Soft Reasons Why Policy Interventions Fail or Never Get Going (Continued)

Vested Interest

I’d mentioned in my previous note that I would talk about vested interest and its delivery mechanism, in practical terms, as it interacts with policymaking. Here is one such narration. It is always more fun using personal stories to narrate these things, I find. I guess I am lucky to have some of such stories to share. Continuing from my previous note, I found it useful to spot – or try to spot – whose interest will be served by a policy choice or direction. Cui bono? Every policy decision is imperfect and therefore must necessarily involve a trade-off. This means that there will always be (no matter the anecdotal argument to suggest otherwise) an upside (a benefit) and a downside (a cost) to any policy intervention. The aim of the game in this regard is to try and minimise the downside of whatever brilliant idea you are proposing to a government. There would likely be a vested interest somewhere that does not appreciate your intervention, and they will do what they deem expedient to thwart it. This is part of the game.

Years ago, I worked with a country that was just about to emerge on the scene as a significant oil producer. As was common for aspiring producers at the time when they signed a number of exploration and production contracts, the commercial and fiscal terms they agreed with one particular oil company were very generous. In fairness, when this agreement was reached, oil prices were quite low, the world was just recovering from a bit of a financial cold triggered by the Asian markets, and nobody really fancied setting up shop in this particular country. So, it was understandable that the terms would be, well, competitive for the circumstances. However, when I got to review these terms, it was a good decade and a half since this agreement was first reached. The market had changed a lot, and there was a case to be made for asking why parts of the oil and gas exploration acreage had not been relinquished back to the government after all these years.

We carried out some initial policy work and it moved quite swiftly. The recommendations were wide-ranging. They included things like tightening their rules for relinquishment (a simplified explanation: typically, when you’re exploring for oil and/or gas, you get a fairly large area at first to go about your business of taking a risk to drill holes to see if you discover something. You would typically get a few years to get going, after which you would have to hand back some of this acreage to the state. It’s a pretty neat way of hurrying companies up to drill or give back acreage so the state can see if someone else will bite). They also included things like making sure the state would get an increasing share of revenues from the oil produced (if indeed there was a discovery worth producing) as things got more profitable, i.e., if oil prices went up and costs didn’t go up as fast as prices did (or, shocker, if costs came down). All this was fine. And then they made a discovery; one of the largest discoveries in the world at the time.

We would typically send our advisory reports, draft policies, laws or regulations well in advance of our country missions to allow time for the government officials and relevant stakeholders to try and digest them, before our arrival to knock heads over the recommendations. This was no different. A week before the trip, I got an email from the office of one of our executives asking me to pop round. Two guests, both working for this particular oil company that had just made the discovery, were in town and wanted to pay a courtesy call. My colleagues who worked with me on this project were not particularly keen on being in the same room with the guys against whom we had made some pretty heavy recommendations in so far as their future fortunes from the oil discovery were concerned. I, on the other hand, couldn’t care less. We had made recommendations to our client, and we knew that these recommendations would have to be discussed publicly at some point, so speaking to these company guys didn’t matter to me. I was also at peak cynicism in my line of work at the time, so I imagine this played a role in numbing off what I considered to be unnecessary fretting. Off I went to the meeting.

There was nothing remarkable about the meeting at first. Pleasantries were exchanged. Even though they tried to get me to talk in more detail about the work we had just done, I was comfortable enough to repeat in diplomatic speak that we were all working together as partners for the social and economic development of this country, and we were glad that this company would be playing a pivotal role in it. A bit of me enjoyed this part (I got some media training and one of the things we were taught to do was decide early on our main message and repeat it or return to it no matter the question asked). Then things started getting a bit more direct. I was reminded about the “sanctity of contract”, and the importance of not rocking the boat especially considering how long a relationship they had cultivated with the country. I was given the standsrd spiel about job creation, skills transfer, and all the nice transformational narratives that are associated with the beginnings of newly found oil wealth. This was obviously before fossil fuels became the declared principal enemy in the climate change solution space.  

Their message was subtle, but clear: do not tamper with the arrangement we have with this country. I acknowledged their concerns, thanked them again for their visit and for their continued commitment to the development of the country, and went back to my office. As soon as I typed CTRL + ALT + DEL to log back into my machine, an email notification popped up. It was from the embassy of this company’s headquarters to the country we were advising (I hope that made sense). The email was introductory, informing me that they were aware of our work and my planned trip, and would like to meet before I engaged the government officials. This was perhaps unsurprising, but it was nonetheless unsettling to experience. I replied the email, again with a diplomatic response, thanking them for their support to the social and economic development interests of this country. They sure had a very keen interest in making sure we don’t raise the level of fiscal burden to internationally comparable standards, I thought in jest.

My trip to the country had a layover. I would typically switch on my comms at that point to let my wife and siblings know how my journey was going. As soon as emails started coming in, I noticed another one from this same embassy contact. In this email was a bed-check to see how my journey was going, to inform me of security protocol at the embassy ahead of the meeting, and to let me know that transportation had been arranged on my arrival to the country. At this point, I got nervous. I hadn’t agreed to a meeting, nor did I request ground transportation from them or share my travel itinerary with them. I had, in what I assumed to be the strictest confidence, made arrangements with the host government for ground transportation and that had been confirmed. I quickly replied the email declining the offer for ground transportation and stated that I would advise them of my itinerary after revising it with the government. I would later receive three emails from the embassy during the course of my trip. I deliberately did not meet with them. The last email from them was, well, let’s just say it did not express wild joy at my refusal to have a meeting. I was very clear what we were now up against, and I knew our recommendations would not make it through.

The core part of our recommendations, which would have significantly altered the inflow of revenue to the state coffers, did not make it through. In this case, we had absolute buy-in from the shop floor and middle management, but not from the senior management up to the presidency. That is where this company played. We did have some wins, one of them particularly significant, but they had to do with the component of revenues that were already contracted to accrue to the government. Anything to do with making adjustments to the fiscal and commercial terms of the actual project went the same way as the refinery recommendation in my previous note. This is not unusual. What is important, when faced with situations like this, is to fairly quickly understand whose interests lie where. Cui bono? Know that some of these interests will overpower you. But know that you can, and must, look for the small wins. Know this and know peace.