Guarding against the resource curse! Oil and Gas Unit to receive extensive training in revenue management

Jan 14, 2018 ExxonMobil, News

---

 – Finance Minister

By Kiana Wilburg

While the oil and gas industry can bring billions of dollars in revenue, the absence of prudent management, among other factors, can easily make way for the resource curse to take over. The resource curse is a term that has often been used to describe nations which have an abundance of resources yet there is no real economic growth taking place. In fact, nations plagued by this problem even see worse development outcomes.
As Guyana prepares for oil production by March 2020, the government insists that it is doing all that is necessary to protect the nation from the resource curse.
In his budget 2018 speech, Finance Minister, Winston Jordan, said that while the government continues to build capacity for effectively managing and regulating the oil and gas sector, it will ensure that systems and regulations are in place to properly and transparently account for, and manage oil revenues.
He said that an oil and gas unit will also be established within the Guyana Revenue Authority (GRA). The economist said that the Unit will benefit from extensive training in revenue administration within the context of Production Sharing Agreements.
The Finance Minister stated that the prudent management of these revenues, in addition to a well-thought out development plan, will help to guard against the resource curse.
According to GRA’s Commissioner General, Godfrey Statia, training for the Oil and Gas Unit is set to commence in March with the staff being identified prior to this date. Statia said that the majority of the staff will be external and applications will be invited this month.
The tax chief said it should be noted that this unit will initially be under the Large Taxpayers Unit and later spinoff as activity increases.
Although oil remains the main focus of this emerging sector, Minister Jordan stated that the government is carefully exploring the feasibility of utilizing natural gas as a temporary alternative for power generation. In the coming year, he said that further steps will be taken to identify the preferred option for transporting gas onshore, including the most suitable location.
Additionally, to prepare the private sector for rapid growth in this sector, the Finance Minister said that the Government will be hosting an Oil and Gas Exposition and Business Summit in the first quarter of 2018, to bring together various segments of the private sector towards creating partnerships and facilitating information sharing for business opportunities.
But it appears that the main concern for the private sector bodies is the need for legislation which would compel oil companies to use local products and services.
President of the Georgetown Chamber of Commerce and Industry (GCCI), Deodat Indar, recently articulated that Guyana has a short space of time to get itself together for the booming oil and gas industry. He said that the failure to address certain critical issues correctly will leave Guyanese businesses out in the cold.
He provided details on the observations he and members of the Chamber made during a recent visit to Canada.
Indar said, “We went there to look at the oil and gas industry not only from a trade perspective. We wanted to understand the local content system that they have there. We wanted to learn how they were able to develop their industry when they found oil in 1966…”
The GCCI President continued, “Because oil production kicks in by 2020, we have a short time span. We want to learn from Canada, how our companies can become part of the supply chain when ExxonMobil gets into full swing.
“Joint ventures between locals and foreigners will be the fastest way to get there and this mission is to help in that regard.”
The businessman added, “While in Canada, we looked at their legal structure, training facilities, response facilities in case anything happens and what would be their response time…We met with a whole host of people just to understand the structure they have and how we can replicate their strengths here.”
Indar said that he and the delegation from Guyana were able to see firsthand, how Canada’s private sector is able to successfully play a role in the oil and gas sector.

For that to happen here, Indar insists that legislation is needed.
Indar said, “We need legislation which says you need to come to us first before you go to the Caribbean and further afield for products and services. If you need water, see if anyone here can supply it first.”
The GCCI President said that if this is not done then Guyana’s businesses will lose out.
He commented, “What you need is local content legislation which brings enforcement. Operators may not like it but for development to take place, our local businesses need production. Give us the opportunity to see if we can supply…”
Strategic Advisor and former Minister for Energy in Trinidad and Tobago, Kevin Ramnarine, recently advocated that having a local content policy would not be enough. He too, insisted that it must be backed by legislation if one intends to really compel companies to utilize local goods and services for the oil and gas sector.
He shared that Trinidad only woke up to Local Content around 2004. He said that this was pretty late for the twin island republic. In spite of the late start, Ramnarine said that the country made the decision to fabricate offshore platforms which were previously manufactured by other nations.
The Strategic Advisor said, “So from 2003 to 2017, we fabricated eight offshore platforms in Trinidad. These used to be fabricated in the United States of America or Mexico before we started it…There is a local content policy in Trinidad. But now, having the benefit of hindsight, it should be legislated.”
Ramnarine added, “The sooner you get there the better or it will take a lot longer to get there. You have to have the power of law to compel the companies to use local goods and services.”
Minister of Natural Resources, Raphael Trotman had said that it is very likely by the end of last year, Guyana would have in place, a robust Local Content Policy for the oil and gas sector. This is yet to materialize.
Be that as it may, Trotman reminded that the government has retained the services of world-renowned expert, Mr. Anthony Paul. The Leader of the Alliance For Change (AFC) noted that Paul was keen on completing and having distributed for consultation, the first draft policy.
“The idea for this is that we could not move to legislation without first having a policy. Legislation should follow policy rather than the reverse and so it was thought that we should craft the policy before 2020…”
Guyana’s draft local content policy has been criticized in recent months for lacking provisions which would safeguard against exploitation by companies.
The draft speaks nothing of how to avoid procurement fraud, conflict of interest and favouritism.
Instead, the draft Local Content Policy framework seeks to address, the suite of opportunities that may arise and the approaches to be taken in selecting and developing opportunities related to enhancing the capabilities of Guyanese nationals and businesses.
The Policy articulates that this will be done through; training, development and employment initiatives (Capacity Development), ensuring availability of ownership participation for qualified Guyanese equity interest (Ownership Value), supplier development provisions for goods and services by locals to support sector operations (Local Content); and well-tailored social contributions for greater impact and benefits (Societal Benefits).
It also describes what will be done to ensure that the activities in the petroleum sector are conducted in a manner that transparently secures the maximum benefit for the people of Guyana, while recognizing the limitations of the country and holding all actors accountable to the present and future generations of Guyanese who are the owners of the nation’s petroleum resources.
Additionally, the draft policy recognizes that the petroleum resources of Guyana belong to all its citizens, and represent an asset of significant intrinsic value, which once removed diminishes the wealth of the nation, unless there is transformation in value from resources below the ground to improved quality of life above it for current and future generations of Guyanese.
The draft says, “Guyana will approach the development of its petroleum resources, people and businesses in a pragmatic, transparent and accountable manner. This will be conditioned by existing circumstances and an analytical approach to understanding the resource, the activities it engenders and our input capabilities.
“We shall pursue strategic opportunities for local capacity development and participation that give us the maximum possible benefit now and in the future.”
The Policy also states that Guyanese will participate in a manner that gives preferred access and opportunities to improve and enhance the country’s capabilities so that it can become internationally competitive and in the end, the country will progressively provide a greater amount of future services.
Capacity development, to enable more value retention, will be treated as an investment, rather than a cost, the policy outlines.

---

---