Read on Twitter
Inspired by @LlewelynHughes, and by fantastic new work by @JeffDColgan and @EMeierding on political implications of low oil prices, time for a brief THREAD about how low prices impact nationalization and privatization! 1/ https://www.washingtonpost.com/politics/2020/04/06/this-years-low-oil-prices-will-hurt-these-countries-most/
What do low oil prices mean for national oil companies (NOCs)? Great research by @NRGInstitute's @prpheller shows the incredible damage done to the value of publicly-listed NOCs. 2/
https://resourcegovernance.org/blog/oil-price-plunge-warning-state-companies
https://resourcegovernance.org/blog/oil-price-plunge-warning-state-companies
With these market conditions, we should expect to see more NOCs added to this group, as governments begin considering the sell off of NOC assets and look to partial privatization of their SOEs. 3/
Other NOCs will look to internationalize by gobbling up cheap global assets. @andrewcheon has you covered on this: https://onlinelibrary.wiley.com/doi/abs/10.1111/ecpo.12133 (and very much looking forward to his forthcoming book on internationalized NOCs!) 4/
But, wait, my book Power Grab emphasizes the strategic importance of NOCs -- so why privatize at all?? 5/ https://www.amazon.com/Power-Grab-Political-Extractive-Nationalization-ebook/dp/B0845QG6KS
First, important to note that privatization comes in multiple shapes/sizes. In advanced economies, @LlewelynHughes brilliantly shows how small concentrated SOEs are vulnerable to price shocks, so they seek greater state intervention during market transformations. 6/
By contrast, large diversified firms can weather the storm, so moved away from the state towards greater liberalization. Think France’s Elf/CFP (Total), Italy’s AGIP (ENI), or Spain’s Repsol.
LOTS more details in @LlewelynHughes 's excellent book. 7/ https://bit.ly/2xZtYyI
LOTS more details in @LlewelynHughes 's excellent book. 7/ https://bit.ly/2xZtYyI
In emerging economies, SOEs face different pressures. 'Authoritarian Capitalism' by Richard Carney of @CEIBS shows public listing allows leaders to maintain some control over operations, while also forcing SOE to compete for market financing. 8/ http://ow.ly/AuKr30l8xy9
We also see privatization at late stages of production when operation costs balloon and domestic tech is too limited to respond efficiently. Cc @mthurber 's great work on how risks shape ownership structure. 9/ https://pesd.fsi.stanford.edu/publications/on_the_states_choice_of_oil_company_risk_management_and_the_frontier_of_the_petroleum_industry
This is an interesting endgame strategy for leaders who inherit aging SOEs: in a sense, public listing allows leaders to squeeze out more revenues from an SOE that is otherwise declining in profitability. 10/
But important not to forgot how fiscal pressures affect leaders’ time horizons. Just as fiscal pressures can push towards nationalization, they can also spur privatization. 11/
My book Power Grab argues nationalization is a gamble, but so too is privatization.
Why? Because bringing in outside investors can provide quick $$ but it opens the books and could lead to long term loss of control over production and investment decisions. 12/
Why? Because bringing in outside investors can provide quick $$ but it opens the books and could lead to long term loss of control over production and investment decisions. 12/
This was key debate in Saudi: tradeoff between fiscal capital today and political capital tomorrow. But I argue that enough factors shortened Saudi time horizons to push for a partial IPO (but not enough for a complete sale of course!). 13/
Before COVID-19 and the price war, Angola’s Sonangol was already on the same path, and price crash might provide even more incentive to IPO earlier than anticipated. 14/ https://www.reuters.com/article/us-angola-sonangol-ipo/angola-to-kick-off-sonangol-ipo-before-2022-minister-azevedo-idUSKBN1ZK24K
BOTTOM LINE: in this current market transformation, we’d expect to see more movement towards liberalization where SOEs are large, diversified, internationalized, and/or where leaders face strong enough fiscal pressures to dramatically shift their time horizons. 15/15
