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Guyana ignores IDB advice on robust contract, cost management in oil sector
After spending US$11.6M loan…
Kaieteur News – Despite exhausting a US$11.6M loan from the Inter-American Development Bank (IDB), Guyana appears to have ignored key recommendations especially as it pertains to contract administration and cost management in the oil sector.
The Liza Unity FPSO
According to the project completion report on the loan, Guyana was advised back in 2019 to be mindful of the pace at which it is ramping up oil production as it could not only put a strain on already limited and inexperienced resources but also allow for weaknesses in proper governance. It also urged Guyana to put in place a law that deals with cost control procedures that ought to be followed by ExxonMobil and its partners which benefit from an extensive list of tax exemptions on an uncapped number of items to support its operations.
The IDB stressed too that operationalising robust cost accounting rules and other protocols are key to reducing losses during administration of the Production Sharing Agreement (PSA). It said these rules are essential as the activities under the Liza Phase One, Liza Phase Two Projects and Payara Projects gather momentum over the years.
The bank said it is important for authorities to bear in mind that the PSA Guyana has with Exxon brings great complexity and challenges in ensuring cost-control. The IDB cautioned that costs incurred by Exxon are subject to a high degree of judgment on the part of the company. It said this is where disagreements between the State and the oil giant are likely to be frequent over what is recoverable and what isn’t.
Taking the foregoing into account, the financial institution said implementing clear lines of responsibility and procedures for Exxon to follow is paramount. To avoid pervasive conflict and other difficulties, it also urged Guyana to go above and beyond and put in place a Cost Allocation Law. The bank said this would serve as a powerful tool for Guyana to have in its treasure chest.
Earlier this week, it was reported that a Depletion Policy Guideline for the oil and gas sector was one of the targets achieved under the loan but the PPP/C Government refused to make use of it. Those guidelines essentially serve to help Guyana independently determine the right pace of oil extraction and development, all the while giving authorities enough time to develop their governance systems. Another target that was not achieved pertained to the creation of a development plan for the sector.
OTHER UNDERUTILISED LOANS
This IDB loan is not the first to be underutilised. Kaieteur News previously reported that the PPP/C Government has also placed a US$20M World Bank loan on pause. That money was approved on March 29, 2019 for the Guyana Petroleum Resources Governance and Management Project (GPRGMP). The programme’s objective is to ensure the enhancement of legal and institutional frameworks and the strengthening of the capacity of key institutions to manage the oil and gas sector.
The financial institution said in a report that the project’s overall implementation has been downgraded to ‘Moderately Unsatisfactory’, with around 24 percent of the total credit disbursed and no disbursement requests received by the Bank since the second quarter of 2021.
The bank in its report said that the government has indicated as recently as late December 2021, its intention to “refine the scope of the project to bring it in line with current government priorities.” That process is still ongoing.
This newspaper also reported that a US$1M grant from the World Bank to strengthen the monitoring capacity of the Environmental Protection Agency (EPA) was also underutilised. This programme had, for example, set the stage for the regulator to be armed with a 34-member unit of oil and gas experts including highly specialised and experienced petroleum, geological and environmental engineers. This, among other objectives under the grant, are yet to materialise.
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