Constraints on petroleum-based regulatory bodies in Guyana-type economies

Introduction

Today’s column concludes discussion on the institutional aspects of Guyana’s preparations for its coming petroleum industry. The discussion focuses on the proposed regulatory commission, as expressed in the government’s Draft Petroleum Commission of Guyana Bill (PCB), presently in circulation among stakeholders.

Although the Guyana Geology and Mines Commission (GGMC) is responsible for oversight of Guyana’s petroleum sector, through its Petroleum Division, the government has expressed preference for a dedicated, stand-alone Petroleum Commission. The principal reasons offered are:  “the complex nature of the petroleum sector”; the several “cross-cutting issues” regarding petroleum’s social and economic impact; Government’s commitment to “a sustainable extractive sector”; and, the “signal importance” of petroleum to Guyana’s sustainable development.

The intended commission, and its accompanying regulations, proclaim their basis in prevailing global best practices. By this is meant, practices that are generally accepted as “good, safe, transparent and efficient” for Guyana’s activities; ensuring thereby that these always meet international standards. As proclaimed in public discourse, government’s dominant concern seems to be the avoidance of those risks and threats, which abundant hydrocarbons resources pose to economic/social/political growth and stability in Guyana-type national environments; in particular their smallness, openness, poverty, and formidable natural environmental challenges.

These latter concerns have been previously addressed in this series under the rubric of resource curse and the paradox of plenty.

What is a regulatory commission?

Readers may not be certain of what regulatory commissions/agencies represent, but management specialists typically define these as “organizations created by government with the purpose of enforcing specific regulations on a certain part of the economy”. The United States is credited as being the first country to create such a body. (https://www.reference.com/ government-politics/definition)

Guyana’s PCB is expected to be laid before the National Assembly during this year’s session. In what follows I briefly summarize key aspects of this legislation. And, following on that offer a brief analysis/evaluation of the draft PCB. This is aimed at deepening readers’ appreciation of the Bill, as this is designed to have far-reaching consequences for the nation in its coming time of oil and gas extraction.

PCB objectives

The declared aim of the intended legislation is to establish the PCB within “a comprehensive and robust legislative regulatory framework”. The two key objectives listed are 1) the establishment and functions of the regulatory body; 2) the promotion/monitoring/regulation of an efficient, safe and environmentally sustainable value chain for the sector; 3) an agency whose fundamental governance tenets are efficiency, transparency, sustainability, and certainty.

PCB functions

To meet these objectives the overarching function of the commission is to “promote, monitor, and regulate the efficient, safe, effective and environmentally sustainable exploration, development and production of petroleum in Guyana” (Explanatory Memorandum).

Subsidiary and related functions include 1) ensuring compliance with policies, laws, regulations, agreements; 2) maintenance of health, safety, and environmental standards; 3) promoting local content and participation in the sector; 4) monitoring the decommissioning and tail-end production and cessation plans/responsibilities of mining firms; 5) Research and Development (R&D) activities in all areas of the industry; and 6) adviser to the Minister responsible for the sector. As the proposed legislation states these functions “shall be performed … in an open, fair and non-discriminatory manner”, with due diligence being paid, whilst simultaneously promoting competition in the sector, having regard to internationally accepted financial principles.

Although important, most of the other features of the draft PCB, deal with managerial and governance aspects. Interested readers can obtain a draft copy by googling the title of the proposed Bill or from the Ministry of Natural Resources.

Evaluation 

Similar to the two cases of Sovereign Wealth Funds (SWFs) and membership of the EITI, readers interested in petroleum-based regulatory commissions can derive much benefit from researching these experiences in the several countries that have established these during the 2000s. Such research should help their appreciation of the complex task involved in avoiding the pitfalls of ignorance. It seems to me that at this juncture Guyana should not resort to, as it were, re-inventing the wheel.

To begin with, such research would reveal that the PCB is based on a command and control-type approach to regulation, founded on national law and earlier United Nations Resolutions, which have pronounced on “the right of peoples and nations to permanent sovereignty over their national wealth and resources in the interest of their national development” (Oshionabo, Transnational Corporation, Civil Society and Social Responsibility in Nigeria’s Oil and Gas Industry).

This type of approach supports domainal law which has produced, over the years, a brand of regulations that assert (deem) these to be in the “public interest”. Today, such approaches are widely challenged in law, politics, and practice. Although these regulatory approaches were common in the 1970s and 1980s, they have been blamed since for today’s revolt against regulations. And the Guyana authorities would need to take this sentiment on-board.

One reason that drives the need for reflection is that the red-tape and over-regulation produced have been seen as “stifling individual innovation and creativity”.

There is little doubt in my view in the need for a paradigmatic shift away from command and control type regulations (and seemingly state-directed) dominance over national initiatives.

Despite the above, I also believe the research evidence is equally strong in support of the view which detects in many instances that regulated companies have been able, through both fair and corrupt means, to capture their regulatory commissions and agencies.

One consideration that propels this regulatory capture is the asymmetric dependency relation between the capacity of the regulatory agency (and indeed the state) and the companies. In practice, petroleum companies have been able to effectively control the value chain of the sector because of their immense capabilities in informational flows, for all areas of petroleum extraction, technology, R&D and marketing.

Threats of divestment on their part, have routinely exposed the structural inability of Guyana-type states to make better use of the nation’s resources than the companies offer.

What an irony!

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