By Mike McCormack
Mike McCormack is currently a Co-President of the Guyana Human Rights Association (GHRA) and Convenor of the Policy Forum Guyana (PFG), a broad coalition of civic organizations with a common concern for the environment. He functioned as the Oxfam Director for the Andean Region based in Lima in the 1970s and taught at the University of Guyana until the late 1970s. Since then, he has been a human rights activist, and is a founding member of the Guyana Human Rights Association (GHRA), established in 1979. This column is based on the PFG Presentation at a Moray House Trust discussion on Perspectives on the Natural Resource Fund Act hosted on January 29, 2022.
The Guyana Constitution states in Clause 149J (2): “The State shall protect the environment for the benefit of present and future generations through reasonable legislative and other measures”. Both the previous and the new Natural Resources Fund Act (NRF) make mention of oil and gas proceeds benefitting future generations in some way. And that’s the first and last we hear of obligations to future generations.
This article seeks to propose one way of operationalizing the intergenerational commitment through the NRF. However, prior to looking at the NRF, it would be helpful to understand the concept of wealth, particularly inherited wealth, a bit more clearly .
We’re all familiar with inheritance customs of families handing down things of value from one generation to the next. These are ancient and widespread cultural traditions, and can apply to houses, lands, jewels, funds, paintings, even artefacts and recipes. Unlike the wealth which we accumulate through our own efforts during our lifetime, we are often only trustees of inherited wealth which we are expected to hand down to the next generation
An important rule regarding inherited assets is that the current generation can earn money from the inheritance – renting out farmland, for example, or investing funds – but the substance of the inheritance belongs to the next generation and should be passed on. A second important rule is that if we sell inherited wealth it should be replaced by an asset of equal value to be handed on in place of the original asset. There’s even a rule in economics known as Hartwick’s rule relating to the conservation of value in the sale of assets. If, however, we sell inherited assets and then proceed to have a good time with the money rather than re-invest in another asset, there will eventually be neither property nor proceeds to pass on. This the biblical story of the Prodigal son.
While there are no laws pertaining to this division of inherited and earned wealth, the endless disputes and rows within families over inherited property attest to the pervasiveness and strength of these value in Guyana.
Inheritance rules are a good guide to how we should view inherited natural resources owned in common by all citizens – which includes future generations. Natural assets such as rivers, beaches, minerals, the atmosphere and the ocean should be handed on with zero loss of value from one generation to the next.
Such arrangements have operated for generations but in the past two or three hundred years have become progressively threatened by the ‘Capitalist gaze,’ which views natural resources as commodities rather than inherited shared assets. Converting commonly-owned natural assets – of which the Government is the Trustee – into privately-owned commodities has routinely resulted in catastrophic losses, particularly in the sale of mineral assets whether in Guyana or around the world whether it be iron ore in India, North Sea oil in the UK, gold in Australia.
Here in Guyana, for example, the value of gold production totalled USD7.4bn dollars (about G$1.3 trillion) in the 40 years between 1980-2020, according to official records. Medium-scale gold producers – responsible for the bulk of the production over the 40 year period – will have paid a total of 5% royalties on the gold they declare and USD1.00 per acre license fee. Cumulatively, this is all that the Guyanese people, the owners of the assets, will receive of that USD7.4bn. Even if operating costs and a reasonable profit for the mining company are subtracted, what is left constitutes a loss in value of about 80%.
The royalties and licencing fees are, in effect, the sale price of gold and other mineral assets. However, standard discussion and reporting about the conversion of assets to commodities steers well clear of referring to the sale of assets at great loss. These proceeds are simply treated erroneously as ‘revenue’.
Use of the term ‘revenue’ to describe the funds that are deposited in the NRF is grossly inaccurate as far as the substance of the Fund is concerned. ‘Revenue’ is defined as an increase in wealth as the result of a transaction. If, for example, I own a watch worth $1000 and I sell it for $1200 my revenue increases by $200. If I sell it for $800 I lose $200, there is no revenue. Applied to the sale of natural assets, which almost always involve losses for the country, the term ‘revenue’ should be replaced by ‘depreciation of assets’. Instead these proceeds are simply treated as ‘windfall profits’, evoking disarmingly cheerful images of winning the lottery.
The NRF comprises funds from two sources: firstly, the proceeds from the sale of oil and secondly, the revenue earned by investing those proceeds in interest-bearing stocks and shares. The substance of the fund consists of deposits acquired from the sale of the oil assets which rightly belongs to future generations. The second source, the interest, (like rents obtained from privately inherited lands), belongs to the current generation.
This distinction is crucial in the operationalizing of our obligation to future generations. It has attracted little interest from technical experts or politicians, despite a number of initiatives to promote it. PFG held both public and closed events with Government decision-makers, attended workshops focused on revising the POAC and made the services of the Director of the Goa Foundation available to the Ministry of Finance in discussions of the original version of the NRF Act. The PFG web-site (https://www.policyforumgy. org/) carries the videos, YouTube postings and other materials aimed at promoting the intergenerational nature of natural resources.
Policy Forum Guyana is promoting an approach pioneered by the Goa Foundation in India, that all Guyanese citizens of the current generation have an equal claim on the interest earned by the Fund. The most transparent and fair way of accomplishing this is by paying an annual Citizens Dividend to each citizen. This method has been employed for many years in Alaska, as well as in Botswana – which have very successful histories of managing their equivalent of the NRF.
The Citizens’ Dividend (CD) would be taxable, which is where the Government stands to benefit legitimately from the Fund. There is no foundation for a government behaving as the proprietors of NRF funds. Its role with respect to protection or disposing of natural resources is that of a Trustee on behalf of citizens, not that of an owner. Since interest will mount rapidly within a few years, both the Citizens’ Dividend and the Government’s tax take from it will become substantial. Moreover the interest would mount during the 2-3 years it would take to set up a distribution mechanism.
The CD proposal is made in principle. There is still room for practical negotiation, for example, on whether all or a portion of the interest should be shared out as a CD; whether the Government can access the Fund on a loan basis rather than simply taking the money out of the Fund.
The Buxton proposal advanced by Dr. C.Y. Thomas sounds the same as the Citizens’ Dividend, but there are important differences. The Buxton proposal focuses on poverty alleviation, while we are arguing from a position of justice and principle. Dr. Thomas’ practical calculations are valuable in demonstrating the feasibility of direct payments and can strengthen our argument. His calculations show that a Dividend based on even partial percentages of interest earned would be substantial.
The Norwegian Sovereign Wealth Fund, the largest and most successful in the world, has been deemed an unsuitable model for Guyana by the current administration on the grounds that Norway was a wealthy country before they discovered oil. A more persuasive reason is that the Norwegian Fund is better insulated from the government of the day by strong social democratic values. It requires a vigorously independent Board, concerned with ethical investments and climate issues as much as with financial success. The current Chair of the Norwegian Fund, for example, is the foremost authority on modern Scandinavian art, his predecessor was the leading philosopher in Norway. There is no obsession with advanced economic degrees because the Norwegian Fund is more concerned about its impact on larger global issues rather than obsessed with wealth.
What we are concerned about at the moment is setting out the Principles by which a fair, responsible and efficient policy for the use of funds generated from the sale of natural assets can be constructed for Guyana. This column has addressed how the intergenerational obligation can begin to be factored into the debate within the framework of the Principles, which are summarized as follows:
a. Doctrine of Public Trust: The defense of common ownership by citizens of extractive and other assets, known as ‘the commons’, with the State being merely a trustee of natural resources on behalf of the people.
b. Principle of Inter-generational Justice: The obligation of the current generation to pass on to succeeding generations the assets we received from our forebears.
c. Preservation of Principal: The sale of any natural assets must ensure zero loss to all current and future generations. There should be a Polluter Pays Principle with respect to damage to non-critical assets and the Precautionary Principle with respect to critical assets.
d. Citizen’s Dividend: Real income generated from use of resource assets belongs by right to all citizens as a right of ownership.
In summarizing this approach, Policy Forum Guyana believes it:
i) Provides a principled and more coherent framework for policy-making;
ii) Clarifies trusteeship vs. ownership
iii) Incentivizes citizens to become a nation of whistle-blowers, with a clear sense of a stake in the management of the Fund;
iv) Operationalizes intergenerational rights;
v) Counters corruption by reducing opportunities for politicians to access the Fund;
vi) Development is funded from taxing the extractive sector, not from raiding the Fund
vii) Links the oil and gas to wider fossil fuel and climate justice issues.
viii) Encourages better stewardship of natural resources.
