatisfaction with the draft local content policy is reviewed as well as general pitfalls that Guyana needs to avoid in its implementation of local content policies and laws. Further, the potential for local content policies and law to conflict with international and regional trade obligations are briefly discussed.

The Russian Federation (the “RF”) is considered to be a non-OPEC oil producer, which actually influences the oil market significantly due to high oil production volumes. It is possible to conclude that the oil and gas industry plays a great role in the Russian Federation economy. It is a well-known fact that the RF is rich in natural resources and the federal state budget relies heavily on the sale of oil and gas.

Alaska’s petroleum industry is run by national and international oil companies (IOCs) coming to Alaska with their workers and expertise to develop and produce oil. However, a more pertinent issue surrounding the petroleum industry in Alaska is who owns and who controls the land of Alaska including its mineral rights. Alaska’s land encompasses about 360 million acres (146 million hectares) or about the size of Germany, France, Italy, and the United Kingdom combined, but with a population of only 700,000 people. After subsequent treaties and laws, the land has become split between Native Alaskan land, U.S. Federal Government land, and Alaska State land where by much of the splitting only occurred after the discovery of the great Prudhoe Bay oil field on Alaska’s North Slope in late 1968. The story of how the land was split and how much of Alaska’s land has been made into nature preserves, which have been saved from mineral rights development, is quite a story. The different interests of Americans, Native Alaskans, and average Alaskan citizens have conflicted with each other every step of the way and have affected land rights and even some business practices including how Alaska’s native companies work.

Although Canada has not been recognised as a go-to nation in local content policies, this paper argues that local content policies (LCPs) are well embedded in extractive industry regulation in Canada. While the Canadian federal government does not have an official LCP as we know it, as there is no policy document that makes explicit reference to local content, the federal government has incorporated the policy in some form under the federal foreign investment policy since at least 1973. Local content is also fully embedded in requirements for the submission of benefits plans under accords negotiated between the federal government and the Atlantic provinces of Newfoundland and Labrador and Nova Scotia to enhance benefits to the provinces from offshore oil and gas development in Canada’s continental shelf appurtenant to the two provinces. Furthermore, unlike in most other countries, LCPs in Canada are not characterized by the setting of stringent targets that companies must fulfil but are instead characterised by a more flexible approach that encourages negotiation between the government and project developers to determine the acceptable level of local content. In addition, the understanding of ‘local’ under Canada’s local content regime embraces three types of ‘local’: Canadian nationals (and permanent residents) as a whole, provincial residents, and Aboriginal people. Each of these locals is the focus of separate local content programmes. This approach shows how the LCP can be strategically harnessed to address the socio-economic situation of different segments of the national population—an approach that contains policy lessons for other countries.

This chapter examines the efforts of the Western Australian Government to promote new economic, business and employment opportunities for local firms and residents in its non-metropolitan regions. Specific attention is given to the use of public policies, institutions and programmes to realise these opportunities based on increasing investments in the extractives sector.

The Norwegian petroleum industry is today strong and internationally competitive. Of course, this was not always the case: the industry was supported, protected, and nurtured at a time when states enjoyed much greater scope for sovereign autonomy. During a relatively short period of time, from about 1970–1986, the Norwegian authorities employed four main instruments to develop local competence in the sector: their unique licensing system, a strong national oil company (Statoil, now Equinor), a series of Technology Agreements and an autonomous regulatory regime that benefited domestic producers. None of these tools are used today, as Norwegian authorities now embrace a remarkably “hands-off” approach to managing the sector. This chapter describes this brief period of political activism, and the industry it created.

This chapter focuses on the extant corporate social responsibility (CSR) practices in the oil and gas industry in Nigeria. The oil and gas industry has been beset by a lot of problems not limited to violence, kidnappings, eco-terrorism, and maladministration amongst others. One of the strategies of curing or mitigating these inherent problems in the oil and gas sector is the use of CSR initiatives by many oil multinational corporations (MNCs) operating in Nigeria. Notwithstanding that the majority of CSR initiatives in the oil and gas sector in Nigeria are voluntary, this chapter avers that CSR initiatives should be made mandatory by the Nigerian government. Furthermore, Civil Society Organisations (CSOs) should play an integral role in the implementation of any legalised framework on CSR that will be developed in the country. This chapter suggests that a CSR law should be developed specifically for the oil and gas industry to mitigate the negative externalities arising from the activities of oil MNCs in the Niger Delta region of the country.

Kenya’s oil & gas sector is quickly developing with industry players predicting the date of first oil to be 2024 once the upstream and pipeline projects are developed. Kenya has a robust mining sector with rare earth and soda ash accounting for the largest mineral exports. Kenya is increasing investment in its extractives sector and angling to position itself as a technical leader in the region by building its technical expertise. Companies operating in the extractives sector often negotiate their economic and financial terms with governments gaining a legal right to operate and separately negotiate with host communities for a social licence to operate. Companies must obtain both licences in order to run a successful operation. In this chapter, we view corporate social responsibility (CSR) as a method for the company to obtain a social licence based on the practice in Kenya where the national government was previously not directly involved in informing and consulting communities. We shall first conceptualise CSR in the Kenyan context, examine two case studies, identity a few instances of the best and worst CSR experiences and conclude with an assessment of the challenges companies face when engaging communities. The chapter aims to inform the reader of the practice in Kenya with insights from the author’s interviews and interaction with host community members, companies and government officials, and finally, this chapter is intended to contribute to the literature on CSR in the extractives industry in Kenya.

Corporate social responsibility (CSR) has been receiving wide attention as this practice implies the efforts of corporations and industries to contribute to society. While the practice of CSR is expected to promote economic and social development, CSR practices in extractives sector, especially in developing countries, invites debates from stakeholders. The debates are mostly related to the negative image of the extractives sectors in harming the environment and exploiting local people. From the corporation side, debates are related to what kinds of CSR the community desires and how much money corporations for their CSR activities spend. This chapter explores the practice of CSR in the extractives sector in Indonesia, where the extractives sector has been the backbone of the economy for years. It starts with some reviews on the extractives sector and its operations in Indonesia, then the best and worst experiences in CSR practices in the extractives sector, and finally provides the main challenges that the extractives sector is facing and strategies to overcome those challenges. This chapter concludes that CSR practices in the extractives sector are sometimes performed to minimize the negative image of the industries. Often corporations perform CSR activities in order to be perceived as having good business practices by the community.

The purpose of this study was to analyse the related regulations: special purpose company in the transport of natural gas through pipelines, noting that Brazilian legislation is stumbling, with no specific regulations in the gas sector. We sought to analyse the corporative governance applied to such types of corporate models, pointing to the need for improvement in the gas sector, understanding that there is a legal loophole to its application in this sector.

Traditionally, businesses in Iran have carried out some rituals to perform their religious social responsibility. Also, employers have usually played a patriarchal role to employees and support them occasionally. Despite this context, social corporate responsibility, in its modern meaning, has not been developed as much as required in Iran. Here, some related guidelines and policies enacted by government or private bodies are discussed. There are some successful examples of companies which execute various kind of programs regarding CSR, while there are some examples that some businesses completely fail in doing so.

This chapter outlines the legal framework of corporate law and the approach to CSR in Guyana and Trinidad and Tobago. It discusses ExxonMobil Guyana’s general approach towards CSR. It also discusses the worst experience with community involvement in the extractive resources industries in Guyana and one of the best experiences of CSR in the Caribbean, namely Trinidad and Tobago’s Mayaro Initiative for Private Enterprises Development (MIPED) programme. Additionally, an analysis of the main challenges that the extractive resources industries are facing with respect to CSR practices is highlighted. The conclusion analyses the compatibility of Guyana’s Green State Development Strategy and sustainable development under the CSR and evaluates Trinidad and Tobago’s NSCSRP.

Corporate social responsibility (CSR) and commitment to sustainable development have become integral elements of long-term corporate strategies across sectors and countries. The CSR policies of Russian vertically integrated oil companies (VIOCs) are of particular interest because these companies share some characteristics of international oil companies (IOCs) and the national oil companies (NOCs) of other petroleum-producing countries.

During the early 2000s, Alaska tried to develop its natural gas industry just as natural gas prices in the US market were high, highlighting an interesting case of Corporate Social Responsibility (CSR). In order to develop an Alaskan natural gas industry, then, a two thousand mile, multi-billion dollar pipeline would be needed, and such a pipeline would require a tax contract between the state of Alaska and the Alaskan North Slope oil producers, which would create tough negotiations and a strenuous relationship between Alaska and the international oil companies (IOCs). Usually, governments choose petroleum taxes, regulations, and government support within the petroleum industry based on maximizing social welfare, but not based on maximizing corporate profits. The corporations though needed a certain level of profits in order to be able to invest in a new petroleum development. Therefore, there is a natural incentive for corporations to try to change government policy in order to reduce their risk and assure profitability. However, there is one other factor to consider when trying to get such a gigantic pipeline built and a new natural gas industry started, which are the risks involved. Since investors are taking huge risks to build natural gas infrastructure, then they need favorable taxes to get the job done or they cannot make the investment pay off, and sometimes, they use corrupt means to get a good deal, in which case their Corporate Social Responsibility can be lost. Still, it is not always possible to know the absolute best tax rates or the perfect government terms and conditions that will maximize social value. Therefore, if social welfare includes not just the best terms possible of a tax contract but also whether a project is completed or not, then even if taxes are low, the state could still receive jobs and maximize social welfare compared to not having a new industry at all. Thus, the Alaska VECO corruption case analysis also shows an intricate economic calculation of the expected costs and benefits of the project, after the fact, of how things could have turned out.

Companies working in the extractives sector have become increasingly adept at managing legal, financial and operating risk.

Corporate Social Responsibility (CSR) in Australia has had a slow start and—while gaining momentum—continues to lag behind international trends and developments. This chapter seeks to describe the state, and characterise the nature of CSR ‘Down Under’, offering explanations for the somewhat lacklustre approach by business and government to operationalise and regulate CSR, respectively. Answers provided, based on select industry examples, will point to Australia’s political economy of CSR and prevalent ideologies among corporate and political decision-makers as drivers of a kind of CSR that is largely reactive and based on economic legitimacy.

In this chapter, we sketch the rise of explicit CSR in the Norwegian context by focusing on the extractive industries’ entry into a global market and the resulting legitimacy challenges arising from this transition. Explicit CSR, in the sense of expressing social and environmental responsibility and voluntarily committing to promote societal benefits, can be viewed as a strategy by which the companies attempt to fill the governance gaps of global capitalism. We review two major Norwegian companies, Hydro and Statoil/Equinor, and argue that while their CSR strategy has been quite successful, it is challenging to reconcile the role of a socially and environmentally responsible company with being an actor in the global extractive industries.

This concluding chapter surveys the importance of the extractive industries across twelve countries in terms of their level of (national) dependence on those industries and their role as global providers. We then consider some of the lessons generated by comparing the results offered in the preceding 35 chapters, in terms of their implementation of sovereign wealth funds, local content policies and corporate social responsibility.