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No strong business case exists for creating Nat’l Oil Company in Guyana – IMF
By Kiana Wilburg
From 2015 to now, there have been arguments both for and against the establishment of a National Oil Company, which would allow Guyana to have a participating interest in almost every oil block.
In the case of the International Monetary Fund (IMF), it has conclusively decided that no strong business case that can be found for having such a company.
In one of its most recent reports, the financial institution which is providing technical support to Guyana, noted that many countries have a National Oil Company which allows the government to participate in the block like an investor would.
The IMF said that this move also allows the government to have a “seat at the table” for decision making.
The Fund noted, however, that given the substantial regulatory powers the government can have over the upstream petroleum sector, it is not evident that participating would necessarily be adding much more value.
Furthermore, the financial institution warned that participating interest by government requires it to contribute to handling a portion of the costs, including in the development phase of the oil block. It was keen to note that the government can raise its own money to handle those expenses, or it can lean on the operator and repay the oil company with interest. The Fund noted that the latter option delays the receipt of any major benefits for the government.
As such, the IMF said that the government may be better off securing a higher government take in the contract itself.
Should the government still be interested in state participation, the IMF recommended that it opts to outline its state participation right in the Production Sharing Agreement (PSA). The International Monetary Fund said that this would allow the government to elect at the start of development, whether to participate in a project up to say 10 percent. It further advised that there should be an option which says that if the oil company handles the costs on behalf of the government, the interest rate to be paid back must be reasonable. Finally, if the government participates, the Fund said that it should not allow reimbursements of exploration costs.
CHATHAM HOUSE ADVISES
Several Energy Strategists and Industry Experts have advised over the last four years that it would be in Guyana’s interest to have retained equity in every oil block. In fact, Energy Strategist and Advisor from Trinidad and Tobago, Anthony Paul, told Kaieteur News during an exclusive interview that he is in support of this perspective, while noting that it is ultimately up to the government to decide if it will go the route of creating such a company or paving the way for local businesses to invest their dollars in the offshore blocks.
While the government is still to announce what is going to be the way forward on this matter, Chatham House has said that there might be a chance for Guyana to have minority equity stakes for a National Oil Company in acreage that is relinquished by ExxonMobil and other companies.
It warned, however, that establishing such a company is no easy job, especially when the State does not have stakes in producing licences that are generating revenue.
That said, the anti-corruption agency outlined that there are some major risks which must be considered in any move to create a National Oil Company. Chatham House said that governments must consider whether funds would be better spent on other budgetary priorities such as vocational education to train Guyanese for jobs in the oil sector.
It said too that there would be a significant and sensible need to establish careful governance mechanisms to reduce the opportunity for nepotism and corruption in any National Company.
There are numerous lessons around the world which demonstrate that the absence of anti-corruption rules can lead to massive scales of favouritism and scampishness in National Oil Companies. Petrobras of Brazil and PDVSA of Venezuela are two infamous national oil companies which have been stained by years of corruption by its leaders.
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