Good governance key to energy sector’s better performance and productivity

·       The governance of national oil and gas companies’ faces challenges, but there are alternatives

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·       The foundations of oil and gas governance emphasise the importance of activating governance to improve performance and productivity

·       The differences between the regulator and operator in the energy sector!

By Saad Al Kuwari

In developing countries that have large resources of oil, gas and minerals, in particular the Gulf States, good governance of the energy sector (crude oil, gas and hydrocarbons) is essential to wealth generation, creating a sustainable economy and promoting human development in the long run.

The oil and gas producers in these countries are concerned about the dependence on the revenues of these resources, which are prone to fluctuations of the current oil and gas prices and petrochemicals, because they are related to supply and demand and geopolitical factors.

As a result of these factors, the risk factors have been raised, and future expectations and predictions have increased- both in oil and gas revenues and hydrocarbon materials, and the feasibility of continuity in energy projects, to maximise hydrocarbon export revenues and the sustainability of the oil and gas industry.

Given the difficulties in managing oil and gas revenues and other products extracted from hydrocarbons efficiently and transparently to reach the requirements of economic liberalisation and pressure from advanced international standards and an increased focus on managing the efficiency of the oil, gas and energy sector.

There is currently no global standard for the national governance system for the oil and gas sector or in the energy field in general.
The International Monetary Fund (IMF) has published a code of general practices regarding financial transparency, and the World Bank published a set of national governance indicators for ministries of the oil sector, institutions and companies, and international initiatives such as the Extractive Industries Transparency Initiative (EITI) and the Publication of What it Pays (PWYP) Only on one side of Petroleum Management, in terms of revenue transparency, operational efficiency, auditing and strategies.

Producers have so far lacked a system or international centres that take into account the performance of national energy companies and the standards or measures of development and governance in the oil and gas field.

Therefore, there is a great interest from producers to exchange best practices and address the national governance project and the development of practical guidelines for national governance principles based on the experience of developed and oil and gas producing countries and international companies in this area.

The aim of this initiative is to enable national decision-makers to better control the exploitation of their hydrocarbon resources to achieve the greatest social and economic benefit.

To achieve this, it is preferred for NOC representatives and the Ministry of Oil, Energy and Minerals to meet with their counterparts in other producing countries and exchange views on governance, where the experience of those countries will be used and then developed internally in each country based on the energy infrastructure and applicable legislation.
This strategy aims to enable the producing countries better control the exploitation of their hydrocarbon resources to achieve the greatest socio-economic benefit.

Some studies show the case of some oil and gas producers that the national context has a major impact on how to implement and regulate the governance of ministries, institutions and oil and gas companies.

And there is no single ideal model for managing the oil sector, the system and the national political culture, in particular, the way in which power and influence is exercised, and the degree of centralisation of power over decision-making, and to what extent there are extensive studies and economic analyzes, which will affect the distribution of responsibility for the sector and expectations regarding transparency and accountability.

There are several reports associated with poor governance, including the difficulty in obtaining appropriate financing, attracting investments, an unclear view of profits and budget performance. This is due to the ineffectiveness of the regulations in its various aspects, such as the distribution of project capital and bank loans for financing and others, for example organisational performance and operational issues and their impact on the continuity of the national oil companies’ work and their social and economic responsibility.

Good governance for the national oil and gas sector:

There is often confusion between the Ministry of Petroleum and Energy and the National Oil Company over responsibility and policy and strategy development and what is the difference between them.

For example, the role of the ministry should be separated from the National Oil Corporation or the National Oil Company and not merged.

Whereas, the Ministry considers the Regulator to be a regulator and the company operator, and executive, administrative and strategic tasks must be separated between them to implement what is known as governance.

The term corporate governance is the translation of the English origin of the word “Governance”, as it has other meanings such as good governance and corporate governance, so the term “corporate governance” is called corporate governance.

The concept of corporate governance refers to the rules, regulations and procedures that achieve the best protection and balance between the interests of those companies and the government.

The Organisation for Economic Cooperation and Development (OECD) has defined a definition of corporate governance as “the system that directs, controls and monitors the company’s business as it describes and distributes rights and duties among the various parties in the company and sets the rules and procedures for taking decisions on company affairs. These set the goals and strategies necessary to achieve them and the foundations of follow-up to evaluate and monitor performance”.

The corporate governance philosophy lies in the separation of ownership of the company’s capital and management, and the process of supervision and supervision within these institutions or companies.

In conclusion, it may be useful to recall that sincere will and desire are the way to overcome the challenges and obstacles that limit the application of corporate governance through joint coordination between official agencies and representatives of the private sector in relation to companies listed in the financial markets.

And this step definitely requires, forming a working group of experts and specialists in the fields related to the activity of companies, in addition to representatives from the official authorities and the private sector with the aim of coming up with a common vision and a clear road map for the application of corporate governance in accordance with the accepted principles. These take into account the specificity and nature of the activity of operating companies.

Governance that is planned and successfully implemented can change the aforementioned problems and highlight the advantages of good governance. It also includes a list of the main elements that lead to effective governance.

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Saad Al Kuwari