The government will be channeling the bulk of a soon to be accessed US$20 million oil and gas capacity building loan from the World Bank into hiring of skilled personnel and training to maximise oversight of the sector.
How exactly the funding will be split among respective projects has not yet been worked out as a Project Implementation Unit is now being set up.
“We are in the process of establishing a Project Implementation Unit to get the loan going. Primarily, we will be using the money in part on the feasibility and advancement of gas to energy project and on hiring skills for the production phase of [the] Liza [well]. Additionally, we will look to fill other gaps and technical skills,” one official explained.
It was Minister of Finance Winston Jordan who announced at a press conference recently that Guyana was set to benefit from the World Bank loan.
“Now we have a loan coming up with the World Bank. I think about [US] $20 million for oil and gas development and one aspect of that is to look at the legislation that we would be required to put in place to improve the architecture for the oil and gas sector,” he said.
Pointing to the lack of legislative and other frameworks geared for a petroleum sector, Jordan said that the government would move swiftly to ensure that mechanisms are in place to cater for first oil in 2020 and production beyond. “We have none like local content, SWF [Sovereign Wealth Fund], Petroleum Commission Bill, Petroleum Fiscal Regime legislation and plus we don’t have people to draft them. So, under this loan, we have to bring people to help us draft these pieces of legislation,” he added.
Referencing an International Monetary Fund (IMF) report that said the government here is facing a significant challenge in preparing for the start of oil production, Jordan said that some of the funds from the loan would go towards fulfilling those recommendations.
Entitled `Guyana: A Reform Agenda for Petroleum Taxation and Revenue Management,’ the report, dated November 2017 and commissioned by Jordan, adverted to the generous deal that ExxonMobil extracted from the government based on what is publicly known about the 1999 and 2016 agreements struck with its subsidiary, Esso Exploration and Production Guyana Limited (EEPGL).
First reported by the Sunday Stabroek in December of last year, the IMF report stated that while efforts are underway simultaneously across various fronts, “there is a need for strong leadership by the government.” It said it may be helpful to prepare a roadmap of reforms and changes necessary between now and the start of the production of oil.
The report also raised questions about the Petroleum Commission Bill, which is now before a select committee of Parliament.
It noted that the Petroleum Commission Bill sets up a regulatory body for the petroleum sector and delineates the functions and duties of the Commission, which include monitoring and regulating the exploration, development and production of petroleum in Guyana.
The report further said the Commission’s core responsibilities are technical in nature, and encompass monitoring and ensuring compliance with national policies, laws and agreements and ensuring compliance with health, safety and environmental standards, among other things.
“However, the Bill also grants revenue collection and fiscal powers to the Commission, fragmenting tax policy for and revenue administration of the sector. For example, the Commission shall: ascertain the cost oil or gas due to operators; participate in the measurement of petroleum to allow for estimation and assessment of royalty and profit oil or gas due to the State and be responsible for the approval of the exercise; provide the necessary information to the relevant authority for the collection of taxes and fees from petroleum operations; be responsible for the collection and recovery of all rents, fees, royalties, penalties, levies, tolls and any other charges payable under the Petroleum (Exploration and Production) Act and any other revenues of the Commission; and advise the Minister of Natural Resources in the negotiation of petroleum agreements and in the granting, amendment, renewing, extending, and revocation of licences,” the IMF report noted.
It said that if the intention is to have the Guyana Revenue Authority (GRA) as the single revenue collection agency for the petroleum sector, the Bill should be amended.
“…Moreover, given Guyana’s limited exposure to the petroleum sector and the scarcity of specialised human capital among government ministries and agencies, resources should be used efficiently and strategically. The mission supports centralising the fiscal administration of the sector (including Production Sharing Agreements) in the GRA. The proposed Petroleum Commission, however, should be responsible for regulating all non-fiscal aspects of the petroleum sector,” the report argued.
The report emphasised that a fair and transparent petroleum revenue administration is a vital link in the value chain required to transform petroleum revenues into lasting national wealth.
Jordan said that he and his government were grateful for the assistance given by multinational agencies, especially the IMF, saying that since 2016 a number of studies had been undertaken and findings were later made known to government.
He was quick to point out that the studies’ recommendations are always formed on the basis that the contract with ExxonMobil’s subsidiary, EEPGL, was legally binding and should be kept but that for newly contracting companies changes need to be made.
“[They have said] ‘We understand what you have and so on. The template to go these days is not this route’ but they made very very clear that there is nothing you can do with those you have already signed.
“Whatever they are recommending is going forward. I have a petrol fiscal regime which they would like to see us put in place but it would not affect any contracts we have already signed. This is the blueprint going forward for any other agreements you may enter with other companies,” he added, while pointing out that he is in constant talks with the IMF, the content of which is relayed to Cabinet.