Shortage of experts hindering Guyana’s capacity to monitor, audit and regulate oil companies – World Bank Report

Apr 14, 2022 News

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Kaieteur News – A key report by the World Bank has outlined that the shortage of oil-sector experts in relevant government entities, combined with inadequate human and capital resources, limits the country’s ability to monitor, audit, and enforce regulations on oil companies.
It has therefore urged the oil producing state to address this gap quickly in sectoral governance or the consequences would be dire.
Further to its call for the relevant experts to be put in place, the financial institution said the international experience for oil producing states reveals that successfully managing the sector requires the transparent and accountable implementation of robust policy and institutional framework composed of five core elements. These include: (i) policies, laws, and contractual arrangements that maximize the benefits of oil revenues and minimize downside risks; (ii) a set of regulatory institutions capable of effective oversight; (iii) appropriate fiscal policies and sound public financial management (PFM) infrastructure; (iv) robust revenue management and distribution mechanisms; and (v) policies to promote sustainable long-term development. Although Guyana has made substantial progress in strengthening the management of the oil sector in the said areas outlined, the international financial institution that provides loans and grants to the governments of low- and middle-income countries, outlined that further measures are desperately needed to align the country with best practices.
Expounding further, the bank was keen to note that the legal and regulatory frameworks for the oil and gas sector need to be updated. It stressed, in the same way other stakeholders have done for the last six to seven years, that legislative modernisation will help maximise benefits, manage technical, environmental, social, and financial risks, and build capacity to engage effectively with investors. At present, the key laws governing the sector include the Petroleum (Production) Act of 1938, the Petroleum (Exploration and Production) Act of 1986 and related regulations, and the Upstream Legal Requirements for Petroleum (2004). These instruments, along with the Guyana Geology and Mines Commission Act, the Mining Act, the Environmental Protection Act, the Occupational Safety and Health Act, and other relevant legislation, are yet to be adjusted to reflect that Guyana is no longer a frontier but instead a proven oil producer.
Importantly, the financial institution pointed out that Guyana’s fiscal regime for the sector remains underdeveloped and suffers from deficiencies in key areas. It noted that the Guyana Revenue Authority (GRA) and the Ministry of Finance have been working with development partners such as the Inter-American Development Bank and the International Monetary Fund (IMF) to review the design of the fiscal regime and improve revenue administration. Towards this end, it said amendments have been drafted to the Income and Corporation Tax Acts to minimize tax avoidance. It said too that the government is building its capacity for revenue forecasting, modeling, and tax administration—including cost auditing and measures to curb tax evasion—with support from external partners. Recent updates on the progress of these efforts have not been forthcoming.
On another critical note, the World Bank stressed that cost auditing is especially crucial in Guyana, given the predominance of production sharing agreements and the provisions that allow multiple projects to come on stream. It said this presents numerous advantages to the investor as it speeds up the recovery of moneys spent. The World Bank noted however that the same arrangement results in loss of revenue for the government since it requires diligent cost audits by the government to prevent abuse. It alluded that this is very difficult to achieve when multiple projects are allowed to be advanced at the pace dictated by the oil companies.
Addressing the risk of environmental damage from the sector also requires specialized skills and capacity, noted the financial institution. It noted that while the government has conducted a needs assessment and making some improvements on the part of the Environmental Protection Agency (EPA), more ought to be done.
In this regard, the World Bank highlighted that the government’s health, safety, environmental, and social auditing and monitoring capacity remains limited, and financial-assurance mechanisms are undeveloped. It has offered Guyana a suite of recommendations, which are yet to be taken on in full.
Those recommendations form part of the Systematic Country Diagnostic (SCD), the first that was ever prepared by the World Bank Group for Guyana. It is designed to provide a comprehensive overview of key macroeconomic, fiscal, and sectoral challenges as the country begins its historic transformation into an oil producer. The SCD was finalised in March 2020 and subsequently updated to reflect the COVID-19 pandemic impacts.

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