The Economy: Where do we stand in terms of preparedness for the new Petroleum industry?

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The recently concluded – Guyana International Petroleum Business Summit and Exhibition (GIPEX) – has brought into focus within the public’s domain, a number of key revelations as regards the oil and gas sector development; some of which are certainly cause of concern not only for the policymakers but to the nation at large. Particularly, citing Kaieteur News article dated February 11, 2018, wherein ExxonMobil posited that baby steps are being made with respect to local content – the involvement of Guyanese nationals and local businesses as part of its overall local content plans. On the other hand, the Minister of Natural Resources stated, according to the article, that he is pleased with the progress being made with respect to local content.

Readers would recall that only recently this column addressed Guyana’s draft local content policy with some practicable recommendations going forward on February 03, 2018. In that article, it was highlighted that in order for there to be effective local content activities, there needs to be a legislative framework in this regard – as there exist sufficient empirical shreds of evidence that showed local content remained largely ineffective in the absence of legislation. The full article can be accessed here: https://newsroom.gy/2018/02/03/the-economy-considerations-for-guyanas-draft-local-content-policy-going-forward/.

Despite the recommendations made therein, timeliness is a critical component which ought not to be taken for granted. It would appear that there was too much of procrastination on the part of policymakers in this regard – more than two years elapsed since the 2015 general elections and no sign of cementing a solid local content policy. Irrespective of how many summits are held with the intent to provide a networking platform for Guyanese businesses/Private sector to seize the opportunity to develop strategic partnerships with foreign investors, this does not guarantee that foreign/private strategic partnerships and/or collaboration would manifest in a far-reaching manner as would be expected – as opposed to if there was the imposition of a legislatory mechanism that would make local content activities mandatory. It is again emphasized that there are sufficient empirical evidences to corroborate these assertions as was presented in the previously referenced article.

Another worrying issue is the presentation made by the World Bank Senior Country officer at the GIPEX summit, featured in Kaieteur News dated February 11, 2018. The World Bank official cautioned that Guyana should pay more attention to lessons learned from countries with weak institutions, with the aim of taking into considerations these lessons to build a stronger framework for Guyana, in spite of Guyana’s inexperience in this embryonic industry. In this information and technology era that we are living in – such an idea is largely plausible and doable.

Conversely, with that in mind it should be mentioned that in December 2017, in a press release on the subject of a Sovereign Wealth Fund by the Minister of Finance, it was insinuated that the Government has crafted a preliminary legislation by looking closely at Uganda’s legislation. The inference of Guyana’s legislation mirroring Uganda’s legislation leaves much to be desired –  because (1) there is empirical evidence to substantiate the notion that Uganda’s suite of Petroleum legislation and/or regulatory framework are weak and (2) Uganda is known as one of the most corrupt countries in the world. This view is supported by an eleven pages document published by Transparency International (www.transparency.org) on the “Overview of corruption and anti-corruption in Uganda”, in fact, Uganda was ranked 151 least corrupt countries out of 175 countries by Transparency International in 2016. (This point of interest in particular, was previously highlighted in the writings done otherwise by the author of this column, earlier this year).

An overview of the Petroleum Industry in Uganda and Norway

Uganda has an abundance of energy resources, especially hydrological and other renewable resources, yet there was (and perhaps still is) widespread energy poverty throughout the country. Some of the challenges faced by the energy sector in Uganda include acute power shortages, increased demand, and lack of new power generation projects. Consequently, in 1997 the Ugandan government formulated a strategic plan to reform the energy industry which was aimed at increasing the sector’s efficiency; meet the growing demands for electricity and increasing area coverage; improve the quality and reliability of electricity supply; attract private capital and entrepreneurs to improve the sector’s commercial performance and take advantage of export opportunities (Tumwesigye et.,al, 2011).

Despite the achievements of the Ugandan government since 1997, ongoing challenges still remained. The sector badly needs large-scale investments and prudent utility practices. Sustainable development is difficult to achieve as it is incompatible with the poverty prevalent in the country. The government is challenged with expanding access to affordable, reliable and adequate energy supplies as a way to address poverty issues (Tumwesigye et.al, 2011).

Turning now to Norway, this country was ranked as the world’s third-largest oil exporter and seventh largest oil producer, in 2011. Petroleum activities have contributed significantly to economic growth in Norway and to the financing of the Norwegian welfare state. The industry is more than 30 years old and has created values in excess of NOK 4.0 trillion (US$507 billion). The petroleum sector accounted for 21 percent of the value creation in 2004.  In addition, through direct and indirect taxes, and direct ownership – the state is ensured a high proportion of the values created from the petroleum activities (Fakta, 2005 & 2013).

The development of Norwegian and Norwegian-based expertise has been an important factor in Norway’s petroleum policy. At the onset, there was a strong element of knowledge transfer from foreign oil companies and supply/service companies. Norway has managed to develop a highly internationally competitive petroleum industry – which applies to oil companies, the supply industry, and research institutions alike. Further, the industry provides a powerful boost for innovation and technology development to other sectors of Norway’s economy (Fakta, 2005 & 2013). Interestingly, Norway’s enviable success in developing one of the most competitive petroleum industries and by extension one of the richest countries in the world is due largely to its strong local content strategies that were embedded within the legal and regulatory framework.

Conclusion

In summary, focusing on Guyana’s context, this article presented a sufficiently plausible analysis which concurs with the advice promoted in the public domain by prominent experts in the field, other analysts and commentators alike and a few diplomats – that preparing for oil and gas is no easy task. And one could safely infer that Guyana is insufficiently prepared at this time as far as progress being made with the development of the fledgling petroleum industry.

With only two years remaining, is very little time and key actors that should be part of a national strategy to transform Guyana’s energy sector is seemingly not being given deep enough thought. For example, the Guyana Oil Company and Guyana Power and Light and the recently announced modular refinery to be constructed at Linden – is there going to be the development of a solid strategic plan with the aim of transforming Guyana’s energy sector – with these critical companies playing an integral role? So far, there is no indication of such development or to say the least – strategic thinking in this regard.

*The author of this column is the holder of a Master of Science Degree from a UK university in Business Management, with specialism in Global Finance and Financial Markets.

 

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