For those who revel in a juicy courtroom drama, there’s a
fascinating tale unfolding in the High Court in London at the moment. It’s a story of
(alleged) multi-million dollar side-payments, inducements and commissions
featuring a cast of characters ranging from rulers and politicians to
industrialists and mysterious middle men, surrounding the supply of alumina to
the Alba smelter in Bahrain.
(Incidentally, to give credit where it is due, one of my friends in Bahrain tells
me that the best coverage of this trial to be found is in the Metal Bulletin,
although of course it has been reported elsewhere as well.) The trial is still
going on, so this is not the time to prejudge the outcome, and anyway, this is
not a piece about corruption. Alba is just the trigger, in that it draws our
attention to the way in which politics and the mineral industry often walk hand
in hand.
Unique Position of Extractive Industries
That shouldn’t be a surprise, of course, because there is a
qualitative difference between the extractive industries and other sorts of
manufacturing. Why? Because the resource is finite. Now, a small caveat here; I
am not one of those who believes we are heading for shortages. The earth’s
crust contains lots of the minerals we need; true, they may be in more awkward
places to exploit, but technology can handle that. Each orebody, each well,
though, is finite, and that’s why politics and mining and drilling are
so closely intertwined. You only have one shot at each deposit, so you better
get it right.
The developed economies with worthwhile resources can afford
to be relatively sanguine about this. They have largely tried and tested tax
and royalty regimes and - mostly – reasonable controls. (But even here the
unexpected can cause debate; think of the Australian mining tax.) On the whole,
though, commercial operators are licensed to mine or drill, and the politicians
keep in the background.
Source of National Income
It’s a different world, though, in smaller, developing
economies where the exploitation of the mineral resource is often by far the
major generator of national income. In that case, the politicians have to keep
a tight control over the extraction of the stuff in the ground, because without
it, their hold on power may look a little precarious. And, to be fair, one can
understand why. As the resource is finite, the politicians know that they hold
a heavy responsibility of husbanding it for the benefit of the population as a
whole. That’s how it should work – the geological good fortune serving the
interests of the whole country. It does work like that in many cases; responsible
management and professional operations.
However, sometimes the truth is very different and
politicians begin to believe that the natural resources are part of their own
personal wealth. How many dictators from resource-rich countries have died extremely
wealthy, while the development of their nations has failed to happen? We can
all find plenty of examples of that. I said at the beginning that this wasn’t a
piece about corruption, but in the end, if it’s about the mix of politics and
the extraction of resources, it’s almost inevitable that it becomes so. The
normal scapegoats – at least first off – are the international mining and
drilling companies. I’ve lost count of the number of hatchet jobs I’ve seen or
read over the years directed at Glencore/Anglo/Rio/at al (delete as
appropriate); mostly they turn out to be dramatically exaggerated, while the
spotlight is not so often turned on the political regimes who are probably at
least as, if not more, culpable in their desire to profit themselves from the
deposits.
Cause for Concern
Perhaps what the Alba case (allegedly) seems to be showing
us is that the desire to make gains out of mineral deposits is not in fact the
exclusive preserve of those international mining companies by shining a light
on what appear to be some pretty murky dealings. Why this may give cause for
concern is clear; as I said above, the earth is not short of mineral deposits,
but increasingly new finds are more difficult to exploit. Either the problem is
technical (sites that are deeper/colder/more remote, for example) or, and this
is the point, in what are euphemistically called ‘difficult’ regimes.
There probably isn’t a solution to this issue; changing
human reactions to power and wealth is unlikely. It’s just interesting when we
catch a glimpse of the grubby things happening below the surface. And before
anybody tells me that Bahrain
is not a producer of alumina – the resource underpinning what is alleged to
have been going on there is of course the oil and gas that power the smelter. Underhand
dealings may be alleged in the supply of alumina, but at the root of it all is
the energy that fires the smelter and its associated industries. The
availability of that is what enables everything else to happen.