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2/13/2020

GUYANA’s Bonanza from Oil Creating Political Storm

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As  Guyana continues to increase its  oil lift at an estimate of one million barrels by the end  March 2020, there is much debate on how Guyanese will benefit.   The persistent questions being raised, include whether the negotiations with Exxon Mobil brokered a favorable deal for Guyana or if it squandered the patrimony of the Guyanese people  to Exxon Mobil, Hess and the other international conglomerates involved in the exploration and eventual oil lift . 

Conflicting versions

The current political climate in the lead up to the General elections on March 2 continues to fuel the debate with conflicting information and claims by the contending political parties. The main  opposition groups are advocating what is best represented in an advertisement in the local newspapers that the government is culpable and incompetent for “selling property (oil) without knowing its value.”   This view is complemented by a report,  Signed Away issued by Global Witness, an International NGO, and published February 7.  The Report concludes that by the terms of the negotiation with Exxon Mobil, Guyana stands to lose US$55 Billion  over 40 years. In 2011, Global Witness exposed a US$ 1.1B bribe by Shell Limited with respect to Nigeria Oil exploration,  implicating that country’s Minister of Natural Resources.

The  Guyana Government on the other hand has contested this and other statements  as false and misleading. It has launched a publication , GUYANA PUBIC SECTOR LOCAL CONTENT POLICY  on February 10, 2020 by the Department of Energy in the office of the President. In essence, local content is recognized  to be the sum of input of local goods and services including employment across the oil and gas value chain. It also establishes the benefits that are predicted to accrue for  investments of the revenues from oil in education, health, infrastructure etc. It points to the fact that Guyanese suppliers have been sensitized to the available opportunities and that provision is made for  Guyanese public awareness of the actual plans for the management of the resources from oil. Allied announcements of significance from the Department of Energy are that :
  • EXXON Mobile’s discoveries will result in roughly 6 billion out of 8 billion oil  equivalent barrels, meaning, 75% oil and 25% gas. The projection is to land gas onshore by 2023   
  • The Guyana/Exxon contract makes provision for 2% royalty and 50% working interest owned by Guyana. 

Subsequently, Exxon  explained that royalty is based on participation at no cost to Guyana whereas working interest pays its share of costs to explore and develop the project.  According to its statement, Exxon advanced all of Guyana’s share of the cost and Exxon would have borne the entire loss if they did not find oil: “from day 1 , Guyana receives 14.5% of the project cash flow.  Then after Exxon recovers the cash it advanced to Guyana, Guyana’s cash flow leaps to 37% more for a total 52 % advantage. The opinions of Open Oil, Global Witness and the IMF are far less positive about the deal. These divergent perspectives require closer investigation, beyond the ability of GOFAD, under the present circumstances requiring the verification of conflicting information.

The National Resource Fund : Transparency and Accountability
 
However,  there are important developments intended to  enhance transparency and accountability. First,  is the setting up of the Natural Resource Fund (NRF)  commonly referred to as a Sovereign Wealth Fund. Second is the  establishment of a Public Accountability and oversight Committee (POAC). According the Act, the POAC will comprise 22 members, independent of political affiliation  and representing the community interest. It will be responsible for increasing public awareness through disseminating evidenced based information and active public engagement. The POAC will be charged with the responsibility of promoting short, medium and long term priorities for use of the resources  from Oil, consistent with the Act establishing the National Resource Fund.   

The establishment of the POAC is a recognition that in today’s world, for public policy to be effective, it can no longer be   the preserve of state actors or limited to the notion of public-private partnership. Non-state actors – NGOs, civil society, corporations, think tanks, influential personalities, the media, faith-based organizations, youth  etc. — play an increasingly influential role in the decision making including the conduct of diplomacy and international relations. It is therefore expedient that they be tapped as supportive advocates. In this regard, the University of Guyana Energy Think Tank (UGETT) is an important initiative to accelerate the working links between Civil Society and academia working in this cutting edge area, critical to Guyana’s sustainable  development. UGETT has already been engaged in fostering an understanding of the issues related to the NRF and established in the NDF Act. See https://finance.gov.gy/publications/guyana-natural-resources-fund-bill-2018-2/

The NRF Act specifically refers to compliance and management of the fund with respect to good governance and international best practices, including the Santiago Principles.   In this regard the Chilean Sovereign Wealth funds established since 2006 is a commitment transparency. It ensures access by the public to relevant activity through an exclusive website that publishes information on all the fund’s monthly, quarterly and annual reports; and  the legislation pertaining to the funds at the recommendation of the Financial Committee in its annual reports. In Guyana’s Fund, the Bank of Guyana is responsible for the operational management of the fund which is authorized to expend one third on development programmes and an untouchable two-thirds to the NRF for the future.   But, there are several outstanding elements of the Act still to be fulfilled, no doubt stymied by the pending elections on March 2. They include the actual appointment of members of the PAOC, Budget of the PAOC and renumeration of the members PAOC.  

The POAC  and Think Tanks such as UGETT therefore play a vital role and  can together serve Guyana’s interests best, if, in addition, they focus   their discussions on building capacity for monitoring and evaluation, highlight anti-corruption policies, promote lessons learned from the experiences of other oil and gas ventures especially in developed countries that help to avert looming outcomes such as the ‘Dutch Disease’   



The Way Forward: Broader Strategic Issues of Sustainable Development 

The  discussion on the way forward needs to place the objectives of the NRF Act in the broader Guyana's sustainable development in the context of the Caribbean Community.  These include: 
  • The  strategic thinking of those countries particularly China, Russia and US whose self-interest would  embroil Guyana in the re-emergence of the Cold War. 
  • Awareness of USA and its new strategic interest in Guyana — beyond enriching US Gulf Coast refiners — which involves  it taking note of China’s growing presence in the Western Hemisphere as one of the most obvious options for financing. China’s  potential for furthering  ties with Guyana should be no exception.
  • The lingering effects of Venezuela Petro Caribe and Oil diplomacy  matched by Venezuela’s claims to the vast expanse of Guyana's territory now to be litigated in the International Court and the role of Russia as a patron of the current Madura regime in Venezuela. 
  • Many global institutions like the World Bank, as well as governments and sovereign wealth funds, are now climate conscious — reticent to finance infrastructure that will increase the world’s carbon footprint.

Eddie Greene 

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3 Comments
Bill Heins
2/13/2020 03:08:41 pm

It is right and proper that the University of Guyana should both play a prominent role in evaluating and discussing how to maximize the benefit of oil wealth, and should itself benefit from the oil wealth. Education is one of the greatest investments the country can make: a return from that investment is wisdom to manage the investments better in the future.

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Havelock Brewster
2/14/2020 07:37:47 am

Dear Eddie,
Many thanks for the captioned GOFAD blog. It presents the main argument of the Global Witness report, and the government’s response. And ends by saying that verification of conflicting information is needed. But could one not go further? The Global Witness report says that Guyana could have secured a much better percentage of “revenue”, more in line with that of other oil producing countries, and the IMF’s recommendation. Two concerns here.
One, an absence of appreciation of the impact of both the internal political issues, and the international issues as well- specifically the nexus of concerns about Exxon negotiating strategy and leverage , the ongoing International Court case on the Venezuelan claim, Guaido’s close relationship with the US President, with strong support coming from both the Republican and Democratic Parties, emboldening Guaido ‘s claim that the oil belongs to Venezuela, and the affect of Russia’s and China’s backing of Maduro on the US stance on Venezuela vs Guyana. All this must create considerable uncertainty, and political limits to driving too hard a bargain with Exxon. To put it simply , there must be , in such circumstances, a leaning towards locking in the deal, even at some cost, going for the bird in the hand rather the bird in the bush. The gamble could be obtaining the ideal or ending up with zero. No other oil producing country, to my knowledge, has faced this kind of one-sided uncertainty in negotiating with Exxon. Protracted (re-) negotiations with Exxon might be giving hostages to fortune.
Two, the use in public discourse of loose, non-transparent , undefined terms like “ revenue”, “pricing” “ working interest”, “ Guyana’s share of the cost of the operation”, “ cost”, “ cash-flow” , “ when Guyana’s payoff would end”. The Guyana government and its advisers have little or no access to insider information, nor the capacity to verify any of the crucial variables- amount of capital and start up cost, amount of output , operational cost, pricing, revenue. Again, to put it simply, the devil is in the detail, but, even more so, resides in what in the unknown.
The government response to the report seems to deliberately side step the essence of the criticism, that with more skillful negotiation, they could have secured a better deal. It dwells mainly on the spillover and linkage developmental effects of the oil revenue. I believe Foreign Minister Greenidge had somewhere alluded to the political, foreign policy, parameters, without elaborating. Perhaps it might have been thought counter productive to publicly expose those concern. Anyway, I’m a bit skeptical of the helpfulness of GOFAD’s agnosticism.
Cheers, H

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MckinneyVia link
8/3/2022 05:41:48 am

Very much appreciated. Thank you for this excellent article. Keep posting!

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    Edward and Auriol Greene Directors, GOFAD.

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