Finance Minister Winston Jordan has said in his budget projections for 2018 that the oil and gas industry will lead Foreign Direct Investment (FDI) next year, although Government has been cautioned not to place too much of its focus on the impending revenues that could possibly be earned from the oil and gas sector.
Delivering Budget 2018 in the National Assembly on Monday, the minister said the country’s capital account is anticipated to improve due to strengthened net medium- and long-term capital flows in both the private and public sectors. This is despite the national current account being expected to weaken.
Jordan has said the projected FDI, particularly in the oil and gas sector, is expected to drive the US$145.2 million increase in private sector medium- and long-term capital. Importantly, also, he noted that taxes from oil and gas support activities are expected to increase by G$3.2 billion.
The IMF has cautioned Government against any excessive borrowing or exorbitant increase in public spending ahead of the signalled start of commercial production of oil in 2020 by ExxonMobil and its partners offshore Guyana in the Stabroek bloc.
And Government is still to come clean on whether in fact a US$20 million bonus from the giant US-oil company has been received.
But despite this, Jordan told the National Assembly recently that as the country begin the transition to an oil-producing nation, Government must, and will, implement prudent structural reforms and fiscal safeguards, strengthen our institution, and “…prioritize the development of our human capacity, and diversify our growth portfolio”.
“The agenda for 2018 is a product of our reflections on our mid-term as a Government, and repositioning and reprogramming based on lessons learned,” he explained.
Jordan has steadfastly held that oil is a non-renewable resource. He has said that “the finite world is looking for renewables, and one day in the future, oil will not be the preferred source of energy.”
In light of this, the minister has noted that when looking back Guyana, must be able to be proud of the choices made, and the immediate years ahead, because we have “positioned our sectors and industries to be stronger, more diversified and resilient.”
The minister has stressed, too, that Guyana has to begin diversifying its production and income generating base to ensure sustainability. This, he said, must be the country’s collective goal to which the 2018 budget is directed. “Indeed, Budget 2018 contains allocations to strengthen and grow our private sector, as well as to improve the efficiency and robustness of our public sector,” he added.
Further, Jordan warned of the drawbacks associated with the oil and gas sector. He said, “The literature is replete with examples of natural resource-dependent economies being prone to greater income inequality…We must — as a Government, as a Parliament, and as a nation — guard against falling victim to the pitfalls that this new stream of oil resources might bring.”
The Finance Minister also gave his commitment that Government would ensure that resources are prioritised for immediate catalytic development needs, and he has signalled that Government would be implementing robust systems for the new oil and gas realities. “As we begin the transition to an oil-producing nation, Government must, and will, implement prudent structural reforms and fiscal safeguards, strengthen our institutions, prioritise the development of our human capacity, and diversify our growth portfolio,” he declared.
PSAs and SWF
Given that more oil discoveries have been announced in Guyana, Jordan said these discoveries have derisked the basin, which is estimated to contain at least 7 billion oil-equivalent barrels, and has resulted in the significant ramping up of exploration activities in other already allocated offshore blocks.
As such, Government anticipates significant interest in exploring the unallocated blocks of the derisked off-shore basins. In light of this, the minister said, it is imperative that Government safeguard the rights of the nation to a fair share of resource wealth.
Jordan has said that to do so, Guyana will have to revise the existing template of the Production Sharing Agreement (PSA), to be more accommodating to changing commodity prices while maintaining a level of progressivity that is responsive to profitability.
“While we strengthen our ability to negotiate more equitable PSAs, key Government agencies within the recently established Inter-Ministerial Technical Committee on Petroleum (will have) to continue to coordinate capacity building and interactions with the industry,” he explained.
The committee’s agenda in the immediate future would focus on coordinating capacity building, information sharing, as well as providing input into the development of a legal and institutional framework to support the Sovereign Wealth Fund (SWF).
The development of a rules-based SWF, according to Jordan, is critical to ensuring that Guyana’s resource revenues are responsibly managed within a transparent framework that promotes the highest levels of accountability. “It must be noted that the SWF will not just serve for investment, but also to save for future generations and to stabilise the economy in times of global economic instability,” he expressed.
During 2018, the Government plans to publish a ‘green paper’ to apprise the National Assembly on the proposal for the SWF, to seek feedback for further refinement, and to stimulate a national discussion to ensure that all citizens understand the benefits and the perils against which Guyana must guard in the collection and management of the impending oil resources.
Jordan has said that Guyana will continue to build capacity for effectively managing and regulating the oil and gas sector, and to ensure that systems and regulations are in place to properly and transparently account for, and manage, oil revenues.
He announced, too, that an oil and gas unit would also be established within the Guyana Revenue Authority (GRA). That unit, he said, “will benefit from extensive training in revenue administration within the context of PSAs.”
To also prepare the private sector for rapid growth in this sector, Government will be hosting an Oil and Gas Exposition and Business Summit in the first quarter of 2018, to bring together various segments of the private sector towards creating partnerships and facilitating information-sharing for business opportunities.
“Although oil remains the main focus of this emerging sector, we are carefully exploring the feasibility of utilising natural gas as a temporary alternative for power generation. In the coming year, further steps will be taken to identify the preferred option for transporting gas onshore, including the most suitable location,” the minister further stated.
In 2017, three additional oil discoveries in the Stabroek block were announced: Payara, Snoek, and Turbot. While the quantity and quality of the latter two discoveries are still being assessed, the gross recoverable resources for the Stabroek block are now estimated to be between 2.25billion and 2.75 billion oil-equivalent barrels, making it one of the most significant global finds in recent years.
