US$11.6m loan from IDB targets oil and gas governance, clean energy

The Inter-American Development Bank (IDB) has made available to Guyana a US$11.64 million loan to assist the country in preparing for its transition towards becoming a major oil and gas producing state.

 According to an IDB press release yesterday, this is a policy-based loan that is designed to support the strengthening and the sustainability of the energy sector in Guyana by contributing to the institutional development of oil and gas governance and the development of cleaner energy sources for electricity generation.

The loan is to be funded in two components totalling US$11.64 million. The first component of US$5.82 million from the IDB’s Ordinary Capital, is to be disbursed within two years, with a grace period of 5.5 years, and an interest rate based on the London Interbank Offered Rate (LIBOR). The second component of US$5.82 million from the IDB’s Concessional Ordinary Capital, is to be disbursed within two years, with a grace period of 40 years, and a 0.25% interest rate, the IDB release added.

The specific objectives of this loan programme are two-fold. The first objective is to develop a management and planning framework for Guyana’s oil and gas sector and the second is to contribute towards the development of a policy framework so that Guyana may diversify its electricity generation matrix using cleaner or renewable sources. The IDB has further disclosed that the executing agency will be the Ministry of Finance

The agreed-upon policy commitments of the first tranche of the programme are: (1) creation of the Department of Energy (DE) within the Ministry of the Presidency to take over responsibilities related to the governance and development of Guyana’s oil and gas sector; (2) approval by the DE of a draft roadmap to develop Guyana’s oil and gas institutional framework, and; (3) design of a model contract for future Production Sharing Agreements (PSA) by the DE and presented to Guyana’s Ministry of the Presidency (MoP).

The agreed-upon policy commitments for the second tranche are: (1) a DE functions manual establishing its organisational structure, budget and staff allocation, approved by the MoP; (2) a PSA set of protocols and mechanisms for contract management; and (3) an oil and gas depletion policy designed by the DE and presented for approval to the MoP. Finally, the programme will aid the Guyana Government in the development of a policy framework to diversify and promote the sustainability of Guyana’s electricity generation matrix.

Guyana’s new energy scenario, which will likely yield significant revenues for the government, represents a transformative shift in Guyana’s development trajectory. The IDB release said that it embodies a crucial and unprecedented opportunity for economic growth and sustainable development.

The IDB says it is certain that if handled well, the country can enjoy a boost in the overall standard of living. However, there is considerable work to be done so that Guyana can enjoy the benefits of its recent – and potential – oil and gas wealth, the release said, adding that too often resource-rich countries have become or remained poor as a result of inadequate resource management. Hence, there is an urgent need to improve the governance of Guyana’s oil and gas sector ahead of the start of production in 2020, it added.

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