After the last Budget presentation, stakeholders were perplexed at the refusal of the Government to initiate policies that would stimulate Guyana’s economic growth rates to levels that would significantly improve the standards of living in the near-term. One explanation for this lassitude was that Government may be depending on revenues from petroleum – projected to be flowing into the national coffers in four or five years – to accomplish that task.
However, the example of countries such as Ghana – very similar to us politically – that struck oil a decade ago and began pumping it out by 2010 but did not receive the expected benefits, should alert us to the need to be very careful of placing all our “growth” eggs in the oil basket. Rather than the 12 per cent growth rate projected, the reality was not even half of that for the last few years. It is more than serendipitous that Ghana literally possesses a mirror image of our oil reserves from the time eons ago when Africa and South America broke apart and gradually drifted apart, but we do not want to mirror their disappointment in oil.
While most commentators have been warning about the dangers of “Dutch Disease” – neglect of, and falling revenues from the traditional economy – Ghana’s experience illustrates another even more insidious danger. Fundamentally the terms of the fiscal regime – which is basically the agreement as to how the revenues from the petroleum would be shared between the Government and the oil companies – were neither fully appreciated by government nor shared with the citizens of Ghana. This led to shattered expectations when the expected benefits were not realised from a lower than expected revenue stream.
Last week, Minister of Natural Resources Raphael Trotman announced the Government would be introducing by the end of this month, eight pieces of legislation: the National Oil and Gas (Upstream) Policy: the Petroleum Regulatory Commission Bill; the Local Content Policy; the Petroleum; Exploration and Production Legislation and Regulations; the Petroleum Commission Legislation (regulation and oversight); the Petroleum Taxation and Fiscal Legislation; the Sovereign Wealth Fund Legislation; and the Public Communication Framework. But Ghana also passed similar pieces legislation which we now know are necessary but not sufficient. What is necessary is the Government must become much more granular with the actual details of what revenues would accrue to Guyana. In other words, the details of the fiscal regime (the “Petroleum Taxation and Fiscal Legislation” above) applied to projected oil flows within a bounded time line.
But even before the oil began to flow, the Ghanaian Government felt compelled to raise the standard of living of the populace by seeking funds from the projected oil flow. Rather than what had been unrealistically proposed by Minister Raphael Trotman – to have Exxon pay now for future revenues – Ghana decided to enter the international bond market. Because of the hype in the size of the Jubilee oil field (as with our Stabroek’s) Ghana successful floated huge bond offers on the expectations they would be serviced for projected oil revenues. What actually happened was Ghana’s debt skyrocketed, inflation rose and their currency depreciated as the projected revenues never materialised.
In terms of what fiscal regime will be instituted in Guyana, there are some ambiguities that can, and should, be cleared up immediately. Since our exploration agreement with Exxon was signed since 1999 why is it the Guyanese people are not privy to the details of the revenue sharing portion now that oil has been struck?
Secondly, since the present APNU/AFC Government has mentioned “renegotiations” with the company on the contract, have any modifications been on the fiscal regime?
At a briefing for selected invitees by the Government, Exxon and other “oil experts”, this newspaper understands Guyana will not be receiving a royalty on the oil shipped but rather an undisclosed share of the profits. This is a much less reliable metric since profits fluctuate and the revenue is not taken off the top.
