Friday, October 16, 2009

Obama's Oil Man In Africa

By David Gauvey Herbert  

David Goldwyn

State Department’s coordinator for international energy affairs

After 9/11, the foreign policy establishment turned its eye on West Africa as a potential oil supplier without all the political complications of the Middle East. African crude exports to the U.S. duly increased from 15 percent of total crude imports in 2004 to 22 percent in 2006. But with oil prices down, terrorism worries replaced with economic headaches and the Obama administration focused on renewable energy, American efforts to bring political stability -- and secure a steady flow of oil -- in West Africa have been uneven.

Enter David Goldwyn, who in August became the State Department's first coordinator for international energy affairs. He has advised Nigeria on its transparency initiatives, and he held numerous posts during the Clinton administration, including assistant secretary of Energy for international affairs. Goldwyn sat down with NationalJournal.com to talk whether there is any hope for Nigeria, the threats posed by China and what to do about Africa's up-and-coming oil giants.

NJ: While your position is new, it has existed in different forms in previous administrations. What are you hoping to achieve in Africa in terms of transparency and good governance that others before you haven't?

Goldwyn: I think the avenue that hasn't been explored yet is to engage with governments in improving their own capacity to govern.... There is great variation among oil-producing governments in their ability to run the business, and I think you can appeal to finance ministries in a lot of these countries, which have the commitment of maximizing the budget and finding money for national needs, you can find allies in finance ministries that want to understand revenue management better.

We can support the work of the [World] Bank and the [International Monetary] Fund, which often doesn't get a lot of bilateral political support from the United States, in places where they are trying to provide that assistance themselves....

But the real challenge in many governments, as I found in Nigeria in supporting their 2001 to 2005 audits, is that the biggest weaknesses in integrity in these governments is in how the sector is managed.

You don't lose money often by someone putting their hand in the till. You lose money by, do you even account for the people who are allowed to bid for projects? Do you ensure that there are companies that can actually perform the work as opposed to shell corporations? Is the partner a real company that can do the business or is just someone who is going to be a nominee and get paid money for being national?

Countries can be smarter about how they meet the needs of job creation and revenue maximization. And while we have to continue to support civil society and provide direct support there and uphold standards, we need to do more working directly with the governments where they are willing to work with us.

NJ: It's hard to find people who follow African oil who hold out much hope for Nigeria. Is it too late?

Goldwyn: Nigeria is too important to lose hope over. And to be fair to Nigeria, they are undergoing structural change through legislation in almost every important element of the value chain. And the framework that they have on paper could make some major strides in stabilizing how the sector operates.

There's a lot of fine-tuning to do to make sure it meets the goals the Nigerians have. And the question is, will they be able to get that legislation through and will they be able to implement it? It's a hard push in any country to completely restructure what you're doing in the energy sector -- it's hard for us too.

But I think there's a commonality there, which is that this change will in fact be profitable for Nigeria because they will access a huge amount of value from natural gas. They will not only reduce flaring, but potentially be able to provide stable electricity over time, which is going to be the core for economic activity there. And they will be able to have another round of exploration in oil, which is not possible on a large scale while the decisions are in flux. So they have a strong national, financial and institutional incentive to get this done, even though it's hard....

I can't say it's going to happen in the next couple of years, but they're too big to fail.

NJ: Plenty has been made of China's scramble for natural resources in Africa, but experts differ on just how much of a threat they constitute, both to political stability and access to energy markets. What's your take?

Goldwyn: We probably have more in common with China as an energy consumer than any other country in the world. We both want stable prices, we both want reliable access, we both want counties to be open to foreign investment so there is a reasonable chance supply will be open to meet rising global demand.....

I think a lot of the fear about China competing for oil in Africa is overblown in terms of its impact on energy security. China has largely bought equity interests in existing Western production, so that's not an increase or a decrease in global supply. To the extent that they're doing new field development and meeting their own demand, they're enhancing global energy security.

The real challenge and the point of conversation between us and China, which I hope to have in the next month, is whether their strategy for meeting their own energy security needs is really effective for their own purposes. And I think Western governments have come to the belief that you have to have standards on project lending, standards on transparency, standards on anti-corruption and standards on human rights, not just because it's a good thing to do, which it is, but because it promotes energy security.

NJ: What about East Africa? There have been some significant discoveries in Uganda and the Democratic Republic of Congo.

Goldwyn: I'm just beginning to look at Uganda, DRC and the Lake Albert development and the potentially really enormous find over there. I have not paid much attention yet to Somalia. There is potential there, there is interest and some exploration there....

But Uganda is a case where there is a huge potential find, and the press is full of stories about potential pipelines through Kenya, and that's an area where if Uganda was interested in a relationship about how to maximize the value of those resources in a way that's going to enhance their governance, we'd be interested in that.

NJ: When I was in Kampala over the winter, the American embassy was preparing to fly out an oil expert from Houston to hold a few workshops. Other than that, though, there wasn't much of a plan to help the Ugandan government and civil society get ready for the coming influx of petrodollars. Instead of putting out fires in lost causes like Nigeria, shouldn't we be laying the groundwork for future producers like Ghana and Uganda to succeed?

Goldwyn: A big part of my job here is going to be to flag the issues at an early stage and ensure that all the different parts of the U.S. government that may be working on it -- USAID is often doing excellent work that is not always mainstreamed into our diplomacy, or DOE or the U.S. Geological Survey -- that we all know what we're doing in a particular country and deploying those resources to best advantage.

A lot of it will be my creating a channel of communication with the embassies directly so they can talk directly about those needs and developments are and deploying early....

Given the secretary's trip and the way she talked about governance and transparency and the way she offered support to countries if they wanted help, I think I'll be pushing on an open door there. But that's one of my goals, is to have a capacity to do that because I can see showing up in Uganda saying "We want to help," but I've got to make sure we actually can once we get there.

But you're 100 percent right: In all these frontier countries, you've got to get in well before the production starts so that in cases like Chad you actually have the structures in place by the time the money comes in. Otherwise, good luck trying to claw that back.

NJ: American energy security obviously extends beyond Africa. Given that, what percentage of your time will be focused on the continent?

Goldwyn: I couldn't give you a number, but it will be big. My first day on the job the secretary told me I'm going to Nigeria and Angola to follow up on her trip there. So it's going to be a big commitment. The best I could give you is "very significant."