Institutional governance: Preparing for Guyana’s coming oil and gas industry

Introduction

Last week’s column advanced the view that Guyana’s membership of the Extractive Industries Transparency Initiative (EITI) is a crucial plank in the institutional governance architecture being designed for managing its impending oil and gas extraction industry. I summed up my evaluation of seeking EITI membership as a necessary, but not sufficient basis for securing that transparency, accountability and public disclosure are married to the efficient management of oil and gas extraction.

Although EITI membership is deemed a necessary element of the institutional governance architecture, by itself, it remains incomplete. EITI membership should also be framed in the wider institutional framework. And, judging from public statements thus far, the authorities seem appreciative of this.

Chronology

Earlier, in my New Year’s column I had reported that, during its 2016 National Budget presentation, the Ministry of Natural Resources (MoNR) had identified the development of four broad priority policy areas for the oil and gas sector, namely, 1) establishing an “Upstream Oil and Gas Policy” along with a review of existing petroleum legislation; 2) holding a stakeholders’ workshop on a Guyanabased Sovereign Wealth Fund (SWF); 3) holding a local capacity-building seminar for the sector; and 4) intensified exploration activity (both offshore and onshore). In this list nothing is explicitly highlighted in the areas of governance, except possibly the SWF seminars, which I have previously reported on.

It should be observed here, however, that more recently (December 2, 2016) the MoNR announced seven comprehensive policies/laws/regulations originally scheduled to be in place by the end of 2016. These are: 1) a national oil and gas (upstream) policy; 2) a local content policy; 3) the passage of petroleum exploration and production legislation and regulations; 4) a Petroleum Regulatory Commission Bill 5) the regulations and oversight mechanisms for the Commission, mentioned at 4; 6) petroleum taxation and fiscal legislation; and 7) a Sovereign Wealth Fund. Items 4, 5, and 6 specifically refer to the institutional framework.

Further, the MoNR had also announced during the same debate, the intention to revise/update its 2013-17 Strategic Plan, in order to cover the period 2017-2021.

If Guyana is to avoid the many pitfalls that fall under the rubric of ‘natural resource curse’ and the ‘paradox of plenty’, which have characterized many oil and gas resource-rich, small, poor, open and dependent countries, it is also necessary (though by no means sufficient) for these policies/laws/regulations to be crafted within an institutional architecture that draws on best practices, gained from lessons learnt out of the experiences of other resource-rich Guyana-type economies.

Since the mid-2000s, a number of manuals, texts, policy guidelines and other related publications have appeared presenting best practices on economic, public finance, public management, as well as institutional and policy approaches to the extractive industries sector in developing countries, focused on oil and gas. These documents have been produced by UN agencies, international organizations, professional and trade associations, along with non-governmental groups. Because of the World Bank’s influence in providing technical assistance on these matters, perhaps the best known of these texts is its two volume study: The Extractive Industries Sector 2015, by Halland, Lokanc and Nair.

As that study puts it: the formulation and implementation of policies for the oil and gas sector in Guyana-type economies are highly complex activities, fraught with great dangers from likely mis-steps. It has been revealed in Guyana that such policies involve coordination over a range of government ministries and agencies. Moreover, each of these interact with private companies, civil society, trade unions, local affected communities, highly specialized professionals, as well as the media. The complexity involved in this interaction should, therefore, not be underestimated.

Inter-ministerial coordination clearly has a high premium in order to avoid duplication, conflict, gaps and fragmentation. Regrettably, the government ministries/agencies that interact with the extractive sector do not have equal capacity, thereby making their performances quite uneven.

As a rule also, the manuals/texts define best practices as those based “upon clear constitutional and other legal mandates for the legislature and the executive” (World Bank, 2015, page 23). The institutional framework should, therefore, clearly specify, 1) the distribution of responsibilities across government ministries, agencies, and other such bodies; and 2) the checks and balances required to contain the abuse or misuse of authority/power by government bodies.

In Guyana, the National Assembly is the highest legislative body, and therefore has a law-making responsibility to enact legislation, review legislation, and amend legislation pertaining to the extractive sector. As the highest law-making body it should ensure (through its oversight functions), accountability for government activities, functions, and the allocation of funds. The executive (including the presidency and the cabinet) is responsible for final decision-making on all issues central to the extractive sector, for example, licensing; the level of state participation in the sector; and the establishment or not of the Sovereign Wealth Fund and membership of EITI.

Government departments

Best practices, as defined above, accord with the intention in Guyana. Thus, the MoNR is responsible for the overall management of the extractive sector. It sets resource policy; drafts laws/regulations; supervises the sector agencies; as well as monitors units responsible for activities/functions such as exploration, extraction, inspectorate and monitoring, resource economics, geological survey, promotion and communication, health and safety, and coordination.

Ministry of Finance

The functions of the MoF are central to the implementation of economic and financial policy for the sector. It is responsible for aiding the design of resource revenue; management of budgetary allocations to the sector; resource revenue forecasting; revenue collection, and the management of the extractive industries liabilities.

Other ministries, agencies

A long list of other government ministries/agencies constitute the balance of the institutional architecture. These bodies include the Ministries of Legal Affairs (drafting and international law/practice); Environment (standards); Business (local content, value-added and linkages); Education (skills, training); Health (wellness and safety); Labour (standards); Local Government (communities); Public Infrastructure (infrastructure); plus agencies like the central bank, NIS, Auditor General, and the GGMC.

Conclusion

Next week I shall wrap-up the discussion on this item.