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Good Governance: Key to Energy Reform

July 16, 2019

Challenges in areas ranging from education to the environment, gender to governance, health to housing don’t exist in a vacuum. Each month, Abt experts from two disciplines explore ideas for tackling these challenges in our monthly podcast, The Intersect. Sign up for monthly e-mail notifications here. Catch up with previous episodes here.

To reform the energy sector in developing countries, good governance is a must. Energy expert Dana Kenney and governance guru Tiernan Mennen discuss the challenges of—and solutions for—implementing sound environmental approaches and energy security in “the gray areas” between local and national governments.

Read the Transcript:

Eric Tischler: Hi and welcome to The Intersect. Today I'm joined by Dana Kenney and Tiernan Mennen. Dana is a climate change and energy expert with more than 30 years of experience, including 16 years in developing countries. She's chief of party of the USAID Clean Power Asia program, which is focused on scaling up investment in grid connected renewable energy.

As Abt’s vice president for governance, Tiernan Mennen is focused on supporting participatory governance processes that empower citizens and on promoting accountability and transparency across sectors. He has more than 15 years of experience in international development in more than 40 countries.

Thank you both for joining me.

Dana Kenney: Thank you. Happy to be here.

Tiernan Mennen: Pleasure to be here. Thank you.

Eric: So Dana, as someone who's establishing energy in countries that are maybe working on decentralization, what kind of challenges are you coming across?

Dana: That's a really good place to start. I did work in one or two countries where decentralization overlapped with the reform in the energy sector. One in particular I can mention, Indonesia, was going through decentralization at the same time they were struggling with what laws and policies they wanted at the national level for both gas and electric.

One of the things I found was that there are kind of three levels of issues that are dealt with that kind of intersect with decentralization. One is how policy is made, what policies are made at the national level versus at the local level. Another is how projects are approved. And then a third is resource management. And in Indonesia in particular during the time of—I call it the gray period where it wasn't clear what the roles were going to be—you had a lot of power grabbing. Regardless of what the law said, or the policy said, whether it was clear or unclear, in practice, people look to their local government. They look to the local government to manage their resources, or they took it upon themselves and said “these are our resources.”

So you have conflict that's created over resources. You have conflicting policies if they're written down or not. And then, depending on what the law says, there can be a slow down of project approvals. What happened in Indonesia was the local government said “we want to approve tariffs,” when it's normally a very technocratic activity at the national level. So, they were approving tariffs that were below cost, and the projects couldn't be built.

Eric: Tiernan, I know you've talked about wanting to avoid technocratic processes. You want to speak to that?

Tiernan: Yeah, sure. The process of decentralization is, you know, an extremely relevant and complicated topic in many countries. That includes the energy sector but also beyond. Abt is working on a project in Nepal at the moment. Nepal is creating a new federal system where they're devolving powers from a previous central government to a series of provinces or states. And it's in that gray period that Dana talked about in Nepal and Indonesia where the obligations and rights aren't yet clearly defined at the local government level. A lot of that is still being developed. And one of the major sticking points in Nepal, and it sounds like it was in Indonesia, is around natural resource management. Who has ownership over natural resources that go into energy development, who controls, manages those natural resources, and then who benefits and in what form.

And so for example, natural gas extraction: Is that natural gas owned and managed by the local government or is it owned and managed by central government as it was before? And that whole process of decentralization raises a lot of expectations by communities, raises expectations by new local government figures that they're going to have greater say, but then also receive more benefits of natural resources and energy development, which is not always the case. It depends on how the law is defined, but it also depends on the practice.

And so I think the decentralization process is particularly tricky within energy development and, I think, in other public services. And within that it's important to realize that, you know, there's people at stake and communities that will be impacted. And to not just rely on the technocratic solutions—that this is kind of the best policy or the best formula for resource sharing—but to also ensure that there's a deliberative process with the communities and with the people that are involved. And so you're strengthening governance more generally while also looking to provide, you know, greater access to energy.

Eric: Do we leverage energy work to help implement governance or vice versa? What do you think?

Tiernan: Well, I think if you have poor governance and poor relations between citizen and state then throwing in lots of resources or opportunities for developing, you know, lucrative, natural resource extraction can further the poor governance, can actually exacerbate governance. And so I think you need to be careful in those situations that you're not making governance more complicated or less transparent or accountable. And so that's one of the things we look at at Abt is this kind of cross-sectoral approach and always making sure that work we're doing in any sector strengthens accountability, strengthens governance as part of it. So that we're not creating new power dynamics, or creating new vulnerable populations, exacerbating any power imbalances.

Dana: I would agree. Countries with extractive industries usually have the worst governance, and it's because people are vying for the benefits that come from exploiting those resources. And that's particularly true in oil and gas. I would say to build on what you said that governance is actually pretty critical. In other words, some of the biggest barriers to developing private investment, besides just the fact if it's not legal, is clarity on the approval processes. Even if it's written down, there's often a power play between local and national government. And of course, in many parts of the world, if it's large infrastructure like hydro or geothermal, the local community becomes really, really important. The the technocratic role is to make sure that you do balance the interests of different stakeholders. It's just, are you talking about national level or local level?

And we were involved in a process—again in Indonesia, just because I was there a long time where we were looking at removing subsidies—and who benefits and who's losing from those subsidies. Many of them really didn't benefit the people they were intended to benefit. And the reason governance becomes so important is that it can inhibit investment. And you have to take into account are the investors going to get their return, right? So you do need that technocratic approach, but if you don't look at it within the context, it can just hold up investment for years and years.

Eric: Tiernan, do you want to speak to what Dana just said? That you need the technocratic element, but …

Tiernan: Yeah, I mean, obviously you need the technocratic part, you know, from the standpoint of the sector of the energy sector and how it works. But I think all of this is operating within the context of the governance structure of any country or society. And so, you know, does that country have good procurement regulations? Does it have, you know, a good procurement process including oversight to ensure accountability and to fight corruption?

And so, you know, a lot of the energy process in the energy investment happens within that larger governance context. And so, for example, in countries that are ripe for corruption, you know, every single public investment is an opportunity for corruption or for rent seeking. And so ensuring that a country has internal controls, audits, corruption, prosecution, and even functioning courts all help make up the landscape of whether accountable governance can support, you know, positive, inclusive development.

Dana: I would agree with that. I think it is important to look at governance when you want to reform the energy sector. And I don't know if I would say lead with it. I would say co-create with it.

Tiernan: For our USAID friends, we're using that term literally.

Dana: Because it's often thought of only at the national level of what's worked, say, in Eastern Europe, you know, where you have certain institutions, and you assume it's all going to work out. But my experience has been that if we don't deal with the governance issues, whatever they are—whether it's decentralization, whether it's how you deal with corruption, whether it's your courts—it will be a huge impediment to actually develop in the energy sector. It's who decides. How do they decide? If you can't attract investors, so they don't feel like their contracts are going to be honored or that they can make a fair return, you're just not going to have the kind of development that you need.

Tiernan: I think one of the things we struggle with, you know in terms of governance, it's a very broad term, and it's often hard to define. So I think one of the things we really tried to do at Abt is work in a sector like energy, and we look at some of the more tangible impacts that governance has in that sector. And so get at governance not as a kind of conceptual idea, but as a tangible heart of achieving energy or other sectoral outcomes.

And so in that sense, you can really, you know, use an important area. You know, everybody wants energy, everybody wants access to electricity. And then you can say, well what are the barriers to that? From that, enter into governance issues perhaps a little more tangibly, such as, you know, procurement process or is there corruption or is it a capacity issue? Is it a commitment issue? You can look at policy development from an energy standpoint. And so really kind of concretize what you mean by governance and what approaches are effective.

Eric: So given complementary energy and governance goals, how might we collaborate to create that governance framework that enables, you know, egalitarian energy development? Or use those egalitarian energy development goals to inform a governance program?

Dana: Well, there's some that are maybe more traditional approaches, meaning that you might find some people doing it, and others that might be not tried much. So, for example, when you are building the capacity of a regulator so that you have the right kinds of questions being asked and the balancing between the public good and the private sector, that's a regulator's role.

You have a stakeholder process that's been well-designed. That is intended to obtain input from all the correct stakeholders or all the appropriate stakeholders. That is, well, the input is respected and taken into account. So I think stakeholder involvement is really critical and that's especially important in electricity infrastructure. So that, I think is really important when you're dealing with regulation.

Less traditional is, for example, in Laos, they have a very centralized system where the national government has a lot of control over the local government. And you may not have a lot of dissent, so decisions are made. But because the people at the local level aren't having a say, it's not good governance, they'll find ways to sabotage it, right? And so that's where activities that might not be traditionally thought of as part of an energy program, where maybe you do a political economy assessment, or to understand who's influencing what.

Actually that was the same in Nigeria. The local government didn't officially have a say, but if you wanted to get a project done you were going to have to make friends and actually let the local governor invest. It was broadly talked about as corruption, but it basically plays out in land: Who has access to the land, who owns the land, how do people get permission to build the projects, whether it's a government entity or a private entity. And those issues of governance become really important.

Eric: Tiernan, what do you think?

Tiernan: Yeah, I think that's important. I mean there's a few things we do, Abt does on governance when we're working in sectorial projects, and one of them Dana talked a bit about, which is political economy analysis and constantly analyzing the political dynamics. You know, whether it's a decentralization between levels of government, or it's between ministries, or if there's been a new election. So constantly analyzing the political context through various tools; not just doing it at the beginning of the project, but kind of baking it in throughout as an iterative process. So that's definitely one thing that we focus on. “Working politically” is the name of the concept and the theory behind it. And it's something that we integrate into our projects constantly, testing assumptions, testing our theories of change and doing it through a kind of politically savvy mechanism. So we're not just operating in a vacuum, we're operating within a very complex political landscape.

Eric: Obviously these are often seen as two different processes, but it sounds like we would benefit from, as you say, Dana, co-creating the solutions in these arenas. Is that fair to say?

Dana: I would say yes. I think we should be co-creating. That's not often done. So I think if we would co-create programs where we look at the underlying governance issues behind the technical issues we're addressing, that it would be really critical. I think, from my perspective in the energy sector, if we don't address the governance issues, whether it's stakeholder involvement, whether it's, as Tiernan mentioned, local and national government's roles, we're not going to achieve the kind of objectives we have for a transparent and equitable sector that's achieving the objectives of energy security or environmental soundness.

Tiernan: I agree that co-creation around this topic is important. It's critical. And so a lot of that is ensuring that there is accountability, that there's participation at the individual community level, you know, in implementation and including monitoring and enforcement. Some of the best monitoring comes from the local level. So ensuring that that voice feeds into accountability efforts. And then also, at the policy level, that there is that deliberative space for communities and stakeholders, users, you know, people who depend on the environment for their livelihoods to be able to come to the table and have their voices heard in the policy process.

Eric: Well it sounds like there's an opportunity for us to make an even bigger impact if we can bring this governance expertise to bear to help us bring our energy expertise to bear. And that's what I like to call an Intersect. Thank you both for joining me.

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