The Petroleum Commission Bill 2017

The legitimate authority for the collection of all State revenues is the GRA, and no Minister or official should have the discretion to decide what amount of such revenue should be transferred to the Consolidated Fund. If this were to happen, there would be a significant breach of Article 216 of the Constitution.

Last week’s article concluded our examination of the International Monetary Fund (IMF) report entitled “Guyana: A reform Agenda for Petroleum Taxation and Revenue Management”. The key findings were:

(a) The agreement with ExxonMobil’s subsidiaries is weighted generously in favour of the U.S. oil giant in relation to the rate of royalty, ‘ring-fencing’ of costs, taxation, and profit-sharing;

(b) There are too many loopholes in the agreement, if not plugged, could result in Guyana losing significant amounts of revenue;

(c) The granting of revenue collection and fiscal powers to the proposed Petroleum Commission would result in a fragmented tax policy and overlapping revenue administration of the petroleum sector; and

(d) Going forward, strong leadership is needed to ensure that the interest of the State is properly safeguarded.

The report referred to the draft legislation to establish a Natural Resource Fund (NRF) and asserted that such a fund cannot be viewed in isolation of the existing Public Financial Management (PFM) framework. Rather, it should be well-integrated to enhance transparency and credibility of fiscal policy or budget framework, with no separate spending authority. All spending, whether financed from general revenue or from withdrawals from the NRF, should be done through the regular budget and subject to parliamentary prioritization, scrutiny and oversight. We should indicate our complete agreement with this approach which would require: (i) the Guyana Revenue Authority (GRA) collecting all petroleum revenue and paying over such revenue to the Consolidated Fund; and (ii) the Ministry of Finance, on the written authority of the Minister, transferring that portion of petroleum revenue over and above the estimated sustainable income to the NRF to be saved as financial assets. The estimated sustainable income is the amount of oil revenue that can be spent annually, while preserving the total government wealth from oil indefinitely.

Today, we examine the Petroleum Commission of Guyana Bill 2017 that provides for the establishment and functions of the Commission and for other related matters. The Bill contains six parts: Part I - Short title and commencement, and interpretation; Part II – Functions of the Commission; Part III – Board of Directors of the Commission; Part IV – Commissioner; Part V – Finance; and Part VI – Miscellaneous. It is regrettable that this legislation was not brought into force, and the Commission operationalized, prior to the signing of the agreement with ExxonMobil’s subsidiaries. Had this been done, the Minister of Natural Resources could have benefitted from the much-needed expertise and guidance from the Commission’s board and its Commissioner. The Petroleum Commission shall be a body corporate responsible for monitoring and regulating the efficient, safe, effective and environmentally responsible exploration, development and production of petroleum in Guyana. The specific functions of the Commission include:

(a) monitoring and ensuring compliance with national policies, laws and agreements relating to petroleum operations;

(b) ensuring compliance with health, safety and environmental standards in petroleum operations in cooperation with other government agencies;

(c) promoting local content and local participation in petroleum activities;

(d) participating in the measurement of petroleum to allow for estimation and assessment of royalty and profit oil and gas due to the State;

(e) providing necessary information to the relevant authority for the collection of taxes and fees from petroleum operations;

(f) assessing tail-end production and cessation of petroleum activities, and decommissioning plans; and

(g) undertaking research into optimum methods of exploring for, exploiting and utilizing petroleum and petroleum products of Guyana.

Section 4(4) (b) provides for the Commission to “collect and recover all rents, fees, royalties, penalties, levies, tolls and any other charge” payable under the Petroleum (Exploration and Production) Act. However, it is the responsibility of the GRA to assess and collect of all State revenues, as emphasised by the above-mentioned IMF report. The report highlighted five areas in the Bill where there are overlapping responsibilities between the Commission and the GRA. It commented that fragmented organizational arrangements for the administration of petroleum revenue pose significant challenges that must be addressed. Accordingly, the report suggested that the Commission’s role should be restricted to regulating non-

fiscal aspects of the petroleum sector. That apart, Section 4(4) (b) conflicts with Section 35 which makes it clear that the revenues of the Commission shall exclude “revenue accruing to the Government in the form of royalties, surface rentals, signature bonuses, proceeds from the Govern-ment share of production, and any other tax payable to Government”. (Emphasis mine)

Section 4(5) permits the Minister to be the Chairperson of the Commission where no Chairperson is appointed. This provision appears to lend legitimacy to nonappointment of a Chairperson. It is also inconsistent not only with a key principle of corporate governance whereby separate legal entities are established in the public sector to remove direct ministerial involvement but also with Section 8(1) which provides for the Minister to give directions of general nature on policies. Indeed, it is the board that provides the necessary oversight of the operations of the entity. If the Minister were to assume the role of Chairperson, there would be a blurring of responsibilities relating to policy on the one hand, and operations on the other. In the circumstances, an important aspect of checks and balances would be lost since the Minister will be reporting to and advising himself/herself!

In addition, Section 8 (b) vests with the Minister responsibility for approving: (i) size of the establishment; (ii) employment of staff and the terms and conditions of employment; (iii) provision of equipment and use of funds; and (iv) training, education and research. With such an arrangement in place, the Board will not have the desired degree of autonomy and flexibility to determine the direction of the organisation within the framework of agreed policies, which is against the rationale for the establishment of the Commission as a separate legal entity. In effect, the Commission will be functioning as a mere department or unit of the Ministry under direct ministerial control.

The Board of Directors shall consist of a Chairperson, the Commissioner, and no more than eight other persons appointed by the Minister, of whom at least one of each must be a representative of civil society or academia, and the parliamentary opposition. This is quite an unbalanced composition, considering that Guyana’s natural resources belong to all the citizens of the country. The Board’s composition should therefore reflect a broader crosssection of stakeholders, and this should be reflected in the Bill. In this way, the level of discretion afforded to the Minister, a political person, in appointing board members will be minimised. The bitter experience of the National Industrial and Commercial Investments Ltd. (NICIL) where there was heavy ministerial involvement at the level of NICIL’s board, is a stark remainder of the inherent danger in having a politicised board.

Where the Board of Directors has not been appointed or is not functioning, the Minister shall discharge the functions of the Board up to a maximum of 30 days. The Minister also has the power to appoint the Secretary to the Board who shall not be a member of the board. In principle, State boards should comprise persons who are independent of the political directorate and who are professionally and technically competent in diverse fields, such as strategic management and leadership, finance, and human resource management, among others. In the case of the Petroleum Commission, expertise in the following disciplines would be preferable: petroleum, geoscience or engineering; health, safety and environmental matters; law; and chemistry and process or refinery management. The Bill does provide for members of the Board, including the Chairperson, to be appointed from these disciplines.

The Commission shall have a Commissioner, appointed by the Minister after consultation with the Board. He/she shall be the Chief Executive Officer (CEO) with reporting relationship to the Board, and shall have qualifications and experience in petroleum geosciences, petroleum engineering, petroleum management, petroleum law or petroleum taxation and finance. The CEO’s main responsibilities are to:

(a) implement policies and programmes approved by the Board;

(b) ensure proper management of the property of the Commission;

(c) manage the staff of the Commission;

(d) develop and oversee an operating plan to guide the Commission in performing its functions;

(e) provide advice to the Commission on matters falling within the area of the Commission’s responsibility; and

(f) cooperate with lead agencies and organisations in matters relating to the petroleum sector.

Section 34 provides for the prohibition of the disclosure of any information by a Board member, officer or member of staff obtained during the course of employment or engagement by the Commission. This prohibition extends to a period of ten years after the person ceases to be associated with the Commission. Perhaps, a shorter period of, say, three years would be more appropriate. In addition, a Board member, officer or member of staff is prohibited from being employed by, or work for or be contracted by any operator under regulation for a period of two years. This period appears too short and should be increased to, say five years. A person who contravenes these requirements commits an offence and shall be liable on summary conviction to a fine of five million dollars and to imprisonment for three years. surface rentals, signature bonuses, proceeds of Government share of production, and any other tax payable to Government is paid into the Consolidated Fund as directed by the Minister”. It should not be over-emphasised that the legitimate authority for the collection of all State revenues is the GRA, and no Minister or official should have the discretion to decide what amount of such revenue should be transferred to the Consolidated Fund. If this were to happen, there would be a significant breach of Article 216 of the Constitution. Section 37(2) (b) should therefore be deleted from the draft legislation.

The other financial provisions include: (i) the preparation of estimates of income and expenditure; (ii) the keeping of books of accounts; (ii) auditing arrangements; (iii) preparation of annual report of the activities and operations of the Commission including the audited accounts; (iv) the establishment of a reserve fund. These are consistent with the financial provisions contained in the legislations of other statutory bodies.