Last year, the Extractive Industries Transparency Initiative (EITI) suspended Guyana from its membership because of the delay in compiling and publishing its 2020 annual report. The delay was attributed to a disagreement between the newly appointed National Coordinator and certain members of the Multi-Stakeholder Group over the terms of reference for the Independent Administrator responsible for compiling the report. The report was eventually published in July 2023. As a result, Guyana’s membership to that body was restored.
In today’s article, we discuss the main points of the 2021 Guyana EITI report, as reflected in the Executive Summary. The report was issued on 29 December 2023.
Some background information
In October 2017, Guyana was admitted to the membership of EITI. The EITI Standard outlines 12 principles that provide the cornerstone of the Initiative, as well as the requirements that EITI implementing countries are expected to follow. These principles relate mainly to: (i) the prudent use of natural resource wealth for economic growth that contributes to sustainable development and poverty reduction; (ii) the importance of transparency by governments and companies in the extractive industries and the need to enhance public financial management and accountability; and (iii) public understanding of government revenues and expenditure over time that could help public debate and inform choice of appropriate and realistic options for sustainable development.
One of the requirements of EITI Standard, is the publication of an annual report indicating, among others, how licences are allocated; how much tax and social contributions are being paid and where they end up in the government; and how much revenue is being generated, where it ends up and who it benefits. The first three annual reports, i.e. 2017, 2018 and 2019, highlighted significant deficiencies and instances of non-compliance with the EITI Standard. These have led the Independent Administrator to conclude that he was unable to determine that all significant contributions made by extractive entities to the revenues of Guyana were included in the reports.
The 2019 report made it clear that continued inaction on some of the recommendations previously made: (i) stymies progress in meeting the requirements of the EITI Standard; (ii) impedes preventative actions to correct and address discrepancies between declarations by government agencies and the extractive entities; (iii) adversely affects the data quality and comprehensiveness of the disclosures, which may reduce the public’s confidence in the report’s data; and (iv) compromises the fundamental purpose of EITI open data as a tool for government to improve policy making and sector management.
In the 2020 report, the Independent Administrator, however, concluded that the report covered all significant revenues made by extractive entities to the revenues of Guyana and that ‘the significant revenues declared by reporting entities and included in this report were subject to independent audits that have been performed in accordance with international standards’. This is notwithstanding that the findings were similar to those contained in his 2019 report. In particular, the Independent Administrator had stated that it was not possible to determine that the financial data submitted by reporting entities and included in the report were subject to audits that have been performed in accordance with international standards.
Guyana scored poorly in its first Validation carried out by the EITI Secretariat in April 2022 to assess progress in meeting the EITI Standard and in promoting dialogue and learning at the country level. In the three broad areas considered – stakeholder engagement, transparency, and outcomes and impact – Guyana scoring 60.0, 53.5, and 42.0, respectively. The EITI Board expressed concern, especially over the low score on the outcomes and impact component. It attributed this to ‘an ad hoc approach to outreach and dissemination, failure to follow-up on EITI recommendations to deliver reforms and insufficient attention to the annual review of outcomes and impact’. The next Validation is due in April 2024. The Board has warned that the failure to take the necessary corrective actions in the 20 areas identified may result in temporary suspension.
Guyana is therefore not out of the woods, and it will take a tremendous effort by the Guyana EITI Secretariat to implement all the recommendations made in the four annual reports and the Validation report. It is unclear what the present staffing of the Secretariat is. However, as of October 2021, it comprised five persons. According to the then National Coordinator, at least ten staff members were needed to effectively discharge the Secretariat’s mandate. In the circumstances, it would appear necessary for the staffing to be reviewed to ensure that the Secretariat possesses the necessary skills and competencies to bring about the much-needed improvements based on the recommendations made issued so far. Perhaps, it is time for consideration to be given to making the Secretariat a constitutional agency with reporting relationship to the Committee on Natural Resources of the National Assembly. It is currently funded out of the budget of the Ministry of Natural Resources, and the reporting relationship is to that Ministry.
Revenue generated from extractive sector
Total revenues received from the extractive sector in 2021 amounted to G$127.66 billion, compared with G$93.78 billion in 2020, an increase of $33.88 billion, or 36.1 percent. This increase was mainly due to the receipt from the oil and gas industry of $112.43 billion, compared with G$65.83 billion in 2020, a 70.8 percent increase. However, there was an unreconciled difference of G$2.23 billion between the amounts shown as having been received by government agencies and the amounts the extractive entities reported as having been paid to these agencies. The latter showed a lower figure of G$33.6 billion. A similar observation was made in relation to the mining industry where the unreconciled difference was G$1.05 billion. In total, 95.3 percent of the revenue from these two sectors has been reconciled.
The Ministry of Natural Resources received G$74.48 billion as oil revenues, compared with G$41.36 billion in 2020. The other key agencies involved in the collection of revenues were the Guyana Revenue Authority (GRA), the Guyana Gold Board (GGB) and the Ministry of Finance which accounted for G$26.38 billion, G$9.82 billion and G$12.00 billion, respectively.
Status of audit of government agencies
According to the report, the revenue of the GRA has been audited up to 2022 as part of the audit of the public accounts. However, as an entity, there was no mention of the status of the audit. In a media release, GRA stated that: (i) the last set of audited financial statements of the GRA was in respect of 2018; (ii) draft accounts have been submitted to the Auditor General for the years 2019, 2020, 2021 and 2022; (iii) the audit of the 2019 accounts were being finalized; and (iv) responses to audit queries were submitted in relation to the accounts for the years 2020; and (v) responses to queries were being prepared for the 2021 accounts. The GRA acknowledged that ‘this inherited state of affairs must be immediately addressed’ with both the Audit Office and the GRA to ensure compliance with the GRA Act. On several occasions, we had bemoaned the practice of the Audit Office accepting several years of draft financial statements of entities. In principle, only one year’s accounts should be dealt with at a time. It is only when the audit is completed that the next year’s accounts are submitted, amended as necessary to reflect results of the audit, especially as regards opening balances.
While the financial statements of the GGB have been audited to 2022, the same cannot be said of the Guyana Geology and Mines Commission (GGMC), a key agency in the oil and industry. GGMC was last audited in 2012. A similar observation was made in respect of several other government agencies, most notably being the National Industrial and Commercial investments Ltd. which has not been audited since 2013. The Independent Administrator commented that:
Delay in carrying out the audits both contravenes the legislation governing the agencies and also reduces the assurance that the reported government receipts are reliable. Whilst the Auditor General has examined the submissions of the agencies for EITI reporting, if the underlying records and systems have not been independently audited there is a lower degree of assurance on the government reporting.
The above statement is a serious indictment on not only the management of the government entities involved but also the Audit Office that has in its possession several years of draft accounts of numerous non-central government bodies waiting to be audited and reported on. It will be of public interest if the Auditor General were to publish the list of entities for which he has audit responsibility and the status of the audits, including the draft accounts in the Audit Office’s possession and how long they have been with that office. In 1992, the Auditor General had released to the public the status of the audit of all entities for which he had audit responsibility. And what is the Public Accounts Committee (PAC) doing about all of this, considering that by Article 223 of the Constitution, the Committee is required to exercise general supervision over the work of the Audit Office? The Audit Office’s Rules, Policies and Procedures Manual elaborates on this by requiring the PAC to review the annual budget of the Audit Office, including its work plans and procedures as well as to place ‘special attention on the effective operation of the Human Resources Management and Development System in the Audit Office’. Reports emanating from the Audit Office indicate that all is not well with its human resource management, especially in the area of recruitment and promotion of officers.
Non-payment by GGMC to the Amerindian Development Fund
According to the Department of Public Information, the Amerindian Development Fund (ADF) was launched in 2014 as a ‘multi-pronged, long-term and integrated strategy for achieving and fostering the socio-economic development of Amerindian communities in Guyana through community-driven business ventures’, including agricultural production and processing, village infrastructure, tourism, manufacturing, and village business enterprise. The projects are aimed at strengthening the entrepreneurial capacity of Indigenous communities, diversify their economy, create job opportunities and reducing poverty.
GGMC is required to pay 20 percent of the royalties collected from mining on Amerindian Village lands to the ADF. However, no payment was made in 2021. GGMC explained that it did not have the necessary information to be able to calculate the amount due to the Fund, while the Ministry of Amerindian Affairs indicated that the balance in the ADF account as of 31 December 2021 was nil. It would seem necessary for both the subject Minister and the Minister of Natural Resources to investigate this matter with a view to ensuring compliance by GGMC, so that the Amerindian communities can have adequate financial resources to undertake the various projects referred to in the previous paragraph.
Financial distress of the Guyana Gold Board
According to the Independent Administrator, the GGB was insolvent at the end of 2021 with a net deficit of G$1.09 billion. Net assets accounted for G$9.02 billion, while current liabilities amounted to G$10.11 billion. There was also a long-term liability to the Ministry of Finance of G$8.732 billion in respect of advances given prior to 2012 to purchase gold. That apart, the public accounts for 2021 and earlier years showed an indebtedness of $8.650 billion, a difference of $82 million. There was no evidence of any action taken to address this discrepancy.
The 2021 audited accounts of the GGB are yet to be posted on in its website. However, according to the notes to the financial statements for 2017, an agreement between the Board and the Ministry of Finance was to have been entered into, setting out the terms and conditions for repayment over time. Considering that the GGB has been making losses over the years, with an accumulated deficit of $10.486 billion at the end of 2019, it does nor seem possible that the Board can repay its indebtedness to the Ministry. In 2019, the GGB incurred a loss $807.770 million, while its account at the Bank of Guyana at the end of the year was overdrawn by $4.503 billion.
If the Authorities decide to continue with the operations of the GGB, it would be necessary for there to be a restructuring of it’s balance sheet by transferring to the Government’s capital contribution not only the accumulated deficit but also the indebtedness to the Ministry of Finance. The Government should also consider liquidating the Board’s overdraft at the Bank of Guyana. This may require the approval of the National Assembly via an appropriation.
To be continued –
