Reckless amendment to NRF Act

Evidence that the PPP/C government operates clandestinely and without a clear policy on important matters can be seen in how it muddled its way from its Natural Resource Fund (NRF) Act in December 2021 to the egregious amendment to the principal act contained in the Fiscal Enactments (Amendment) Bill 2024 which was passed on Friday night.

After having to wait five months to enter office because of the attempted rigging of the March 2nd 2020 general elections, President Ali’s government lay silent from August 2nd 2020 until December 16th 2021 – 16 months when it suddenly presented its version of the NRF Bill for first reading. It had already been made clear that the APNU+AFC government’s version of the NRF – the Natural Resources Fund Bill 2018 – which was passed on January 3rd, 2019 after the government had fallen in a motion of no-confidence, was dead in the water. So, any well-ordered and well-meaning government – considering the imminence of the first tranche of oil revenues - would have immediately set about drafting well-founded legislation which could have been circulated to all sectors of society for feedback. Consult in Parliament, consult the Norwegian government on their gold standard Sovereign Wealth Fund, summon hearings by the Sectoral Committee on Natural Resources, invite discussions with the multilateral financial institutions on guidance and hold public hearings would have been among the options. None of this was done.

Instead, the flawed bill came deus ex machina on December 16, 2021, for first reading in Parliament and with intended passage – 13 days later - on December 29, 2021. Despite appeals by civil society groups and others for consultations and a delay in passage, the government rammed the bill through Parliament as planned on December 29 amid atrocious scenes of misbehaviour by the opposition. The government was even unwilling to have it sent to a select committee for further examination prior to third reading and assenting to by the President. So much for a functioning and functional democracy in the land.

The need for national ownership of such a bill is clear. Decisions are being made on the proceeds from the country’s new-found oil wealth – revenues of a magnitude previously only dreamed of. Those decisions cannot be only in the domain of President Ali and whomsoever he chooses. The best efforts had to be made for an all-party solution on the NRF bill with civil society input. That was clearly defenestrated on December 29th and was a harbinger of what transpired on Friday.

Out of the blue again, on January 15, 2024 while he was presenting the 2024 budget, Senior Minister in the Office of the President with Responsibility for Finance, Dr Ashni Singh casually signalled a change in the withdrawal rule for the NRF. He said that the government was proposing a revision to the withdrawal rule which if approved “will result in an upward revision to the NRF withdrawal amount to take effect from this fiscal year. The revised withdrawal rule will retain the important feature that, as production and revenue ramp up further, an increasing share of the inflows in the NRF will be saved relative to the share transferred to the Consolidated Fund to finance national development priorities”.

Again, the PPP/C government could have formally set out prior to January 15th 2024 why it wanted to revise the withdrawal rule, what it was proposing and whether that took adequate account of the need for intergenerational equity. Again, the government trampled on the chance of a broadbased position on the NRF and the withdrawal rule. So, after five days of vapid exchanges on the budget and four on the consideration of the estimates of expenditure, the government proceeded on the night of February 2nd 2024 to have the amendments to the NRF approved. Unfortunately, the opposition was not in attendance and again squandered the opportunity of Hansard recording its views on this seminal subject for posterity.

Whereas the old withdrawal rule extracted revenues in tranches of US$500m, the amended rule does so in tranches of US$1b to the extent that virtually all of last year’s revenues will be absorbed into the Consolidated Fund this year, a most irresponsible act. US$1, 617m was received in the fund last year and based on the old rule US$1.15b would have been extracted while under the new rule around US$1.5b will be taken. This will leave the fund with roughly US$400m for intergenerational equity from oil revenues dating back to December 2019.

So why exactly after the tumult of December 29th 2021 – just over two years later - does the PPP/C government need to make a major change to the withdrawal rule, which rule was ostensibly wellcrafted and developed by the government’s mandarins? There have been vague statements about the need for an optimum financing mix and flexibility to spend on key programmes. Surely those imperatives existed in 2021?

From where well-thinking people sit, this amendment to the withdrawal rule appears to be an excursion into profligacy and infatuation with spending oil monies only as this government sees fit. It is also likely that one of the flagship projects of this government: the gas to liquids to energy project – which is projected to cost as much as US$1.7b – has encountered international financing resistance. That in itself should give this government pause for thought and not lead to a scramble to empty the NRF.

The oil that is being pumped from wells in the Atlantic is a non-renewable resource. It won’t come again. Aside from the fact that Guyana has to take account of climate jeopardies in the amount that it draws from these wells, the monies that it earns should be apportioned in three general streams: a stabilisation fund to cope with natural disasters and market upheavals, budgetary support and financing of economy-diversifying projects and intergenerational equity. As it is, future generations are being deprived of revenues that should be accreted over the next 40 years and more. In 2064, if hardships were to arise or the capital needed to be finally relocated, where will the resources be found if the NRF is recklessly depleted particularly on projects that are not well scoped and pregnant with risk? The PPP/C government’s original withdrawal rule took too much upfront to the detriment of future generations. The amendment passed on Friday night is an abomination and could well be seen by future generations as a fraud committed on them.

It is time for a reality check for this government. It must recognise the primacy of intergenerational equity – which evidently some of its key decisionmakers do not respect – and the need for prudent spending in the reorienting of the economy away from oil and gas. The amendments on Friday go radically against the grain of good governance.