A proposal to advance Inclusion and Transparency (Oil and Gas)

Jan 24, 2018 Letters

DEAR EDITOR,
Every Guyanese hopes to partake in the promised boon from our natural resources and simultaneously fears it all going terribly wrong with Guyana becoming a failed state from the “resource curse”.
The resource curse refers to the paradox that countries with an abundance of natural resources, specifically non-renewable resources like minerals and fuels, tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources. I take this opportunity to provide suggestions to strengthen our national governance framework – starting with getting the Oil & Gas model correct.
The discovery of oil has resulted in mixed outcomes for low-income resource rich countries which have led to the characterisation of these countries as having been “cursed” by the natural resources. Too often, only the political and well-connected elite become very wealthy and in the process, allow foreign exploitation, which results in little to no benefits for the general population.
We should accept that Guyana remains vulnerable to the “resource curse” and immediately address the Principal (the citizens) vs. Agent (government) problem.
The Principal vs. Agent problem occurs when one person, government department or entity (the Agent) is able to make decisions on behalf of, or that impact the citizens (the Principal). The Agent is hired (or elected) by the Principal to represent its interests in a negotiation for a financial transaction.
For example, when you are selling your home, you hire a real estate broker (Agent) who represents the seller’s (Principal’s) interests to the buyers. If the real estate broker works on behalf of the buyer’s interest because the buyer is paying them to do so, then the seller gets a bad deal. Therefore, the seller of property pays the real estate agent a commission based on the sale price in order for the real estate agent to be focused on achieving the highest price for the property and reduce the probability of the real estate agent being tempted to enrich themselves personally by making a side deal with the buyer for additional compensation.
In these commercial transactions, the seller is happy to pay the real estate agent in order to ensure that the broker’s personal interests are aligned with the economic interests of the seller.
While this type of compensation is politically controversial and uncommon in government, the private sector has already figured out how to mitigate against these dangers and become comfortable with paying commissions and high compensation to ensure that the experts that we hire to represent us have their personal interests aligned with the economic interests of the people they represent.
There are some basic rules that seem to accompany good outcomes – Transparency and Inclusion are among them. The incentives for corruption are powerful particularly for poor countries with less developed institutional governance infrastructure. The dilemma faced by our decision makers must be acknowledged and the perverse incentives confronted by countering the enticements that can derail our national interests. This is a national challenge with very real consequences if we get it wrong.
My previous public letter (January 2017) advocated for Guyana to adopt a policy similar to the Alaska Permanent Fund model in which every resident of Alaska receives an annual cash dividend from the Sovereign Wealth Fund of the state oil revenues. The Minister of Natural Resources commendably responded indicating that the proposal would be given serious reconsideration to benefit the citizens of Guyana in a similar way. And in another encouraging step by the government, the recent publication of the ExxonMobil contract by the Government of Guyana is laudable.
Encouraged that we continue to make progress towards good governance, my suggestions in this letter are aimed at building on the Alaska model proposal to achieve maximum financial benefits for Guyanese, reduce inequality, support the protection of our environment, and ensure that the economic benefits from the Oil & Gas sector strengthen our productivity, innovation and competitiveness.

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