Green paper outlines sturdy policy foundation for managing oil revenues

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-NRGI consultant offers comments on green paper

-GPA facilitates lunchtime time lecture with media corps

DPI, GUYANA, Wednesday, October 24, 2018

The strength of the green paper on the management of petroleum revenues is the seriousness with which it takes transparency and accountability.

This is according to, Andrew Bauer, a consultant with the Natural Resources Governance Institute (NRGI), an independent non-profit organisation. Bauer was engaging media operatives at a Lunchtime Lecture hosted at Moray House by the Guyana Press Association (GPA) in collaboration with Conservation International Guyana.

Bauer noted the green paper addresses four relevant issues that Guyana will face in oil and gas development. Those are the pre-source curse, volatility, the Dutch disease and oil being a non-renewable commodity.

“I’ve spoken to the Ministry [of Finance] and they are well aware of all the challenges. They have been studying this topic for a while, they understand the issues and they … are doing their best to try to avoid the mistakes made by other countries,” Bauer added.

He added the strength of the green paper is that the government is taking accountability and transparency seriously.

“The green paper does put in place a sturdy policy foundation, there is a proposal for a fiscal rule that will constrain government spending, there is a Sovereign Wealth Fund in their safeguards. I think the strongest elements of the green paper is this multi layered accountability structure,” Bauer said. 

However, Bauer highlighted three areas the government can improve on managing oil revenues in the areas of the investment rules, fiscal rule and consensus building. These suggestions were made based on an analysis of the green paper which was done by NRGI.

Bauer noted that the green paper does address the investment rule (how monies in a Sovereign Wealth Fund (SWF) can be invested) by stipulating a list of eligible investment and more importantly investing in assets outside of Guyana. “The reason that is important is you don’t want to set up two budgets,” Bauer explained.

Bauer said the government can improve the investment rule by explicitly prohibiting the riskiest foreign assets, have a clear process for managing risks, better oversight of external managers, establishment of a code of conduct and ethical investment guideline.

In terms of the fiscal rule, (how much monies can go in and out of the SWF), Bauer said the green paper has correctly diagnosed the problem but the complexity of the rule may not achieve the stabilisation and inter-generational objective.

The green paper’s fiscal rule, among other things, is a numeric rule for determining the maximum withdrawal from the Natural Resource Fund (NRF) (this is Guyana’s SWF) in a fiscal year while ensuring the long-term financial sustainability of the Fund and a fair inter-generational distribution of natural resource wealth.

Finally, Bauer said consensus building should be national with either the people or politicians agreeing on the rules of the SWF.

“One of the things that we would suggest, modestly, is an open discussion and consensus building between the political parties to look at these rules that will be governing your money … and agree on how Guyana as a whole will be managing its money,” Bauer noted.

The green paper on the management of petroleum revenues was published by the Ministry of Finance in August to capture key issues for consideration in the establishment of a fiscal rule and SWF to manage Guyana’s oil revenues.

Read the full paper here: https://finance.gov.gy/wp-content/uploads/Green-Paper-Final.pdf

Guyana will begin oil production in early 2020. The government is currently preparing to introduce legislation and policies, including the NRF to govern the development of the oil and gas sector.

Andrew Bauer has served as a consultant with NRGI for the last eight years. NRGI offers technical support to improve a country’s governance over their natural resources. The Institute works with governments and civil society bodies across the world.

Tiffny Rhodius.

Image: Leon Leung.