Introduction
I believe that the most effective way to commence a discussion of the topic headlined above, is for me to provide readers with the basic rationale behind its selection. Simply put, the rationale is that, following on the discovery of commercial quantities of petroleum in Guyana [2015], and five years after the country’s production of its First Oil [2019], the oil and gas sector has already become the dominant and driving generator of the country’s GDP, incomes, consumption, trade, foreign and total investment, wealth, as well as State revenues.
Furthermore, altogether in the country, one finds the weight of the oil and gas sector is already humongous and, indeed, is confidently expected to shape the future political economy of Guyana -widely acknowledged at present as being the newest and fastest growing Petrostate in the Americas [averaging a real GDP growth rate of 50 percent in H1, 2024].
This is the rationale undergirding my selection of the topic. Supporting data are available in my Guyana National Budget 2024 review published earlier this year and the mid-year Report on the economy put out by the Ministry of Finance. These reveal that, despite the global ravages of the coronavirus and slowing oil price increases immediately after this, domestic economic growth has been incomparable, and is projected to persist with oil prices rising modestly up to the medium term.
As all this growth takes place the country’s petroleum resource base is expanding with new finds. Current production [624,000 barrels per day, bpd] is being boosted by the recently operating third FPSO.
The topic series going forward
Roughly six months ago I had an accident; a fall on the stairs at my home. This was followed by illness which called for diagnosis based on a lot of tests, laboratory work, and medical procedures in a hospital setting.
My practice in preparing the Sunday column has been, and will remain so indefinitely, to decide on topics to pursue, and then write-up each separately as a unit. Afterwards, these are broken down and the drafted topic turns into individually dated columns, which I then submit over several successive weeks. That procedure accounts for my columns appearing for several Sundays after the accident.
Having resumed my Sunday column today, the plan is, going forward, to pursue the topics listed below, in the order indicated. To explain, the plan is predicated on my conviction that, going forward into the next period, Guyana’s national elections will frame its governance, regional and external relations as well as our political economy.
The topics I have selected are listed below,
First, looking backwards and forwards, a reflection on the state of the ruling Stabroek PSA and the New Model PSA linked to the public audit modality.
Second, petroleum reserves and resource estimation. Commonsense, noise and nonsense.
Third, Macroeconomic Management, Internal balance [monetary policy and inflation] and External balance [exchange rate policy, terms of trade].
Fourth, Limited direct job creation in the sector.
Fifth, offshore technological innovation in oil and gas, Exxon Mobil as leader.
Sixth, and finally, I shall attempt a strategic theorizing of the priorities for reform going forward.
Retrospect
With the above caveat, I begin this Section by offering a brief retrospective statement on the ruling PSA and its related legal, fiscal, institutional and governance architecture.
As readers of this column are aware, although very widely used today, the PSA is just one of several types of petroleum service contracts PSCs in operation worldwide.
Looking backwards one observes that, commencing at First Oil in December 2019 to date, the reported official economic data reveal that Guyana as an emerging frontier producer, its oil revenues, arguably have the potential to expand at a rate to support the country’s transformation, as well as to ensure its sustainable development. After only five years from startup, various commentators speculate wide success in this endeavour, based on revealed phenomenal per capita oil earnings and GDP growth.
In this context the contradictory, though commonly held view is also that, the fiscal system, the general legal framework, and the operational features of the ruling Stabroek PSA are outdated – with little or no assurance of the drastic reforms broadly recommended being fully implemented.
Indeed, it is fully acknowledged here that, currently the pace of legislative, fiscal, and PSA reform does not match the urgency required to vest with confidence in the State, the exclusive right to explore, develop, and regulate petroleum operations.
The main line of march taken by the Authorities is referenced in what follows.
Governance and serial reform-Model PSA
In this section I start an analysis of the reported changes to the PSA as announced by the Authorities. First, under the prevailing legal, regulatory and institutional architecture, the Minister of Natural Resources is authorized by the PEPA Act to negotiate, with the concurrence of Government, the terms and conditions of petroleum agreements, including their lawful rights and obligations, as well as rules, and licences pertaining to operations under the contract.
In the case of Guyana, the consensus view is that the information available on the varied official websites is too vague and imprecise. Consequent to this circumstance, the Authorities have opted for a Model PSA.
While the PSA is unique among PSCs, there are indeed a wide variety of Model PSAs that have been put in place by oil producing jurisdictions. The data reveals a key advantage of Model PSAs is that they enhance certainty, confidence and transparency to the negotiating of PSCs.
This also protects against poor negotiation capabilities and even accidental omission of items in bilateral negotiations. The Authorities in Guyana have experimented with the use of public options as the cornerstone of its Model PSA.
Conclusion
Next week I shall continue to provide more analysis on this feature of the PSA along with other areas of concern.
