Oil consultant denies advising gov’t to set up national oil company

Dr Valerie Marcel, Chatham House fellow and project head of the New Petroleum Producers Discussion Group, has denied advising government to establish a National Oil Company (NOC), contrary to what Minister of Natural Resources Raphael Trotman has reported.

“For the record, I advised the Govt of Guyana on the risks and rewards of various NOC models. Some looked better than others, for sure, in the #Guyana context. But I wouldn’t say to a govt you should or should not establish an #NOC…,” Marcel said on Twitter, in response to a July 2nd, 2018 Stabroek News report.

On the issue of the establishment of an NOC, Trotman had told this newspaper that although the establishment of a NOC is not in the government’s immediate plans, there will be one formed sometime in the future and he noted that it had been advised by several international organisations that it was the way to go.

“Government has been advised by several international organizations, foremost amongst which is Chatham House, through Dr. Valerie Marcel, that the NOC is the direction we would be headed. We believe we will get there one day but it is not a matter that is on our list of immediate [priorities],” he told Stabroek News when contacted.

Dr Marcel’s experience includes advising governments on petroleum sector policy and governance. She is a member of Columbia University’s Executive Session on the Politics of Extractives and was a member of KPMG’s advisory team for energy-sector governance and the World Economic Forum’s Global Agenda Council on the Future of Oil and Gas and previously led energy research at Chatham House.

Attempts to contact Dr Marcel by both telephone and email were unsuccessful.

The Canada-born Dr Marcel, who has worked extensively on researching projects on NOCs and governance issues as well as strategic issues affecting the petroleum industry, has said her role is to not give directives but aid in providing governments with resources and information on both the pros and cons of NOCs.

Marcel was part of the group of international researchers and petroleum policy advisors, including Sir Paul Collier and Sir Shridath Ramphal, who came here in March and met with Cabinet ministers to discuss the emerging oil and gas sector and to give insight into prudent preparations for the revenues that will be generated the industry.

As project leader for the New Petroleum Producers Discussion Group (NPPDG), which is a network and community of practice bringing together 35 countries, she had also spearheaded a two-day stakeholders’ seminar here in November, 2016, with the theme, ‘Good governance: Preparing for First Oil.’

During one of the sessions, speakers focused on the formation of an NOC.

The subsequent NPPDG report on the seminar, dated February 24th, 2017, noted that “NOCs are important to emerging producers because they can be vehicles for developing technical and commercial skills in the petroleum sector, enabling countries to participate in the production of their natural resources. Through state participation (equity stakes in licences that are held by the state or its representative agency) the NOC can potentially transfer benefits beyond petroleum revenues to the state. However, the net financial gain to the state depends very much on the efficiency of the NOC and the soundness of its commercial strategy.”

It added that many Guyanese in the discussions were positive about the idea of having an NOC and felt the prospect of such an institution was an attractive one, “which contained a powerful symbolic message regarding national ownership of their source.”

But several external speakers, according to the report, urged Guyana to consider some of the negative considerations. “Firstly, there is an opportunity cost to financing an NOC: indeed, are those funds better spent on other budgetary priorities such as vocational education to train Guyanese for jobs in the oil sector, for example? Secondly, financing an NOC can be difficult when it does not have equity stakes in producing licences that generate revenue. In Guyana’s case the offshore acreage has already been awarded (with no provision for an NOC stake) but minority equity stakes could feasibly be reserved for the NOC in acreage that is relinquished. Finally, other producers in the room also suggested that Guyana would need to be ready to confront the likely rush of requests and favours that would follow the establishment of an NOC. In this respect, other producers were clear that it would be sensible to establish careful governance mechanisms to reduce the opportunity for nepotism and corruption. One speaker suggested that should the government decide to create an NOC, it should include the right of an NOC to minority equity stakes in future licences but work to establish the capacity of the regulator first. Also, when establishing an NOC it is important to carefully delineate its mandates and ensure that it is affordable,” it explained.

Marcel has a recent policy brief she compiled on establishing an NOC in Lebanon, where she noted that, generally, while undertaking research work, most emerging oil and gas producer countries eventually face the question of whether to create an NOC.

She noted that there is no universal approach. “Rather, the balance between risk and reward for the state evolves over time, with financial risks to sovereign funds declining as a resource base becomes larger and as petroleum sector skills grow. With a more firmly established petroleum sector, there are greater financial and human resources to commit to operations. But as this brief will show, there are also governance risks to consider when establishing an NOC. Whether these types of risks grow or decline over time depends on the strength of institutions and quality of political governance,” she posited.

“In addition to the issue of timing the establishment of an NOC, there is also the question of what role it will play. Before engaging in the creation of an NOC, it is critical to have a clear answer to the question, ‘Why have an NOC?’ The government should consider what NOC role would be most useful, realistic, and affordable. It should also anticipate how that role would complement or hinder what other state institutions and private sector companies are doing (or planning to do),” she added.

Only recently, she asserted, again on Twitter, that “Establishing a national #Oil company needs to be done after a certain level of political stability is ensured, or else it will turn out to be the pet project of some powerful figures, promoting special interests & not the public good.”

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