Assessing key political risk indicators for authoritarian states : the case of Libya and the petroleum industry

Bjelland, Roger A. (Stellenbosch : Stellenbosch University, 2012-03)

Thesis

ENGLISH ABSTRACT: For multinational oil corporations (MNOCs), increasing worldwide demand for energy combined with greater competition in the international petroleum market necessitate continuous search for new areas rich in hydrocarbons – and the greatest oil reserves have in many instances been located in authoritarian states with challenging investment environments that often imply great uncertainty with regard to return of investment (ROI). In such cases, proper political risk analysis is an invaluable decision-making tool in determining whether the risk of a negative ROI is too large to make an investment. The Libyan market appeared highly promising for MNOCs from the mid- 2000s, and oil companies decided to return to Libya despite a large degree of uncertainty around regulatory, contractual and political stability issues. Once the Arab uprising surfaced in 2011, eventually turning into a brutal civil war between the Quadhafi regime and the opposition to his rule, the levels of political risk in the Libyan market increased dramatically. A model of political risk analysis can only be as good its components, and the start of 2011 once again manifested the importance of proper political risk analyses in order to minimise potential losses resulting from unexpected events. Thus, in the context of the Arab Spring revolution, the main purpose of this research is to assess the forecasting ability of key political risk factors and indicators. The central question asked is whether political risk analysis as a discipline can be successfully applied as a tool to forecast a political situation within authoritarian states. Specifically, and by analysing the case of Libya, the aim of this study is to determine whether the political events of 2011 and the concurrent extremely high levels of political risk could have been anticipated by competent political risk analysis. This study builds on the 1999 work of Professor Albert Venter and his vindication of key political risk indicators for authoritarian states. Additionally, the study seeks to contribute to existing research by adapting the indicators to an industry-specific political risk context, namely the petroleum sector. The research study concludes that a forecast for Libya, conducted with information available in 2009, would have given the market a medium high level of political risk, with several points of great concern for MNOCs. The research study argues that competent political risk analysis, as far as it is possible to predict such an event as the Libyan uprising, identified several signs of an imminent revolution. The analysis could not forecast when, or even if it would happen, but the fact that several indicators pointed in the direction of increasing levels of political risk signifies that it could have been too early for MNOCs to return to the country in the mid-2000s.

AFRIKAANSE OPSOMMING: Die toenemende wêreldwye energiebehoeftes gepaardgaande met groter mededinging in brandstofmarkte, dwing die Multi-nasionale Olie Korporasies (MNOKs) om deurlopend te soek na nuwe gebiede ryk aan vloeibare koolstowwe (hydrocarbons) en die grootste olie reserwes word in baie gevalle aangetref in state met outoritêre regerings vorme waar die beleggings omgewing van so ’n aard is dat ’n kapitaal-opbrengs (KO) baie keer erg onseker is. In sulke gevalle is dit noodsaaklik dat daar ’n behoorlike analiese van politieke risiko moet wees sodat bepaal kan word of die kans van ’n negatiewe KO te groot is om so ’n belegging te maak. In die beginjare van die 2000s het die Libiese market veel belofte vir die MNOKs ingehou en het hulle besluit om na Libië terug te keer ten spyte van die feit dat daar groot onsekerhede bestaan het ten opsigte van reguleering, kontrakte en politieke stabiliteit. Die vlakke van politieke risiko het in 2011 dramaties verhoog met die Arabiese opstande, wat uiteindelik in ’n burgeroorlog tussen die Quadhafi regime en sy teenstanders, ontaard het. ’n Model van politieke risiko analise is natuurlik net so goed soos sy verskillende dele en aan die begin van 2011 het dit weereens aan die lig gekom dat behoorlike politieke risiko analise baie belangrik is om te verseker dat onverwagte gebeure die kleins moontlike invloed op winste sal hê. Dus, met die ‘Arabiese Lente revolusie’ as agtergrond, is die hoofdoel van hierdie navorsing om te bepaal tot watter mate belangrike politieke risiko faktore en indikators gebruik kan word om voorspellings te waag. Die vraag word gevra of politieke risiko analise, as disipline, suksesvol toegepas kan word om die politieke toestande in outoritêre state, te voorspel. Deur spesifiek die geval Libië te analiseer, is die doel van hierdie studie om te bepaal of die politieke gebeure van 2011 en die ernstige verhoogde vlakke van politieke risiko redelikerwys voorspel sou kan wees as daar bevoegde politieke risiko analise vooraf was. Hierdie studie gebruik as basis die 1999 werk van Prof. Albert Venter waarin hy regverdiging toon van die politieke risiko indikators vir outoritêre state. Daarby beoog die studie om by te dra tot bestaande navorsing deur die indikators aan te pas vir toepassing in ’n ondernemings-spesifieke politieke risiko konteks, naamlik die brandstof sektor. Die navorsing maak die gevolgtrekking wat Libië betref, met die inligting wat in 2009 beskikbaar was, dat ’n voorspelling van ñ medium hoog vlak van politieke risiko vir die market gemaak kon wees met sekere punte van groot kommer vir die MNOKs. Die navorsingstudie maak die punt dat bevoegde politieke risiko analise, sover dit moontlik is om ’n onverwagte gebeurtenis soos die Libiese opstande te voorspel, verskeie tekens van ’n dreigende revolusie geïdentifiseer het. Die analise kon nie voorspel wanneer of selfs indien dit sou gebeur nie, maar die feit dat verskeie indikators getoon het dat daar verhoogde vlakke van politieke risiko was, het dit aangedui het dat die middle 2000s te vroeg was vir die MNOKs om na die land terug te keer.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/19911
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