fiscal regimes session

8/6/2019 Fiscal Regimes Session

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Tuesday, June 7, 2011


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This Presentation SavesEnergy!

Research conducted in 2002 supported by the EPA ENERGYSTAR Office Equipment program revealed websites and

presentations that arepredominately black save energy.



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Mining the Deep:New Economics for a Blue World

Alternative fiscal regimeExample from Noway

InterRidge



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Presentation overview Checking in Todays economy

Revenues from mining

Example from Norway

A new economy

A way forward



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Checking in...Desires for the future...?



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Healthy renewable sectors (fisheries, tourism,agriculture, etc.)




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Public health (water quality, air quality,coastlines)




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Clean environment (living space, biodiversity)




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Clean environment (living space, biodiversity)

Economic health (quality jobs, growth,sustainable and thriving livelihoods)

Social equity (benefits from natural resourcesdistributed across all pillars of society)




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Acknowledge the fact that in todays world of growingresource scarcity, countries that are net providers of rawmaterials (e.g. minerals) are the ones with the real leverage

Acknowledging the full and true value of an ecosystem and

its goods and services when implementing long term fiscalpolicies

Management of resource revenue by government is often

requires some shielding from the political branch; in otherwords independence from political interference and with aclear mandate

Some starting points...



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What questions to ask when

considering fiscal policies?

reconciling non-renewable resource extraction and

long term enhancement of natural and social well-being



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Todays economyBrief background on inadequacies of the global macro-economic model



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Economics today

Supply, demand and growth



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Natural Capital

Manufactured Capital

Financial Capital

Social

Capital

Human

Capital

Our current view of things..Emptyworld...

Source: Forum for the Future



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Decoupling



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Revenues from mining



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Fiscal policyFiscal activities allow governments to provide services,

redistribute fiscal incomes and influence the overall level of

economic activity.

Fiscal indicators - government revenue and expenditures: Taxes and dutiestake money out, while spending is an injection.

Fiscal policy is one tool for governments to influence the national economy.

Other tools include monetary policy, and direct intervention and controls onwages, prices and industrial activity.

The Economist (2010)



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highlights from a Pacificevaluation ofLand-based operations

Resource Rent Extraction, Application, Consumption,Investment and Sustainability of Resource-BasedDevelopment in Resource-Rich Island Economies

Paper prepared by Dr. Allen L. Clark, Senior Fellow, East-West Center,Honolulu, Hawaii, 2001



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Issue Result

Capital-intensive enterprises oftenrequire more than a billion US$ tocomplete.

The capital expenditure must be recovered bythe company before it begins to pay taxes

Projects almost always require/receivespecial fiscal packages from thegovernment to facilitate development.

Negotiations almost always result in lower taxesand additional costs to the government(particularly for infrastructure) that reduces

government revenue and adds costs.Normal development times aremeasured in several years.

During development the government receivesno revenues even though it may be incurringsubstantial costs.

The social, cultural and economicimpacts during development are large -

particularly on the local communities.

Major costs accrue to the provincial and localgovernments to support the development

phase, however, no revenue is received.Projects are short term, i.e. 10-25 years The time frame during which government

receives revenues is (a) deferred, (b) relativelyshort and (c) is terminated abruptly with theclosing of the operation.

Resource rents, social, cultural issues and impacts

Dr. Allen L. Clark, Senior Fellow, East-West Center, Honolulu, Hawaii



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Systemic challenges



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Systemic challenges



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Systemic challenges



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Systemic challengesWeak integration of mineral sector into development agenda;



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Unfavorable contract negotiations: David and Goliath;



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Inadequate access to experienced technical expertise;Ineffective national legislative and policy frameworks;



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Lack of experience-sharing between countries (contracts,standards, policies, international instruments);



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Weak regional collaboration.



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Weak regional collaboration.



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Force Field AnalysisDriving Forces Restraining Forces

Turn to the person next to you to share views aboutdriving forces and restraining forces for fiscal policy.



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Alternative fiscal policy

- example of Norway- promoting social and environmental equity



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Norway

1940 - 1970One of the poorest countriesin Europe

Signifficant rural population

Basic education level

Industries included fishery,

agriculture, mining, hydro-power, other manufacturing...



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Offer from Phillips Petroleumto Norway in 1969

Norways reaction? In May 1963, Norway

asserted sovereignrights over naturalresources in its sectorof the North Sea.



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Achieving social equity across generations

- Legal framework -

Oil and gas reserves withinNorwegian jurisdiction weredefined by law as commonproperty resources -

and ownership by the

people of Norway

The government has absorbedabout 80 % of the resourcerent, having learnt the hard

way in the 1970s.

Most oil revenue is set aside inthe state petroleum fund.

2001 it was legislated to limitspending to MAX 4% of annualprofits. In a good years less...



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The government laid down

economic as well as ethicalprinciples (commandments)to guide investements for thebenefit of current and futuregenerations of Norwegians.

Reserach, environmentalinvestement and dialogueswith companies.

The Central Bank which wasgranted increasedindependence from thegovernment in 2001, managesthe fund on behalf of theMinistry of Finance. Thismaintains a distance betweenpoliticians and the fund.

broad ownership inapproximately 8,400companies. The fund is largelypassively invested and holds anaverage ownership share of 1per cent in each company it isinvested in.

Achieving social equity across generations


Hi N i i f d


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History - Norwegian pension fund

2010 - 2001: The fund grows faster than expected due to the rise in oil prices. Ethicalguidelines continuously renewed. Up to 5% of the fund may be invested in property. Stocks in

small companies are also included in the portfolio. The fund changes name from thegovernment petroleum fund to the government pension fund in 2004. 60% of the fund isplaced in stocks. In 2001 the law stating an annual cap of 4% on spending from the profits wasintroduced.

2000 - 1991: Five emerging economies are included in the investment portfolio. The Norges BankInvestment Management (NBIM) is established in 1998 1. January to manage the fund on behalf of

the ministry of Finance and 40 % of the fund is placed in stocks. In 1996 the fund gets its firsttransfer of capital from the Ministry of Finance. The money is invested as the monetary reserves,meaning they are invested abroad.

1990 - 1983: In 1990, the government approves the law about the state petroleum fund. The aim isto transfer income from the oil- & gas sector to the fund. The objective is to support the longterm management of the revenues from petroleum. In 1983 a task force appointed by the

government suggested to (NOU 1983:27) establish a fund where the government could save thetemporary large income from the petroleum industry as well as to ensure to only spend fundsfrom the net profits.

1974: The Ministry of Finance presents a white paper on the plans for the petroleum sector inNorway nr. 25 (1973-74): Here it is discussed how the income should be used for the commongood of nation and its citizens

1969: Norway finds the first oil well - Ekofisk - in the North Sea. The production starts in 1971.



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A new economy...



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The biosphere is the system

The economy is the subsystem of the

biosphere

Natural capital supply a stream of benefits

Reinvesting in the Natura Capital makes

sense.

Ecological limits are rapidly converting

economic growth into uneconomic growth- making us poorer not richer.

Towards a circular economy

Baseline principles


The biosphere is the system -


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Natural Capital

Manufactured Capital

Financial Capital

Social

Capital

Human

Capital

The biosphere is the system the economy the subsystem

Source: Forum for the Future


A


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A new economy...



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Supply a stream of benefits, without whichhuman life would cease to exist. These

benefits include goods (such as seafood and

timber), processes (including waterpurification, flood control, and pollination), life-

enhancing attributes (such as beauty and

serenity), and the preservation of options(genetic diversity for biotechnology).

These benefits flow as long as the ecosystem is

carefully nurtured and kept intact.

Like a business, living from Income and

reinvesting in the Capital makes sense. A

business eating its capital is on the way out- Adapted from Natural Capital Project. http://tinyurl.com5ajzp3

Natural Capital...

Marine Mineral Resources

InterRidge


na ysis
http://tinyurl.com5ajzp3/http://tinyurl.com5ajzp3/http://tinyurl.com5ajzp3/


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na ysisSketch out a SWOT for natural capital in your country (or

a country you are working with)

Strengths Weaknesses

Opportunities Threats



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Preparing for a new economyUnderstanding the systemic nature of change

Focus interventions on system opportunities:

a) use legitimate framing power to condition the landscapeb) seek and create opportunities in the regime

c) support the flourishing of emergent niches

Support and foster organizational readiness

Actively build coalitions and dialogue



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A f d i l ki b k


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A way forward is looking backfrom a possible future...

Assess the baseline and identify a compelling future for your nation.Look at strengths, weaknesses, threats & oportunity (SWOT)

Identify available tools and methodologies (i.e. SEA, CBA, MCA) andcapacity development needs.

Develop an action plan, do, review, act, adjust and so on...



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Thinking of examples of natural resourceextraction in the region. What are some

lessons learned?

Do you feel the fiscal tools applied to date

for similar sectors have achieved desirablesocietal outcomes?

Does the legal and fiscal policy frameworktake future generations and the long termwellbeing of planet and people into acount?

If yes how? If no, why not?



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A first step...this evening...

Welcome to theCase Clinic!



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food for thought...

Thank you!

[email protected]

www.grida.no

Text

[email protected]

mailto:[email protected]:[email protected]://www.grida.no/http://www.grida.no/mailto:[email protected]:[email protected]


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Challenges from resource-rent revenue sharing

Resource Rents Structural Problems

Resources, and associated rents, areunevenly distributed geographically

Administrative capacity and personnelare unevenly distributed.

Commodity prices are variable and as a

result, associated rents fluctuate, makingplanning difficult.

Integration of national planning objectives

with local objectives is difficult becauseof priorities and timing

Resource rents accrued in oposition toreal returns which may additionaly bedelayed for 3-7 years.

Fiscal receipts are inadequate for meetingthe needs of large-scale resourcedevelopment projects.

Resource rents are finite requiringefficient long-term planning forsustainable development

Decreased national receipts require thatcountries assume a larger burden fordevelopment.Dr. Allen L. Clark, Senior Fellow, East-West Center, Honolulu, Hawaii

fiscal regimes session

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