The value of partnership
Speech date: 20 May 2002
Venue: 11th Latin American Energy Conference, Institute of the Americas, La Jolla, California, USA
Title: Group Vice President, Caribbean & Latin America, BP p.l.c
But I'm not the only new kid on the block. So is BP. In our present form we're less than two years old.
Today's company is the result of seven major deals beginning in 1998. This newness is offset by our roots which link British Petroleum, Amoco, Arco and Burmah Castrol among others. We're headquartered in London. But we're global in reach and, we trust, global and progressive in outlook.
For the first time in our collective history we have a material business in the Caribbean/Latin American (CLA) region. It accounts for 5.6 bn of our capital employed and it covers every aspect of our business: upstream, downstream, renewables and chemicals.
So BP has a real stake in the region. We're keen to grow this stake. We think opportunities exist to grow. We think we have the skills and resources to help achieve this growth. And we're confident the basic conditions exist to do business profitably in the region.
A Basic Optimism: In other words - we're pragmatically optimistic about the longer term future of the Latin American energy sector.
- The Caribbean/Latin America (CLA) region has substantial natural resources -12 per cent of the world's proved oil reserves and 5 per cent of its proved gas reserves. * It's adjacent to the world's biggest consumer of energy, and it offers the U.S. a reliable alternative to the Mideast. As this chart (1) shows, 35 per cent of imported US oil and 40 per cent of imported US LNG already comes from the CLA region.
- And the CLA region has large domestic markets which represent a developing customer-base for our products.
And, of course, in the past year the political situation has deteriorated, with major issues in Argentina and Venezuela and continuing conflict in Colombia.
As far as Argentina is concerned, BP hasn't lost faith. What has happened has been disappointing to those of us who have supported the reform process during the past decade. Now we're looking at negative growth this year and perhaps zero next, and rapidly rising inflation
But several underlying factors encourage us. Many reforms, particularly those that impact the energy sector, remain in place. Devaluation has given the country a very competitive exchange rate. The basics - skills, education and natural resources - are still there. And where there has been retreat it isn't going unchallenged.
Although it is likely to be tough, with luck and a lot of things going right, Argentina can still put its house in order and re-establish itself as a competitive investment alternative.
In our view Argentina is still open for international business.
Rising living standards: That's critical. Our chief executive, John Browne, pointed out recently that in the first 50 years of the 20th century global living standards rose by one per cent a year, with population growing by around one billion. In the second half of the century living standards rose more than twice as fast despite a population growth of 3.5 billion.
The fact is that since 1945 more people have escaped poverty than at any other time in history. And during this period world trade grew by a remarkable 1,700 per cent.
Energy is central to economic progress. But the productivity of one-third of the world's people is compromised by a lack of access to energy. Perhaps another third suffer hardship and insecurity due to unreliable energy supplies. Many of these people live in Latin America.
Role of free markets & institutions: (3) The provision of energy is one crucial aspect in the development process. There are two others I'd like to mention.
The first is the role of free markets.
It's undeniable that market-friendly policies are under pressure across the CLA region following the crisis in Argentina. But this is a time to hold our nerve.
In the energy sector liberalization has produced many successes over the past decade.
Our focus this afternoon is Argentina. Until the early 1980s (4), when Argentina launched its Plan Houston to bring in foreign investors and allowed domestic oil prices to operate at about 80% of the international level, the country was a net oil importer.
In the early 1990s the industry was deregulated and state interests were privatised. Industry pricing was deregulated at the same time and allowed to respond to supply-and-demand signals.
The results have been dramatic - not only in terms of dollar earnings but also in increased investment and, effectively, lower domestic crude prices than the US had available at the time.
In other words, the market worked to Argentina's advantage.
The second aspect is the importance of having the right institutional framework. (5)
The role of government is crucial. Government can bolster human capital by investing in education, training and health care. It can ensure orderly markets. It can establish transparent tax regimes that encourage investment and discourage corruption.
In the case of Argentina we believe new economic incentives - both to remove recently imposed disincentives and introduce rational pricing mechanisms for natural gas - are crucial if Argentina is to maintain oil and gas production and export earnings in 2002 and beyond.
The BP experience: My own company's experience in Argentina underlines just how important liberalization can be.
Amoco Argentina merged with Bridas in 1997 to form Pan American Energy. The bulk of Pan American's activity is at an oilfield called Cerro Dragon.
When we became BP in 1999 we encouraged the joint venture to challenge mindsets about Cerro Dragon. For example: There was no gas. Water injection wasn't commercial. Seismic technology wouldn't work.
Our reasoning was that Argentina's energy liberalisation had changed the ball game. That's how it has proved. Gas has been discovered. A third of production now depends on water injection. And seismic has worked well.
In 2000 the Zorro gas treatment plant became operative. Since then gas volumes delivered to market have increased dramatically (6), more than doubling.
It's a good story, and it continues. But it wouldn't have begun without liberalization.
Partnership in action: One thing we can all do by example is demonstrate that global companies are really global - that is, whether you come from Colombia or Argentina, if you work for us you'll be judged on your merits.
At BP we have a performance culture. The more global we become, the more performance is the standard we unite around.
Since we became BP we've grown our pool of talent enormously. Now we want to be the employer of choice wherever we work.
We already have some great success stories. But we want to go much further. As John Browne put it recently: "If we're really interested in creating shareholder value, we have to do something more than employ white men in black suits." And we are. To give you some examples:
- In 1995 BP Colombia employed 50 per cent expats and 50 per cent Colombians. Now it's 3 per cent expats and 97 per cent Colombians.
- We have three times as many Colombians working for BP outside Colombia today as expats working for BP in Colombia.
- In Trinidad the chief executive is a Trinidadian national. It has transformed relationships.
- In Argentina the senior management team at our JV company Pan American Energy is mostly Argentinean.
- And in our regional headquarters in Buenos Aires I'm the only Brit or American. The rest of the senior team all come from the CLA region. There is one Venezuelan, one Trinidadian, one Colombian, one Bolivian, and 3 Argentineans.
All these partnerships are part of our business. They're more vital than ever today. Just think of:
- The alliances in our industry - in Latin America as elsewhere. To name three involving BP: with Bridas in Pan American Energy in Argentina, with Total Fina Elf in Venezuela, and with Repsol in Trinidad.
- Relationships between private and state-owned energy companies. In Latin America there's BP's association contract in Colombia with Ecopetrol.
- Partnerships with governments - for example, to spread the use of renewable energy and aid development. In Brazil BP signed a $10 million contract with the government recently to supply solar power to almost 2,000 schools in remote communities, mostly in the northeast. About 60,000 children will benefit.
- Co-operative efforts to strengthen communities. At BP, our local partners include Fundacion Impulsar in Argentina, Fundacion La Salle and Socsal in Venezuela, and Fundacion Amanecer in Colombia.
Sure, there have been disappointments. Central America's faltering efforts to integrate its energy markets is one.
Looking ahead: Looking ahead, BP is in Latin America for the long term. We've underlined that under tough circumstances over ten years or more in Colombia. With Amoco we inherited a 40-year history in Argentina and Trinidad.
But wherever we look ahead, we believe that partnership based on mutual advantage is going to become more, not less, crucial to energy development in the CLA region.
In future we expect to develop new forms of partnerships with governments. One reason is the global trend to cleaner fuels, particularly natural gas, which suggests to us that companies be prepared to invest in the downstream part of the chain to enable markets to grow.
We've found this is true in China where the plan is to quadruple gas share in energy supply by 2010. And in Indonesia. It's also true in Trinidad where BP is working with government to develop the upstream and downstream in a sustainable and equitable way.
Clearly, we believe BP offers a distinctive, performance-driven approach based on our values, record of delivery, skills and global reach and resources.
Equally important, our approach is based on a commitment to law-based open societies, free markets, human rights, and partnership built on mutual advantage.
The fact is that most of our investments are long term. They thrive only if the societies in which they're located also thrive. To neglect this wider world is to risk the interests of shareholders. All of us no doubt want to help Argentina in its present plight. But we also have a duty to our shareholders to provide value and invest wisely.
Thank you very much.