Dear Editor,
There should be a new role for the Guyana Labour Movement in the Guyana oil economy. Guyana’s oil break-even price is expected to average $35 per barrel long term, well below current projections for world oil prices (though dependent on pandemic recovery) and thus highly profitable. Exxon received very generous terms from the Guyana government and the government will lose tens of billions of US dollars in oil revenues over time. Guyana will take around 52% of oil profits in the Stabroek Block, well below international standards, and Exxon will see an Internal Rate of Return (IRR) on its investment of 22%-28%, well above the 15% minimum required to undertake risky exploration. If oil production, just from the discoveries to date is pumped out, Guyana will become a major oil-producing country. All of this is predicated on continued demand for oil – which, despite the accelerating impacts of climate change, for now, remains a commodity in high demand. Guyana’s economy grew by a whopping 40% in 2020 post oil production in late 2019. This growth rate was achieved despite the Covid-19 pandemic – though it was half the rate projected before the pandemic. The International Monetary Fund (IMF) projected that real GDP (a measure of the size of the economy) will grow by a relatively slower 16.4% in 2021 – still the fourth fastest projected rate of growth in the world – and that the size of Guyana’s economy between 2019 and 2025 will triple. This leaves Guyana, on a per capita basis, as one of the three richest countries in South America by 2025. However, the crucial questions are – who would this growth benefit, and how will the generated wealth be distributed?
In 2018, the Guyana government established an SWF and named it the National Resource Fund (NRF). A share of oil revenues will be deposited into the fund every year and that money will be invested, generating returns, not themselves directly tied to oil production, which can then be used to develop other, non-resource sectors of the economy, for example through public infrastructure, public services, and industrial policy. Overall, countries whose fortunes suddenly shift due to oil being discovered do not always change for the better. This can be due to corruption, insufficient capital reinvestment into other industries (“the resource curse”) and/or politics. Guyana, however, is looking positive in this regard, creating a sovereign wealth fund, and joining the Extractive Industries Transparency Initiative (EITI), whose mission is “to promote the open and accountable management of oil, gas and mineral resources.” Oil is a natural resource that belongs in common to the people where it is found. It is unlike other goods. A company cannot simply start producing oil like it can automobiles or t-shirts; it must have permission from the government to explore and then extract. Therefore, how much a company profits for extracting oil is not solely the outcome of the market – it is as much, or more, an outcome of public policy about profit-sharing. Once again, there is a question of distribution: how will the profits from the sale of a natural resource, belonging to the Guyanese people, be divided amongst them and the oil companies? Guyana’s first Production Sharing Agreement (PSA) with the Exxon-led consortium for the Stabroek block was signed in 2016. When it was made public, the PSA was met with some strong criticism – including from some unexpected quarters, such as the International Monetary Fund (IMF). A 2018 report from the Fund stated that conditions set by Guyana “are relatively favourable to investors by international standards…Existing production sharing agreements appear to enjoy royalty rates well below of what is observed internationally.” The IMF recommended making less generous and favourable agreements and ensuring that more of the oil-generated wealth stays in the country.
Under these alternative conditions, Exxon would still profit handsomely but Guyana would get a larger, fairer share of the profits. The average share of profits going to the Guyanese government would be 69% on average, more in line with global standards. It would amount to $55 billion more in public revenues over the 40-year expected life of the Stabroek project given an average $65 per barrel oil price – exactly one third more. In 2030 alone, this would translate to $3.4 billion more for the government and Guyana’s economic development. Meanwhile, Exxon will be making super-profits. Climate change may indeed be one of the best reasons to demand higher profits on future agreements. It is unclear how long Exxon and the other oil majors will be able to extract Guyana oil given the global net-zero emissions target set in the Paris Agreement and increasingly adopted by countries around the world. Guyana itself is a low-lying coastal state, with much of its population at risk of rising sea levels and protected by a crumbling sea wall. Keeping a greater share of oil profits now will allow Guyana to wind down production sooner, but also keep a sufficient share of oil profits to protect itself from the effects of climate change and transition its economy.
The Legally Binding Instrument represents a unique opportunity to end the impunity for corporate human rights violations. Many companies have resorted to abruptly ending the procurement of goods and services and even to defaulting on prior commitments made with the consequence of a disastrous impact for workers in global supply chains. Simultaneously, others designated as key workers in the COVID – 19 Pandemic crisis, including seafarers and packing and distribution centres, continue to work afloat at huge personal risk of exposure and often without adequate personal protective equipment. To ensure that the Guyana economy is not only resilient, but also conducive to social progress, the Government of Guyana must now step up their engagement in the Binding Treaty process. We also believe that provides a sound basis for effectively addressing existing accountability and liability gaps arising from the complex structures of transnational companies and their supply chains dominating the global economy. A key priority for trade unions is that the Legally Binding Instrument ensures that transnational companies can be held liable for human rights violations throughout their activities, including those by supply chain entities, irrespective of the mode of creation, ownership or control. Another significance is a provision that explicitly requires the State to ensure that any existing or new trade and investment agreements are compatible with the human rights obligations under the Legally Binding Instrument. However, we believe that a supplementary article that obligates the State to integrate a binding and enforceable human rights and labour clause in trade and investment agreements will further boost the case for sustainable trade and development.
While we have the expanded scope of human rights protection under the Legally Binding respect for fundamental principles and rights at work must be divorced from the requirement to ratify Core ILO Conventions. We have advocated for the following key priorities to be included in the Local Content instrument: A broad substantive scope covering all internationally recognised human rights, including fundamental workers’ and trade union rights, as defined by relevant international labour standards; Regulatory measures that require businesses to adopt and apply human rights due diligence policies and procedures; Reaffirmation of the applicability of human rights obligations to the operations of companies and their obligation to respect human rights, and, A strong international monitoring and enforcement mechanism. With the need to consult relevant stakeholders, we believe that there should be an express provision that human rights due diligence should be informed by meaningful engagement with trade unions. It should also be recognized that consultation is a right in itself in many labour-related instruments. The OECD Due Diligence Guidance for Responsible Business Conduct makes this very clear, and this should also be reflected in the Legally Binding Instrument.
Sincerely,
Sherwood Clarke
General President
Clerical & Commercial Workers’
Union