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Extracting a Better Deal

Jenik Radon has for almost 20 years gone eye-to-eye with oil and gas companies planning to extract new reserves in emerging nations. His role, he told students at Yale SOM on February 20, is to represent the public good. “I’m pretty forthright,” he said. “That’s why the industry doesn’t appreciate me—and doesn’t like me.”

An adjunct professor of international and public affairs at Columbia University, Radon spoke at SOM in a talk hosted by the Economic Development Club and the Energy Club. Radon advises governments and civil society in emerging nations during negotiations with “extractive” industry companies. He served as Georgia’s key foreign negotiator when the multi-nation and multi-billion dollar oil and gas pipelines running from Azerbaijan to Georgia to Turkey were built; he received the nation’s highest civilian award for his efforts.  Radon also advises governments on the drafting of laws governing the extractive industry, and was the key drafter of the Nepali constitution.

Too often, Radon said, extractive companies don’t respect the rights of the nations and the people they’re impacting. “Respect means recognizing their needs, rights, and acknowledging that the extractive companies have responsibilities and obligations to the nations where they work,” he said. “Extractives should look at themselves as a service industry, which has been entrusted with realizing the development needs of emerging nations and making life better for their people.”

“What we really need are international good practices, not just best practices,” he added. Best practices, he said, are insufficient— they are “the best of what is, not what should and needs to be.”

In addition to licensing the legal and regulatory right to develop energy reserves, he said, companies need to have a “social license” that takes into account the welfare and dignity of the local population. “Social license means continous engagement with the people, making them feel they’re getting something, and taking their views into account,” Radon said.

In developing countries, newfound energy reserves are commonly the property of the state and its people, and not the owner of the land; in effect, the government acts as the representative of the state and custodian for its people. In such environments, Radon advocates the creation of independent regulatory agencies to oversee the extractive process. State-owned extractive companies, and the private companies that governments partner with, often turn a blind eye to the health, safety, environmental, and cultural impacts of their operations, he said.  “Priority is given to maximizing national and corporate earnings at the expense of the inevitable social costs, many of which are not calculable in a traditional cost-benefit analysis,” he said.

“This is a tough business,” Radon said. “It’s a political business and an economic business, and a lot of it is now happening in emerging markets. But it is also a societal and human matter, which should be the predominate determinant.”