Latest update December 23rd, 2024 3:40 AM
Accelerated production in absence of modernised laws, institutions a fatal flaw of oil sector management – Jordan
Kaieteur News – Even though he can understand the reasoning of the government to accelerate oil production in light of high oil prices, former Finance Minister, Winston Jordan believes such an approach represents a fatal flaw in industry management especially when one considers the fact that the institutional and legislative framework remains outdated.
Former Finance Minister, Winston Jordan
During an interview with Kaieteur News, Jordan lamented the fact that there is no proper development plan in place for the sector; a plan that sets out the right coordination for oil production and capacity development. He recalled that the Inter-American Development Bank (IDB) had advised Guyana to get this done but it is yet to be realised.
The economist said, “Everyone agrees this was needed post-haste and then when the PPP/C got into office, it only looked at the Natural Resource Fund (NRF) law and the Local Content Legislation, both of which they had considerable work done by us to go on. But the Petroleum Exploration and Production Act, No 3 of 1986, the Petroleum Exploration and Production Act Regulations 1986, and the Petroleum Exploration and Production Act, 1998, these key pieces of legislation are yet to be touched.”
Jordan added, “Accelerated production in the absence of modernised laws and the strengthening of institutions is what I would consider a fatal flaw in the management of the sector. I see why they want more oil production because of high prices and to monetise the resource quickly but I would argue for a NRF that does not give government the kind of access it has currently for withdrawals and spending. We do not have the skill set to be able to regulate efficiently all that is happening in this sector. We are left at Exxon’s mercy.”
The Former Minister also lamented the fact that when Exxon makes a discovery, Guyana is without independent specialists to confirm what the company states. “We have to take whatever they say and swallow it. I am not saying Exxon is giving us wrong information but Exxon is looking out for its shareholders and the Government must do the same for its people. The concern for me is that we don’t seem to want to attract the skills and expertise needed to truly deepen our understanding of the sector.”
The Former Minister’s comments are also in sync with the findings of a key report by the World Bank which highlighted 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.
Further to its call for the relevant experts to be put in place, the financial institution had 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.
It said these include: (i) policies, laws, and contractual arrangements that maximise the benefits of oil revenues and minimise 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. 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.
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