Cablegate: The Energy Governance and Capacity Initiative

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UNCLAS SECTION 01 OF 03 STATE 014935

SIPDIS

E.O. 12958: N/A
TAGS: ENRG EPET EAID ECON ETRD PGOV
SUBJECT: THE ENERGY GOVERNANCE AND CAPACITY INITIATIVE

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1. SUMMARY. The Office of the Coordinator for
International Energy Affairs (S/CIEA), in coordination
with USAID, our missions overseas, and State's regional
and functional bureaus, is proud to unveil the Energy
Governance and Capacity Initiative (EGCI). EGCI is
designed to help countries with recent energy
discoveries develop the institutional capacity to
sustainably manage these resources. We have identified
the first tier countries for this program and will be
sending out assessment missions in the coming weeks and
months. Working closely with other agencies to harness
USG technical expertise, EGCI will help countries
develop energy master plans, buildup regulatory regimes,
ensure proper fiscal oversight of resources, and combat
corruption. The goal is simple and clear: help these
countries avoid the "resources curse" and gain the
ability to use their energy revenue windfalls to achieve
long term development goals. While EGCI can't do that
alone, it can build on the political will of countries
to help them achieve this goal. END SUMMARY

The Revenue Management Challenge

2. EGCI addresses a very real threat to U.S.
development, economic and foreign policy goals in
resource rich developing countries. As the President
stated during his 2009 trip to Ghana, development
depends on good governance and the U.S. should focus on
supporting governance wherever possible. Effective
revenue management and governance of the energy sector
is especially crucial for energy-rich countries. They
often lack the institutional capacity to manage the
development of their resources. Oil and gas revenue
windfalls are transitory; a failure to implement a
strong regulatory regime and effective sector management
from the outset can result in the permanent loss of what
could have been a developing country's best chance to
raise itself out of poverty. In many cases, poor energy
sector governance has led to political and economic
instability, domestic conflict and regional insecurity.

3. New energy producing countries are at the greatest
risk for mismanagement because they often lack the
institutional capabilities to mange their energy and
financial sectors. Revenue management systems, in
particular need to be in place in advance of monetary
streams in order to enable effective control and
planning as well as to minimize the likelihood of
corruption. Support for governmental entities, such as
finance and energy ministries, and the creation of
independent regulators are essential to ensuring good
governance in this sector. Support for civil society
organizations also is integral to achieving democratic
and transparency goals as they relate to energy
resources.

EGCI Objectives

4. Implementation of a formalized approach to
strengthening energy sector governance and transparency
is crucial given its importance to the economies of many
developing countries. EGCI is the first USG effort to
promote an integrated approach to good governance and
transparency of the energy sector in energy resource
rich countries. The benefits of having an integrated
program become even greater when the range of U.S.
foreign policy and economic interests affected by the
energy sector are taken into account. For countries
like Ghana, Uganda, and Papua New Guinea, each of which
is poised to receive tens of billions of dollars in new
oil and gas export revenues during the coming decade,
the need to bolster institutional capacity shortfalls is
critical in order to guarantee their long-term economic
and political stability. We believe that EGCI programs,
along with sustained diplomatic attention to energy
sector issues, can make a difference in targeted
countries.

5. EGCI will employ a whole-of-government approach to
tap into the technical expertise of the USG (e.g.,
USAID, Treasury, Interior, Commerce, and State) to
address specific shortcomings identified in targeted
countries and to create sustainable peer-to-peer energy
governance relationships with the USG. Such government-
to-government assistance offers unbiased, sound advice
and guidance that many countries need and simply cannot

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obtain elsewhere. This assistance will be specifically
designed to complement other reform efforts (e.g., EITI;
Norwegian Agency for Development Cooperation, Australian
Agency for International Development, as well as other
foreign development agency efforts and World Bank Group
programs), while tailored to address capacity shortfalls
in ways otherwise not obtainable. The EGCI approach is
to make relatively small investments in technical
assistance and training in countries that are receptive
to our assistance with the objective of building up
their capacity to adequately manage their resources. We
anticipate that USG resources will not be needed for
long in target countries because resource revenues
should be available for governments to cover longer term
needs once revenues begin to flow.

6. Examples of possible EGCI programs and activities
are:

--Workshops and seminars on leasing, revenue management
and regulatory best practices for the oil and gas
sectors;
--In-country support to create an independent energy
sector regulator;
--Legal and technical guidance to support the
implementation of reforms and policies to create the
commercial environment needed to attract large scale
investment;
--Advice on oil and gas revenue sharing and
distribution, including related financial and tax
management;
--Implementation of financial tracking systems and other
measures to reduce corruption;
--Technical training in oil and gas resource
identification, assessment methodology and best
practices related to data analysis and management; and
--Capacity building assistance to boost in-house
technical and management skills in ministries and
governmental entities related to the energy sector.

7. While specific goals will vary by country, based on
particular needs, possible end results in country could
be:

--Creation of an independent energy sector regulator;
--Development of an energy sector master plan;
--Implementation of a transparent and efficient revenue
management system;
--Establishment of optimized budget policies and
financial management mechanisms;
--Clarification on tax and legal policies affecting
hydrocarbon sector investment;
--Implementation of anti-corruption measures; and
--Completion of technical training to bolster technical
and functional management capabilities of Energy,
Finance and other relevant government ministries.

Where We Are Now

8. S/CIEA worked directly with regional bureaus,
missions and USAID to carefully select priority
countries, based on specific criteria. All these
countries have oil and/or natural gas resource potential
that could support significant near-term production and
revenue generation. Institutional capacity shortfalls
exist to varying degrees, but the countries were
selected based on our analysis that substantive gains in
solving these shortfalls can be made within two to three
years. After this time, the selected country would be
on a sustainable path that can be monitored through
other U.S. assistance efforts, multilateral development
banks or non-governmental organizations.

9. We are working closely with the Office of the
Director of Foreign Assistance (F) to identify resources
for EGCI. For activities taking place in FY 2010, F has
identified resources to cover the travel costs of
assessment missions and initial training programs that
may be agreed upon following assessments. These funds
will be managed by USAID's EGAT Bureau. Once assessment
missions are complete, we will have a better idea which
programs are suitable for specific countries going
forward. F will work with S/CIEA and specific countries
to make sure funding is available within country budgets
for EGCI in FY 2011. For FY 2012, interested posts
should incorporate planning and funding requests for
EGCI in their mission program planning. Missions are
also encouraged to look at the level of personnel
support needed to ensure that energy and governance
issues, including EGCI programs, are adequately covered.

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10. We are currently assembling teams to send out to
the first tier of EGCI countries (e.g., Uganda, Papua
New Guinea, Liberia, Sierra Leone, Ghana, Suriname,
Guyana, Vietnam, and Timor Leste). After these
technical teams complete their assessment missions, we
will work with USAID, Interior's Minerals Management
Service (MMS) and U.S. Geological Survey (USGS),
Treasury's Office of Technical Assistance, Commerce's
Commercial Law Development Program, and other bureaus
within State to identify programs tailored to the
countries' specific needs.

11. Once this program is established, we will be
looking at other countries that may benefit from EGCI.
We look forward to working with our partners in the
interagency on this program. If individual posts have
an interest in EGCI, please contact Paul Hueper
(hueperpf@state.gov) or Michael Sullivan
(sullivanma2@state.gov) at S/CIEA.

12. Minimize considered.
CLINTON

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