– international consultants in other technical areas of oil and gas operations are deemed necessary
In the previous column, this author contended that the Government’s engagement of high-level international experts in oil and gas is not absolutely necessary – and in fact – this practice is one in which huge amounts of the nation’s financial resources are wasted to pay these experts. This contention was premised on the fact that these experts simply came into this country and regurgitated the same things that this author and many other Guyanese finance professionals and economists, already envisage as regards the fiscal framework for the petroleum industry, local content and the likely lifespan of this new industry. In other words, it is a waste of time, money, and other crucial resources to hire foreign experts in certain professional fields of expertise that we already have locally at our disposal and in the Diaspora. However, this columnist is not entirely against the need for the Government to solicit the service of international experts and/or consultants; in fact we do need this level of professional service as it relates to the embryonic petroleum sector. In this regard, in the concluding section of this article, suggestions will be made with respect to what aspects of the oil and gas operations we do need some independent international experts and these are critical areas which the Government seemingly have not thought necessary to engage such experts to properly advice and guide the country, or perhaps, it has not occurred to them as yet. This article therefore seeks to stimulate their thinking at the cabinet level, to consider these suggestions.
As indicated last week, this week’s article is dedicated to continue the comparison of the quality of advice provided by these experts, particularly the Sovereign Wealth Fund (SWF) as against those that were previously provided by this author not too long ago – in a series of seven articles under this column (the sole intent of doing so is to simply lend validity and credibility of the contentions made herein). In this regard, the Chilean Sovereign Wealth Fund specialist, Eric Parrado says the Guyana Government needs to find an ideal balance in spending and saving its oil revenues. He went on to state that, “the Government should invest the oil revenues up to a certain point then save your money”. He also posited that Government needs to decide what will be the spending priorities whether it will be infrastructure, education or health. He further stated that the Government need to decide what will be the cap on spending per sector in those priority areas (Newsroom, March 23, 2018).
On January 14, 21 and 28 – February 4, 11, 18 and 25, 2018, a series of articles were featured under this column on a proposed framework for a SWF for Guyana. In the concluding edition of that series, this author posited that Guyana does not need a SWF at the onset of oil production. Instead, a Stabilisation Fund would be more appropriate – such that a greater portion of the oil revenues could or should be utilised to advance massive infrastructural developments among other crucial aspects of national development, which the country badly needs. In a developing economy, the merit of maximising current spending from resource revenues is that it provides an opportunity to increase the consumption of a poor population. It also relaxes potential borrowing constraints, and thereby enables increasing investment in domestic capital, with high rates of return. Therefore, constraining spending, inter alia SWF, with restrictive spending rule may involve welfare loss; such a situation existed in Uganda (Hassler et al, 2015). Essentially, a Sovereign Wealth Fund is a savings fund for a country that has large surplus funds, and it is used to invest in various financial instruments in the global capital markets. In other words: if Guyana earns $100 billion in oil revenues, and it is then locked away for investment in an SWF in which those investments are going to earn, say, five or 10 per cent return on investment, would this model be of any direct economic benefit to the people of Guyana? The answer is no. Unfortunately, this may practically not happen. Guyana, has a Consolidated Fund that is almost always in deficit, and so is the national budget, which is almost always a deficit budget; which means that the country borrows heavily to fund budget spending. This is coupled with the fact that the country is a Third World country, and therefore needs massive investments in infrastructure, health care, education, information and communication technology etc. (Excerpts from the SWF series previously written by this author).
A critical area in which Guyana do needs international independent consultants, is to advice on the measures the multinational oil companies claimed have in place to respond to an oil spillage. Next week and the following week, the author shall examine this in greater depth.
The Author is the holder of a MSc. Degree in Business Management, with concentration in Global Finance, Financial Markets, Institutions & Banking from a UK university of international standing.
