Why a strategic investor in a national oil company?

Apr 25, 2022 Features / Columnists, Peeping Tom

---

Kaieteur News – Bharrat Jagdeo must not be allowed to decide, on his own, the future of Guyana’s oil blocks. These resources belong to the people of Guyana and, as such, the people of Guyana must determine how these resources will be developed and by whom.
As a national resource, the country’s oil blocks can be treated as public assets and held under the control of a National Oil Company. Companies interested in helping to develop these assets would be required to enter into agreements/partnerships with the National Oil Company.
Such arrangements have advantages greater than Production Sharing Agreements (PSA), such as the one Guyana signed with Exxon, Hess and CNOOC. Establishing a National Oil Company ensures that oil blocks remain under the ownership and control of the state and allow for better profit-sharing and a direct role in developing these blocks.
National oil companies are nothing new. They have been around for some time and are responsible for the majority of the world’s oil production. They are not the best at efficiency but it is not always the case, as in Venezuela, where oil production collapsed under state-ownership. National oil companies have been and are being successfully administered.
Having a national oil company allows the country exclusive rights over its oil resources. This is quite unlike the PSA signed by the APNU+AFC which virtually hands Exxon exclusive rights to the Stabroek Block including natural gas reserves.
Had the APNU+AFC established a national oil company, there would have been little need for the complaints which are now being levelled over the PSA. That agreement makes Guyana a spectator and a bill collector.
With a national oil company, there is less worry about the government secretly handing out oil blocks to friends and cronies for next-to-nothing. There is no need to worry about some of those cronies flipping or farming out those blocks for huge profits, none of which comes back to the people.
National oil companies can pursue social objectives, something not characteristic of private oil companies. They can better distribute the country’s oil wealth, create jobs and be a source of economic investments.
The country does not have to worry about its oil revenues being parked in some foreign bank account. The national oil company can put oil revenues to work, including investing in projects, including infrastructure, which benefit the people, rather than having to rely on borrowings.
When Guyana’s Second Vice President, Bharrat Jagdeo recently announced that the government will soon consider how it will treat with the farming out of future oil blocks, it was an announcement of extreme public concern. The public cannot afford to be indifferent when it comes to this subject and has to be wary of government’s plans
Public complacency and the absence of greater militancy on the part of people have permitted the government to backpedal on expectations that it would renegotiate the oil contract signed by the APNU+AFC. The Opposition has now joined with the government in refusing to press for renegotiation.
Jagdeo must not be allowed to feel that his government can do as it pleases with the people’s resources. In light of what has happened with the development of the Stabroek Block, the people of Guyana must demand maximum returns to the state from future oil blocks.
It is important, therefore, that the government be held accountable for the decisions concerning these blocks. The failure to audit over US$9B in expenses represents a blot on government’s management of the oil sector. The controversy concerning the allocation of the Kaieteur and Orinduik Blocks also requires investigation.
Jagdeo is now indicating that the government will soon consider whether to auction future oil blocks or to establish a state company with a strategic investor. Why a strategic investor in a state oil company?
There is no need for any strategic investor to be part of any national state-owned oil company? Why have a strategic investor when Guyana will soon be earning billions in oil revenues which will be lying in an account in the United States. The country will therefore have retained earnings to use for the establishment and investments.
The idea of a strategic investor for a state-owned oil company is suspect. Who will be that strategic investor? How will this person, firm or country be identified? Why not the ordinary citizens who have billions lying in our commercial banks not earning much interest? Why should we be sharing our wealth with a strategic investor? And how will this strategic investor be identified?
Having a strategic investor will give that person or entity a permanent lien on all of Guyana’s oil resources. This is a recipe for cronyism and nepotism.
Guyanese must watch this government with the eyes of an eagle. Otherwise, some rich investor will fly away with the country’s wealth.
(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

---

---