Guyana must use depletion policy to avoid Dutch Disease

Oil and gas development

– says former BP executive

As Guyana prepares for first oil in 2020, experts from across the world have been advising Government to make all the necessary preparations to avoid an oil curse or “Dutch Disease”.

Former Vice President for Strategy and Policy Development at BP; London and visiting professor at King’s College, Nick Butler, said one way to do that is by setting the pace of growth in this new sector with a depletion policy.
Butler was speaking on KBIA’s Global Journalist, a radio and podcast channel out of the University of Missouri, School of Journalism, which is aired on Missouri and California radio channels.
The former oil executive was joined by analyst at Control Risks; Raul Gallegos, from Bogota, Colombia; senior fellow at the Institute of International Relations, University of the West Indies; St Augustine, Anthony Bryan; and senior journalist at Guyana Timesand TVG’s Evening News, Samuel Sukhnandan.
He said the idea behind this is to phase production over a long period, avoiding a gold rush and allowing local companies to build up their capabilities to enable them to win a share of any oil-related activity.
“They don’t need to develop it all at once. I would support a depletion policy where you limit what you produce year by year to manage the inflow of money so that the exchange rate is not destroyed by this one single, successful industry,” he said.
That covers everything from the development of a new port, infrastructure, engineering support and all the other essential onshore services from food to accommodation for the oil workers.
Butler noted that if Guyana is to get this wrong, it would have devastating effects for agriculture and local businesses. It would also mean employment will become less.
In other words, if there is a huge wave of foreign currency, the exchange rate here could get “out of balance” and it becomes cheaper to import commodities that are already produced in Guyana.”
The former BP Vice President also said Guyana’s oil discovery seems promising because there is potential for more massive discoveries to be made. However, he noted that based on how things will play out here, he said it could take years before Guyana starts to benefit from the revenues.
“It will take at least three years before any production and I would imagine that it would take another three years or maybe five years before the companies involved would recover their investment. So, there isn’t going to be a massive inflow of revenue into Guyana for five years or more,” he added.
Although there are some plans already being made to have locals trained to take up employment in this new sector, Butler said there is still a need for more training programmes for locals. He said while the more specialised oil jobs will go to Americans and other foreign nationals with the expertise and skills, he said there will be a lot of other jobs and interest in the sector.
Meanwhile, Bryan spoke to the need for Guyana to develop sound environmental policies when it comes to the oil sector, noting that the country should use Trinidad as an example of what could go wrong. He said with most oil producing countries, oil spills are inevitable and broken pipelines are a major concern.
Gallegos, on the other hand, told the programme that Guyana is no different from other countries that have found oil, but their finances are poorly managed. He said it is therefore a huge responsibility that would require great efficiency. He used Venezuela as an example of one of those countries that did not manage its oil resources and revenues properly that did not work out well in the end.
Adding his take from a journalist point of view, Sukhnandan in his contribution to the discussion stated that the relatively new Guyana Government has been taking steps to prepare for this sector.
He noted that the Government has been looking at various models and polices in major oil producing countries that have been successful like Norway, among others. However, he did point out that the Government made a huge blunder when it kept secret a signing bonus worth US$18 million in the Central Bank.