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Doubling down: National oil companies as instruments of risk and reward

Patrick R.P. Heller

No 81, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: National oil companies tend to elicit unequivocal views. To political leaders within petroleum-producing countries, they often represent a sine qua non of a strategy capable of delivering long-term benefits to citizens. To many international analysts and donors, they represent vestiges of an outmoded statist perspective that discourages investment, encourages corruption, and delivers fewer benefits to the country than a purely private-sector approach. The reality lies somewhere in between these poles. Many national oil companies have enabled their governments, over the long term, to exert stronger control over their oil sectors and capture a larger share of rewards from the industry. But relying heavily on a national oil company carries certain fundamental risks—both the standard business risks of a volatile sector and particular governance risks inherent to the space they occupy at the intersection of commercial interests and the state’s allocation power. This paper argues that decisions about how large a role to give a national oil company in the execution of an oil-sector strategy and the management of public financial resources should be based on a careful assessment of the size of the potential rewards and the state’s tolerance for these fundamental risks. It then examines the most important risk mitigation techniques that governments have used to increase the likelihood that their national oil companies will deliver strong economic returns and remain accountable to citizens.

New Economics Papers: this item is included in nep-ene
Date: 2017
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