Competitive bidding is the best approach for the award of oil exploration leases
A recent article in the Guyana Times ‘Minister’s relatives, friends now applying for oil licences, 201709-14’ makes reference to Dr Jan Mangal, Petroleum Adviser in the Ministry of the Presidency. The article raises concerns with a type of process used in the award of petroleum leases or blocks, that is the “one-on-one negotiation” or “open door” method.
In this method the Ministry of Natural Resources negotiates directly with the interested party. There is a very serious risk of corruption with this method due to the lack of transparency and accountability. Most countries have abandoned this method as experts recommend against using it. Guyana should no longer be awarding petroleum acreage via one-on-one negotiations after the Liza discovery in 2015.
After the Liza discovery in 2015, Guyana was in a position to use the method of competitive bidding for the award of leases. The Liza discovery derisked Guyana, and as a consequence, all the major oil companies recognise that there is oil in the country. Hence all the oil companies will be interested in bidding for leases in a transparent way, which ensures that Guyana incorporates market forces to maximise its share.
The petroleum adviser’s position has consistently maintained that competitive bidding is indeed the best approach for Guyana. In direct correspondence from May 2017 with one such oil company attempting to acquire acreage via oneon-one negotiation, the petroleum adviser indicated clearly to them that:
“Now that Guyana is on the radar post Liza, it is my personal view that all future acreage should be leased in a way which maximizes benefit to Guyana, hence in a market orientated way by an open bid round to ensure competition. And acreage should not be negotiated one-on-one between the Government and a prospective developer.”
The risk of government friends and family illegally obtaining leases will be significantly reduced if an independently managed and well audited competitive bidding process is used. There is no rush to award more leases since Guyana is already occupied with the developments in the Stabroek Block. According to the culture in Chevron in these circumstances, “there is always time to do it right”.
While it is important for the various news houses to raise these issues, it is disappointing to see that the journalist did not follow the standard practice of providing an opportunity for all sides to express their views in the article.
Yours faithfully, Jan Mangal Petroleum Adviser