Oil, Government Take & Spending: Navigating Guyana’s Development Challenges – 23

Introduction

Today’s column concludes the discussion on the challenges facing Guyana in managing public expectations when spending its Government Take from the coming petroleum sector. I begin with an appraisal of the performances of the two remaining variables, (4 and 5). Variables 1-3 were considered in the previous column. After this, I shall wrap-up the column with a few brief observations on “best practices” that have been employed in similar situations worldwide.

Performance: Variable 4

As it turns out, the fourth variable, which was considered last week, is a variant of the third. Readers may recall, I had classed the third variable as constituting the two existential threats that Guyana’s petroleum project faces. These are the threats of an environmental catastrophe and Venezuela’s geo-strategic territorial aggression against Guyana. The fourth variable, considered here, is the risk of significant implementation delay.

However, while there clearly have been hiccups and a few moderate delays, the risk of significant implementation delay has been negligible to date. Indeed, at present the target of production start-up of Liza 1 for 2020, Liza 2 for 2022, and full ramp-up of production in the second half of the 2020s, is still on course.  Consequently, overall, there has been an exceptionally rapid transition from petroleum resource discovery to its commercialisation. Guyana’s experience has been truly phenomenal! In the space of only five years (2015-2020) it is projected that the country would have accomplished so much that confidence in both the private Contractor and public Authorities executing the petroleum project on time remains very high. While, as previously indicated, there is little euphoria in Guyana about this accomplishment, there is also little public expectation and/or speculation that the petroleum project will not happen.

Performance Variable 5

The fifth variable has provoked the most severe criticisms in Guyana. The Production Sharing Agreement (PSA), which details the relation between Contractor (Exxon and partners) and the Government of Guyana, has been widely denounced as deficient; along with its key components. Governance, especially the Petroleum Commission (PC), has been taken to task. The Natural Resources Fund (NRF) (locus of revenue management) and the Local Content Requirements, and proposed legislation, have been similarly excoriated; even though to date, none of these are operational. There has been, therefore, no practice against which to assess these criticisms. Such critiques therefore, remain ventures into speculation about what could happen, and not analysis of what did happen.

It is not the intent of this column to revisit these debates. My singular aim at this stage is to remind readers that there is no “perfect oil contract.” In January of this year I had observed that each and every oil contract is unique. Consequently, such contracts should be evaluated against the purpose(s) for which they are designed and the societal environment in which they are located.

Furthermore, every existing petroleum contract can be improved. However, any such improvement remains relative! As stated before: “contracts are not absolute or essentialist constructions! There are far too many unknowns, uncertainties, variations in country environments, along with, oil and gas firms, for anyone to offer anything but a relational better choice, rather than an idealist specification of a perfect contract.” The danger though, of pursuing an idealist (illusory) “perfect contract” is that this aim becomes the enemy of “good contracts,” given overall circumstances.

Therefore, I was at pains to observe then that the PSA still may or may not fulfil Guyana’s expectations. Relative to the public’s expectations, the country does not, and indeed cannot know for sure, at this stage, whether expectations will be realised. What we can be sure of, however, is that, in an absolute sense, Guyana’s income, wellbeing, and economic value in the period immediately following 2020 will be absolutely enhanced. Those who suggest that, in an absolute sense, Guyana will be worse off are peddling nonsense! Indeed, similar nonsense is caricatured in demeaning press portrayals of the second-fastest growing continent on Earth ̶Africa. Critics portray this Region as one of declining incomes, increasing poverty, and constantly ravaged by oil majors, oil robber barons, and complicit African leaders. They then force comparisons with Guyana What a heresy!

Best Practices

This Section briefly reports on a few “best practices” revealed in developing countries emerging as petroleum producers:

First, there is the revealed guidance that, when the Authorities are preparing for a coming petroleum sector, the public focus should be on promoting balance in the distribution of expected benefits. In this regard, special attention is placed on the economically, socially, or otherwise disadvantaged. This practice requires advancing public awareness of specific measures designed to ensure that each group/constituency sees a path to a fair share of expected benefits.

Second, it is imperative to make the public assured and confident that there will be no disappointments to come. Disappointments will occur if existential threats and/or substantial implementation delays emerge during the process of commercialising the “discovery.” Public messages rooted in realism are, therefore, clear priorities. However, for this to happen, national policy trade-offs must be at the centre of all public communication.

Third, and following on the above, the Authorities have to avoid any hint of exaggeration concerning expected benefits, particularly in regard to those flowing to specific groups/ constituencies. The gravest mistake has appeared to be the exaggeration of benefits, which is subsequently exposed by actual practice.

Fourth, time and again experience has shown that there is no perfect, fool proof method for managing public expectations. Much of this is indeed trial and error. However, such projects have been, all too often, over-managed and come across as self-serving state propaganda! Further, even though emphasis has been placed on managing public expectations, there is an obvious need for the Authorities to manage their own expectations!

Finally, at the base of best practices, it must be recognised that managing public expectations, depends ultimately on communication capabilities. Communication however, is a highly developed skill. There is, therefore, the requirement for sufficient investment in processing these skills for the benefit of Guyana’s coming time of oil and gas production and export, circa 2020.

Conclusion

Next week’s column starts addressing the tenth and final topic on my list of “top-10 challenges,” which spending its Government Take, Guyana would have to navigate. That challenge is the integration of the Government Take, from its PSA and the National Budget’s spending and revenue collection.

 

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