Oil, Govern­ment Take & Spend­ing: Nav­i­gat­ing Guyana’s De­vel­op­ment Chal­lenges - 22

Stabroek News Sunday - - REGIONAL NEWS -

In­tro­duc­tion

Last week’s col­umn dealt with a few of the more the­o­ret­i­cal as­pects of the role that “pub­lic ex­pec­ta­tions” play in gen­eral eco­nomic growth the­ory and the mod­el­ling of nat­u­ral re­sources pol­icy man­age­ment. To­day’s col­umn fo­cuses on the specifics of man­ag­ing these ex­pec­ta­tions as a de­vel­op­ment chal­lenge fac­ing Guyana, as it seeks to spend its ex­pected Govern­ment Take, an­tic­i­pated to come on-stream circa the mid-2020s.

Ex­pe­ri­ences else­where re­veal that man­ag­ing pub­lic ex­pec­ta­tions can be sum­mar­ily ex­pressed as a sim­ple func­tion of sev­eral so­ci­etal vari­ables. In the case of Guyana, I shall con­cen­trate on five of these vari­ables as the coun­try seeks to re­alise the value of its petroleum wealth through pro­duc­tion and ex­port. To be sure, these five vari­ables are not ex­haus­tive; how­ever, I be­lieve, they rep­re­sent the most cru­cial, given cir­cum­stances pre­vail­ing in Guyana.

Five Vari­ables

The first vari­able is de­rived from the wide­spread ob­ser­va­tion that the host com­mu­nity (or lo­cal ge­o­graphic area) where nat­u­ral re­sources are dis­cov­ered is of cru­cial im­por­tance for set­ting the na­tional tone. Ex­pe­ri­ences fur­ther re­veal that the im­pact on the host com­mu­nity is likely to be greater, the larger is the re­source find. The sec­ond vari­able is of equal sig­nif­i­cance. That is, the cli­mate of na­tional opin­ion. This in­di­cates pre­vail­ing ex­pec­ta­tions in re­gard to the suc­cess­ful com­mer­cial­i­sa­tion of the re­source find. To­gether, these two vari­ables in­di­cate how sub­stan­tial the im­pact of both vari­ables on pub­lic aware­ness and con­scious­ness.

Thirdly, there are pub­lic ex­pec­ta­tions as re­gards the risk that the petroleum prospect might be ter­mi­nally aborted! That is, the petroleum wealth is not re­alised in the na­tion’s in­come. The risk is, there­fore, ex­is­ten­tial. (In the next Sec­tion, I in­di­cate two such risks in Guyana.)

The fourth vari­able is a vari­ant of the third. That is, the risk of such con­sid­er­able im­ple­men­ta­tion de­lay, as to make the project’s time-hori­zon for re­al­i­sa­tion gen­er­a­tional.

The fifth and fi­nal vari­able I shall pur­sue is the na­tional per­cep­tion of the over­all con­fig­u­ra­tion of the nat­u­ral re­source project and its prin­ci­pal com­po­nents. Guyana’s over­all con­fig­u­ra­tion is cap­tured in the 2016 Pro­duc­tion Shar­ing Agree­ment (PSA) and its key com­po­nents are rep­re­sented by: 1) Gov­er­nance of the project. This is prin­ci­pally con­cre­tised in the pro­posed Petroleum Com­mis­sion (PC); 2) Rev­enue man­age­ment. This is prin­ci­pally con­cre­tised in the Nat­u­ral Re­sources Fund (NRF); and 3) The de­vel­op­ment pro­file. This is prin­ci­pally con­cre­tised in the leg­is­la­tion per­tain­ing to lo­cal con­tent re­quire­ments (LCRs). not re­ceive their (my em­pha­sis).

How­ever, Guyana’s dis­cov­er­ies have been ex­clu­sively lo­cated off­shore, in deep and ul­tra-deep wa­ter. The threat of “host com­mu­nity plun­der” is, there­fore, vir­tu­ally un­known, be­cause of the off­shore lo­ca­tion of the finds. I has­ten to ac­knowl­edge ,how­ever, there is the pos­si­bil­ity of on­shore dis­cov­er­ies. For now this en­tirely serendip­i­tous out­come makes the task of man­ag­ing pub­lic ex­pec­ta­tions in Guyana sig­nif­i­cantly “eas­ier,” if the ex­pe­ri­ences of KAPSARC are taken into ac­count. fair share of the petroleum wealth”

Per­for­mance: Vari­able 2

As re­gards the sec­ond vari­able, (the cli­mate of na­tional opin­ion), me­dia com­men­taries in Guyana have painted a dystopian vi­sion of Guyana’s fu­ture with its petroleum wealth. Neg­a­tive stereo­typ­ing has left much of the im­pres­sion­able pub­lic deeply fear­ful of Guyana’s com­ing oil and gas pro­duc­tion and ex­port. Ex­pec­ta­tions have also been dumbed down by the sheer medi­ocrity of the whole­salers (so-called ex­perts) and the re­tail­ers of their ex­per­tise. Pro­lific bad-mouthing of the Au­thor­i­ties has com­bined with ill-in­formed and ill-un­der­stood pro­nounce­ments, loaded with ma­li­cious in­tent and mas­quer­aded as fair and in­formed com­ment/anal­y­sis.

I have de­scribed the state of opin­ion bluntly be­cause I wish to ad­vance the view that the un­in­tended con­se­quence of the bar­rage de­scribed above is that there is not a “state of eupho­ria” about Guyana’s petroleum wealth, as KAPSARC re­search in East­ern Africa has re­vealed. In­stead, (as I shall de­velop at some length later,) the dystopian lot­tery-syn­drome vi­sion por­trayed of Guyana and its petroleum wealth stands in glar­ing con­tra­dic­tion to the facts. In par­tic­u­lar, the re­vealed rapid rate at which petroleum finds have been made in re­cent years and their sig­nif­i­cant sizes. From an es­ti­mated proven re­serve of Last Up­date: 496.19 Cur­rent Up­date: 478.73 600 mil­lion bar­rels of oil in 2015, to­day’s es­ti­mate is 6 bil­lion bar­rels. Fur­ther­more, the ac­tual tran­si­tion from re­source dis­cov­ery in 2015 to an­tic­i­pated pro­duc­tion and ex­port by 2020 is his­tor­i­cally un­prece­dented!

Per­for­mance: Vari­able 3

It is a mat­ter of con­sid­er­able cu­rios­ity that the dystopian vi­sion of Guyana and its petroleum wealth has been am­biva­lent about the ex­is­ten­tial threats fac­ing Guyana (the third vari­able listed above). Broadly speak­ing, there are two such threats: one is en­vi­ron­men­tal and the other geo-strate­gic. The petroleum dis­cov­er­ies have been, to date, all made off­shore and in a fron­tier re­gion of ul­tra­deep wa­ter. The risk of an en­vi­ron­men­tal catas­tro­phe is, there­fore, real. And, some have con­se­quently ad­vanced the pre­pos­ter­ous po­si­tion that Guyana should not al­low petroleum op­er­a­tions to com­mence un­til there is an iron­clad 100 per­cent guar­an­teed en­vi­ron­men­tal pro­tec­tion for Guyana and neigh­bour­ing states!

There have been few, how­ever, who do not see this as pure folly. And, to this ex­tent, the dystopian vi­sion has had lit­tle pur­chase. There is no strong pop­u­lar be­lief in an in­evitable, or in­deed im­mi­nent en­vi­ron­men­tal apoca­lypse.

Con­clu­sion

Next week, I shall wrap-up this dis­cus­sion on man­ag­ing pub­lic ex­pec­ta­tions and con­clude com­ments on the per­for­mances of vari­ables 4 and 5.

LU­CAS STOCK IN­DEX

Move­ment: -3.52% YTD Move­ment: 62.67%

The Lu­cas Stock In­dex (LSI) de­clined 3.52% dur­ing the third pe­riod of trad­ing in Novem­ber, 2018. The stocks of four com­pa­nies were traded, with 661,171 shares chang­ing hands. There were no Climbers and two Tum­blers. The stocks of the Demerara Dis­tillers Lim­ited (DDL) de­clined 16.13% on the sale of 41,118 shares. The stock of the Guyana Bank for Trade & In­dus­try (BTI) also de­clined 0.78% on the sale of 500 shares. In the mean­while, the stocks of Banks DIH (DIH) and the Demerara To­bacco Com­pany (DTC) re­mained un­changed on the sale of 619,038 and 515 shares, re­spec­tively. The LSI closed at 478.73.

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