In the year since oil production began, Guyana has earned around US$185m and this sum has been parked in the New York Federal Reserve Bank. It had always been the expectation that once oil production began the accruing revenues would be drafted into the annual budgetary process as the monies would increasingly become the vehicle for deciding the level of expenditure that could be sustained by the country. The framework for the receipt and the channelling of these funds was unanimously recognised to be a Sovereign Wealth Fund and in Guyana’s case – what has been styled as the Natural Resource Fund (NRF).
While the US$185m that has been accrued thus far cannot finance much of what is under consideration it forms the kernel of what will be a much larger enterprise in the years to come. The US$185m has been derived from the Liza-1 well which produces at its peak 120,000 barrels of oil per day. This year around US$250m in revenues could flow from this well and next year when Liza-2 comes into play it will be producing 220,000 barrels of oil per day at peak. In 2024, the Payara well is also expected to begin producing at a maximum of 220,000 barrels per day. ExxonMobil is also planning to have more wells developed down the line.
Though one can reasonably expect a swingeing increase in revenues in the coming years, the uncertainties and risks are cavernous as exemplified by the crushing impact on petroleum prices of the short-lived Russian-Saudi oil price war, the global economic decline caused by COVID-19 and the galloping conversion of Western economies to green fuels and electrical vehicles. Even at a micro-level, Guyana was only able to secure four-fifths of its expected revenue in 2020 from the oil operations as a result of the difficulties that ExxonMobil’s subsidiary experienced in managing the associated gas released by the lifting of oil.
The NRF provides the tools to protect the country’s finances from a bad revenue year while enabling windfalls to be salted away for future expenditure in a sustainable manner. It is therefore of great concern that the PPP/C government has made no apparent effort in the over five months it has been in office to activate the NRF Act and to locate oil revenues at the centre of its budgetary planning. While the NRF Act was passed after the defeat of the APNU+AFC government following the December 21, 2018 motion of no confidence, surely the PPP/C had enough time in opposition to plot their changes and sufficient time in office to execute this. The general public could very well conclude that the maintaining of the status quo is to allow the PPP/C government to spend as it likes without the fiscal restraints that will be imposed by the NRF and the Santiago Principles. Why else would the government not have addressed this seminal Act as it had committed to in its manifesto for the March 2nd 2020 general elections?
This laissez-faire attitude to the NRF and transparent management of oil proceeds has been further entrenched by no less than the Senior Minister with responsibility for Finance within the Office of the President, Dr Ashni Singh. He was reported by the Department of Public Information (DPI) as telling an investment forum that it was “early days” yet for his government and that it was likely that during the course of the year that amendments to the NRF would be brought.
“It’s very likely during the course of this year that we will be bringing legislations to the Parliament to restructure the Fund, to strengthen the way it operates and the way that it is governed, to strengthen the transparency with which it operates and to ensure that it is designed and operates in a manner that addresses the immediate economic development needs of the country and its long-term sustainability,” Dr Singh was reported as saying by DPI.
He added: “I wouldn’t want necessarily to pre-empt the final design, but our main objectives would be to ensure that we have a Fund that … the revenues that are generated from the oil and gas sector are used in a way that is consistent with long-term sustainability and resilience of the economy into the long term. We are still very much in the process of considering what the amendments to the legislation will look like.”
Well, if the NRF is important for all of these reasons to wit: transparency and economic sustainability why on earth hasn’t it been activated? While the legislation exists it is not in a functional state as the PPP/C in opposition had not named representatives to the various committees. It is merely a piece of paper and this state of affairs is completely unacceptable as revenues have accrued over an entire year.
Is it really the case that the government and Dr Singh are intent on presenting the 2021 budget in the absence of the NRF and its prescriptions on spending? Such an eventuality would run counter to the commitment to good governance and prudent and sustainable stewardship of Guyana’s oil revenues.
We urge the Ali administration as we had done in the editorials on October 19, 2020 and November 30, 2020 to take urgent action to activate and amend where necessary the NRF and to ensure that it becomes the vehicle through which oil revenues are committed and spent.