Let’s not make the Paris Agreement the “Elephant in the Room”

In my first post I referred to how the Paris agreement mentions transparency, which in the text is confined to transparency around carbon accounting and the disbursement of the huge financial aid that is an integral part of the agreement. Neither of which relate directly to transparency of the upstream in extractive industries, which is where governance efforts are concentrated.

But the agreement does have implications for governance in the upstream as of now. Here I want to examine what they are.

Two general observations to set up the discussion.

First, on timing. If you see the structure of the Paris agreement as being at least as important as its current substance,  then all potential linkages between it and the transparency agenda could – and should – come into play sooner than would be suggested by the current schedule.

In terms of goals, the agreement itself talks in terms of “ the urgent need to address the significant gap” between The Intended National Determined Contributions (INDCs) and the overall global goal set by the agreement. In this sense it is a triumph of diplomacy through constructive ambiguity. Media reports suggest the INDCs add up to global warming or between 2.7 and 3.7 degrees compared to the overall goal of limiting temperature rises to 2 degrees, and having the ambition to reduce them further to 1.5 degrees. This is a massive difference, and the agreement encompasses both.

And it’s the same with processes to monitor implementation of those goals. The agreement sets up a Global “stocktake” by the world body, external review in other words, but not until 2023. At the same time, it urges individual countries to review their own targets by 2020. So the agreement acknowledges that its own current targets are ineffective, and that its mandated review process is too far in the future.

One of several reasons to think that both implementation and monitoring will be sped up is because of another feature of the agreement, the way that both are intimately tied in to the global financing mechanism. This has a hard target of reaching 100 billion dollars a year by 2020, to come from the rich countries to the developing countries, to make the whole agreement stick.

This will dominate the development agenda within 12 to 24 months from now, a subject I will go into in a separate post.

The second general observation is that how strongly each potential linkage kicks in, and when, depends on the overall reaction of global markets. The Paris agreement implicitly accepts the Unburnable Carbon thesis. So when does Unburnable become Unextractable , and Uninvestible? Who will make what bets, balancing which perceptions of investor returns against the now undeniable fact of investor risk? We don’t know. But markets are not slow to factor in risk once they perceive it. I wouldn’t like to be in the shoes of economists at the IEA tasked with producing their next long term Energy Outlook. But the sooner they and others can give a read on how demand may be shaped,  the better.

So, to get to those linkages, here are the bullet points, with details below.

Evaluating New Fossil Fuel Projects

As of this week it is no longer wise for any government to ignore the implications of new fossil fuel development on the commitments to the Paris Agreement. This might not seem self-evident, because the agreement specifies the valuation point of emissions as where they are actually emitted. It does not, in other words, “buy” the argument of activists that responsibility lies with consumers of embedded carbon, and that it is the role of the agreement itself to make consumers in rich countries compensate the world’s cheap manufacturing bases like China for the admissions went into making our fridges, cars, and other appliances. So, viewed from the upstream, why would countries like Mozambique or Ghana need to consider the emissions associated with new fossil fuel development?

Because the oil, gas and coal produced in any new project will either be consumed at home, where it will impede a country’s ability to meet its INDCs, or exported. And if the bulk of production is scheduled for export, the government’s business partners, the international investors, will be thinking hard about the new long term global market conditions. And long-term is key here. Any sizable oil or gas project starting now will have a business model extending well into the 2030s, maybe beyond. The cost of setting up new export infrastructure in a frontier province is rarely less than billions of dollars these days.

There is a rabbit hole of complexity here in the sheer number of variables, and the case-by-case nature of project economics.

For now, let’s just ask how confident is the government of Uganda that Tullow, Total and CNPC, and their investors, are confident enough to build a 1,000-kilometer pipeline out to the Indian Ocean, for export of oil not due to come online until 2017? How confident is the government of Argentina that Chevron, and its investors, are confident enough to invest in an LNG plant for export of gas from the new shale production planned there? In the Eastern Mediterranean how confident are Egypt and Israel that the European Union really represents a viable export market for Eni and Noble for their offshore gas finds, to the extent that it justifies multibillion-dollar investments in new pipelines or offshore floating LNG facilities?

And, most critically for us in the international governance community, if a government is confident, should it be?

Evaluating currently producing Fossil Fuel projects

The risk profile of currently producing projects is of course radically different, and more positive in financial terms. The investments have already been made and even now with the price crash very few conventional oil and gas projects have reached the economic limit of actual operating losses which would cause the company to abandon production. In that sense, day-to-day, why not continue to take what you can get, whatever happens to global prices, before and after the Paris Agreement is factored in?

But to a large extent this reflects dysfunctionality in the economic development plans of many governments which we should be seeking to address anyway.

Inside line ministries and state oil companies, who often have a near monopoly on negotiating and managing projects, business will go on as usual for as long as it can. But once you move out to government as a whole, this should stop being true quite quickly. The agreement mentions economic diversification several times. The natural view from the finance ministry, thinking about revenue forecasts, and the planning ministry, thinking about longer-term economic development, looks quite different.

As a community, we are already engaged in the sensitive but vital task of seeing how we can contribute positively to joined-up public policy. So here is a suggested a rule of thumb: as of now, no engagement of this kind should take place without our referencing the Paris Agreement. It should be in the room even if we only have questions, not suggested solutions or answers. If we don’t mention it, it will simply be the elephant in the room.

Renewable Energy in Africa

The agreement specifies “the need to promote universal access to sustainable energy in developing countries, in particular in Africa, through the enhanced deployment of renewable energy”. How will that affect the continent’s power sector?

There are two key unknowns here. First, just how much will international funding for African renewables increase? It seems almost certain that it will be a massive increase from what it is now. But that’s looking at it the wrong way round. It’s more a question of will that funding scale up to a level where it starts to make a serious dent in power sector plans to develop more electricity generation based on coal and gas?

Secondly, and related, what are the underlying economics are renewable energy specifically in Africa? Many grid infrastructures are limited, some are imploding, and there is widespread energy poverty, especially in rural areas. The economics of off-grid and local network renewables already look different and more competitive compared (in total cost of ownership terms) to how they appear in the rich countries, before trying to factor in the ever decreasing costs of building and maintaining renewable systems.

And we should not overlook the soft but powerful influence the Paris agreement will have on elite thinking, and overall world view. We are not the only international experts our counterparts in the policy and business elites, or indeed civil society leaders, engage with. The theory of Resource Curse, such as it is, takes concepts like policy capture and rentseeking for granted. Is the Paris agreement a landmark in the erosion of a world view that development only seriously happens through fossil fuels? It was the largest meeting ever of heads of state. These things matter even if they can’t be quantified.

In policy terms, then, we should begin to see concepts like integrated energy plans, which genuinely account for cost benefit across all forms of energy, become a reality for the first time.

The Mining Industry’s use of energy

Wild thought: this could be a bright spot. Oil company attempts to get into renewables have failed in substance. But what about the mining companies? Could they show leadership in expansion of renewable energy for their current operations? Even begin to remodel themselves as “natural resource companies”?

On the nuts and bolts, they are very significant users of energy. In South Africa, 6 percent of total energy consumption; Vale alone accounts for 4% of Brazil’s energy use and even in the United States mining represents 3% of total consumption by industry. And viewed the other way round, energy accounts for 15% of the mining industry’s spend globally. In less developed economies, mining companies often create their own power infrastructures. Malawi’s INDC, for example, quotes emissions figures which explicitly exclude the mining industry, presumably because these are not easily calculated.

Since the Paris agreement counts emissions at location, if mining companies rely exclusively on fossil fuels, that will in short order become part of their conversations with governments. This could add to existing pressure on mining economics, which has already become acute in the past 18 months since commodity prices started dropping. Governments will naturally want companies to pay for their part of national emissions. Companies will point to their already stressed bottom lines.

All the more reason, then, to try and frame this as opportunity rather than threat. Because, even if such emissions are a small proportion of the global total, we are in a new policy world where close attention will be paid to all sizeable emissions. The Paris agreement will affect nearly every mining project for good or ill. Companies, and more broadly industry groupings like the ICMM, will have to engage one way or another.

One thing 2016 should see: a review of the Africa Mining Vision on this issue.


These are some of the linkages between the extractives governance agenda and the Paris Agreement – which should start to play within the next 12 months.

Beyond that, there are bigger and more complex implications within a one- to three-year period, as well as outlier effects, the interlacing of the Paris agreement with the international development agenda, and broader considerations of what we mean by natural resource governance anyway. But this post is already too long!

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COP21 & transparency: the page just got a whole lot bigger

What does the climate change deal signed in Paris mean for transparency in extractive industries? In the short term, relatively little. In the medium to long term however it could change everything: which natural resources are subject to transparency, how far public policy will intervene in the market, and whether we moved to a more holistic paradigm of natural resource management.

The direct crossovers between the transparency agenda and COP21 are tenuous at the moment.

There is some language in the agreement about transparency as it relates to carbon accounting and the huge fund agreed that the rich world will pay to developing countries to help them adapt to climate change. The agreement also talks openly of scaling up renewable energy in Africa, which should, logically, influence the development of new oil and gas projects on the continent.

Still. None of that translates into any change of workflow in the next few weeks or months. Dodd-Frank, the new EITI standard, and the broader agendas of contract transparency, tax justice, and anti-corruption will go forward without direct intersection with the COP21 agreement. For the moment.

In the end, all the effort we as a community put into transparency and good governance around natural resources is because of the potential of these resources to improve people’s lives. Clare Short, the outgoing chair of EITI, emphasises this in every speech she makes, and “extractives for development” is the watchword of many institutions and programs in development agencies.

But COP21 now enshrines at the level of global policy what we already knew. Production of some natural resources – oil gas and coal – has deep costs that have so far remained unaccounted for. Full-cost benefit analysis must include the alternative costs of choosing to develop hydrocarbons. The conventional approach to financial modeling of upstream projects, for example, doesn’t include calculating an internal rate of return for governments and peoples because they haven’t invested any financial capital. But in development terms, finance is only one kind of capital, and often not the most important kind to countries thinking about extractives projects as a key part of their overall economic development. Environmental, social, and above all human capital are more plentiful, more viable and more central to many societies well-being.

It’s true that we don’t currently have methodologically robust indicators for these kinds of capital. What COP21 tells us is that that answer won’t be good enough for very long.

I often think of transparency as drawing by numbers. You try to get the biggest and best number of points on the page you can and figure out which lines to draw in what order to build a picture that makes sense. With the climate change agreement, it’s as though someone just zoomed out and panned to show a full drawing which is much, much bigger. There are other clusters of dots on the page half a table away. There are huge white spaces in between, and right now we have very little idea of how to connect them up. But in the end we know we will have to if we do want natural resources, in Clare’s words, to improve people’s lives.

If you hold that image in your head, a lot of arguments about how COP21 and extractives transparency are two different things seem narrowly technical, and too short term.

For instance, the argument that if COP21 is global and extractive transparency is national, how are they linked?

I think the answer lies in the very structure of the agreement. Many long-time followers of the process say it succeeded this time, when it failed so many times before, because nation states set their own targets and defined the way they will fulfill them. There is no overarching global regulatory framework. But that’s not the same thing at all as saying each country will work on its own commitments in isolation from all its trading partners, neighbors, and other international groupings. It will just be bottom up instead of top down.

We should expect to see the EC, United Nations mechanisms, the WTO, global markets, and the whole international development agenda bent to complex trade-offs  between groups of countries: around which hydrocarbons get produced, with what financial and other development benefits, and above all how we as a global community manage the tension between the short-term reality that we continue to depend on fossil fuels for our way of life, and the fact that we have agreed that we have to act as a global community to end that. A governance agenda that cannot embrace these broader, and messier, set of considerations will become irrelevant.

And it is COP21’s structure of devolved targets and implementation which places data, and analysis of that data, front and central in what is now a global agenda. Last Saturday, transparency stopped being a set of universal values applied, Westphalian style, country-by-country. Its whole is now more than the sum of its parts.

So yes, nothing much is going to change before the winter break. But in the long term everything will change.

And how far away is that long term?

Hype is a valid concept especially in today’s world. We all slog through it  pretty much every time we open our laptops. On the other hand Amara’s law has proved consistently true since the start of the Industrial Age: as human beings we have a systematic bias to overestimate the impact of change in the short term – and underestimate it in the long term.

So it’s not as though we in the transparency world should drop everything we’re doing now. But it would be a mistake to ignore COP21 in our professional lives, and not to start thinking about what it means. Because the whole is now more than the sum of the parts.

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Introducing Aleph: everything companies tell investors, in one place

Part I: why collect corporate filings?

Can the world understand oil and mining companies as well as their investors do? We think it’s possible, and we’ve been hard at work building a tool to make it so. Our goal is: everything extractives companies tell investors, in one place.

The result is Aleph, our new search tool, which we are presenting an early version of today.

We’ve taken the documents filed by oil, gas and mining companies in several of the major jurisdictions. We’ve pulled out the full text of each document, indexed it, and made the whole lot available for anyone to search.

These documents contain every important piece of information from extractives companies. That’s not a boast, it’s a simple matter of regulation. Whenever a company releases “material” information about its activities, it is required to share it with all investors through the various stock exchange news release systems. And because of the global nature of the oil and mining industries, it turns out that an overwhelming proportion of companies and capital that goes into operations that take place in some 150 or more countries around the world are concentrated in a dozen major financial jurisdictions – the US, the UK, Canada, Australia, South Africa, Singapore, Mumbai and a few others.

This treasure trove of information has hitherto been public, but hard to use. Suppose you’re looking at a mining project in Tanzania. To find relevant filings in the past, you would have had to trace back the corporate structure to find the ultimate owner.

Then you’d work out where they were listed — consider that a company could be operating in Tanzania, headquartered in Switzerland, and listed on stock markets in London and Johannesburg. At this point you might need to download thousands of pages of documents, and read through them all searching for snippets about that particular project.

With our database, you can now just type in the name of the project, and you’ll find the relevant parts of relevant documents. They will show up no matter whether the information has been reported in Sydney or London or Toronto, whether it’s on the cover a glossy prospectus or buried in the footnote on page 48 of a document the company management hopes nobody will read.

Give it a try. Put in the name of an area — say Cape Three Points in Ghana — and you’ll find dozens or hundreds of documents about what the industry is doing there. Search for a company, large or small, and you’ll find not only that company’s documents, but documents mentioning the company.

For some examples of what we have already done with this tool, you could look at our submission to the SEC about contract confidentiality terms, or our research into whether a 12% internal interest rate is really out of the ordinary.

You can also carry out much more sophisticated searches using this system. We’ll explain some of them in a later post. But for now please kick the tyres, try out some searches, and tell us what still needs to be improved.


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Is a 12% interest rate by Glencore to itself in Mauritania “normal”?

Glencore has a 79% stake in an iron ore project at Askaf North in Mauritania, via its 88% owned subsidiary Sphere Resources, which is incorporated in Australia. Sphere states in its 2014 annual report that it took a loan from Glencore at an interest rate of 12% per annum for the project. Separately, in March 2014 Sphere announced the loan facility was for $186 million.

We don’t have access to Glencore’s agreement with the government so it is not possible to tell if these interest charges are tax deductible in Mauritania. This note addresses the question of under what circumstances loans at 12% have been made to extractives companies in recent years, when generally low interest rates have prevailed.

Here are some examples from Aleph, Open Oil’s extractives corporate filings database holding 1.2 million filings from companies in 11 jurisdictions around the world, of 12% interest rate instruments – loans, promissory notes, convertible bonds – issued by companies.


Glencore has a 79% stake in an iron ore project at Askaf North in Mauritania, via its 88% owned subsidiary Sphere Resources, which is incorporated in Australia. Sphere states in its 2014 annual report that it took a loan from Glencore at an interest rate of 12% per annum for the project. Separately, in March 2014 Sphere announced the loan facility was for $186 million.

We don’t have access to Glencore’s agreement with the government so it is not possible to tell if these interest charges are tax deductible in Mauritania. This note addresses the question of under what circumstances loans at 12% have been made to extractives companies in recent years, when generally low interest rates have prevailed.


Interest of 12% per annum does seem used in recent years when general interest rates (LIBOR and associated) are much lower.

But the pattern seems to be early stage companies with very high risk – and in smaller amounts ($5 million or less) relation to raising funds from external investors. The question then is would these conditions apply to Sphere in Mauritania – and at nearly $200 million? In other words, is Glencore treating Sphere Resources as though it were an “arms length” investor and effectively ensuring lower risk… while already having committed to a risk-reward ratio through its initial investment in the project – when the risk-reward ratio should already have been factored into its own original calculation to invest? Is there a possibility, in other words, that Glencore seeks to make a project which is in a marginal space on the cost production curve more viable by locking in higher revenue flows much earlier in a cycle (interest rate repayments coming under cost recovery rather than share of profits made after all costs are recovered)… and with less exposure to tax?

Here are some examples from Aleph, Open Oil’s extractives corporate filings database holding 1.2 million filings from companies in 11 jurisdictions around the world, of 12% interest rate instruments – loans, promissory notes, convertible bonds – issued by companies

Indus Resources


Indus Resources in the Jambi coal field in Indonesia: issues a convertible bond of about $4 million with an applicable interest rate of 12%



Australian company with copper gold projects in Western Australia, mid-2015: http://rninl.com.au/projects/the-grosvenor-gold-project/overview/

Company has unsecured loans which are turned into convertible bonds at 12% per annum?

Odin Energy

Listed in Australia, 2010 report apparently lists work in Galveston (Texas?)


Loan to Kilgore Oil and Gas Limited which was originally 15% up to 2010 and then became 2012. No immediate info on relationship of Kilgore to Odin.

Alloy Resources Limited

Australia, mainly active in Australia but exploration license in Laos


$400k issued in note convertible at 10%. The interesting thing is company seems to be in trouble – laying off staff etc. So if 10% under these circs, what would justify 12% (in other loans)?

Finders Resources

Wetar Copper Project in West Papua, Indonesia: http://findersresources.com/wetar-copper-project/project-description/

EGM May 2009 mentions Convertible Note facility – several tranches with “coupon” repayable at 12% – maybe $10 million USD.

IsramCo Inc

Registered in Delaware, active in Israel since the 1980s.

http://www.sec.gov/Archives/edgar/data/719209/000118518512001681/ex33-1.htm (April 2012)

Promissory note in which 12% is one of the interest rates mentioned. Isramco seems to have been connected to Tamar, which was discovered 2008-9 – so presumably would have good prospects? Not sure of context…

America Sands Energy Corp

http://www.sec.gov/Archives/edgar/data/1432001/000101968713003241/amse_10q-ex1003.htm (2013)

Loan at six percent for 12 months; if not repaid by then move to higher rate of 12%

Daybreak Oil and Gas

http://www.sec.gov/Archives/edgar/data/1164256/000151597115000003/dbrm10q113014.htm (2015)

Originally Daybreak Uranium, now with exploration assets in the Appalachians. Promissory notes in annual accounts at 12% – $5 million.

Placer del Mar

http://www.sec.gov/Archives/edgar/data/1336282/000116552714000348/g7423a.txt (April 2014)

BBridge Notes and Investor Notes will generate 12% interest upon default of repayment schedules

Listed on NASDAQ where it states under risks it has generated “minimal revenues” http://biz.yahoo.com/e/140604/urhy10-q.html

Magellan Gold Corporation

http://sec-edgar.openoil.net.s3.amazonaws.com/mining/edgar_filings_text/1515317/8-K_2014-04-29_0001011034-14-000069.txt_extracted_1.txt (Jan 2014)

Promises to pay John Power $50k at 12% – individual investor.

Balaton Power Inc

Listed in the US, mining in the state of Orissa in India

http://sec-edgar.openoil.net.s3.amazonaws.com/mining/edgar_filings_text/1132704/6-K_2010-08-10_0001062993-10-002572.txt_extracted_2.txt (March 2010)

“During the period ended March 31, 2010, the Company received a
loan in the amount of $15,000 from three shareholders of the Company for the
purposes of financing the CompanyÂ’s trip to India that occurred during the
period. The loan bears interest at a rate of 12% per annum and is payable at
maturity on January 28, 2010.”

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The open data map of oil concessions extends to 18 countries in the Middle East

OpenOil is happy to announce the second stage of the world’s first open data map of oil concessions – the Middle East and North Africa. The addition includes 18 jurisdictions across the region, from Oman and Iraqi Kurdistan in the east to Algeria and Morocco in the West, making a total now of 53 jurisdictions and 3,400-odd blocks in the map as a whole. We are on course to add another 50 countries around the world by the end of the year.

We have also upgraded the functionality:

The real value of the data comes when people take it and combine it with other layers. Imagine, for example, overlaying this view of Syria and Iraq with maps which show the frontline in the war there – showing which blocks are now controlled by ISIS and which companies therefore have historical information which could help assess the current and future potential, based on knowledge of reservoirs and engineering, of ISIS as an oil producer (the answer seems to include currently Shell, the Croatian national oil company INA, but most of all the Syrian state oil company SPC. One wonders whether Bashar al-Assad has ordered his technicians to share the information with any of his allies, like the Russians and Iranians, for example).

Or the Eastern Mediterranean region: as knowledge of the oil and gas in the ground develops, known reservoirs of interest to companies like Nobel and Eni are abutting each other in the waters of Israel, Cyprus and Egypt. No wonder, then, that Eni CEO Claudio Descalzi met Israeli Prime Minister Binyamin Netanyahu last week to discuss possible integration of new finds in Egyptian waters with existing and planned infrastructure in the Israeli offshore – even though, of course, such connections are highly politically charged.

The map is the best that currently be done with maps published openly on the Internet. But the Eastern Med is an example of the limitations of that. The Egyptian portion is based on a 2012 map issued by the government, predating the Eni discoveries. We will be updating it in the next week with more recent data around these specific fields, and producing a deeper analysis of this story, a classic interplay between geography, politics and the oil business.

The map is powered on the back end by a unified editing system which we will open to structured user contributions, to get to the goal of a global and updated map, folding in all other significant information in the open data space.

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