Oil laws will set strong framework for sector’s management – Finance Minister
Senior Minister in the Office of the President with responsibility for finance, Dr. Ashni Singh, on Wednesday promised a duo of bills, for local content and the natural resource fund, which will set a strong framework for managing the oil and gas sector.
The Bills are scheduled to be tabled in the National Assembly today, after a little more than a year of the new government being in office.
“We look forward to these two critical bills being tabled in Parliament tomorrow. We look forward to a rich and lively debate in the Parliament,” Dr. Singh said.
“We hope that good sense will prevail and that the Bills will be seen for their merits, and that they will enjoy smooth and unanimous passage through the Parliament. That is my fervent wish because we need these pieces of legislation critically in place ,” Dr. Singh told DPI.
He said despite the “occasional rancour” of Guyana’s political environment, the government made a conscious effort to preserve some of what the previous administration intended to do. He hopes the opposition would recognise this virtue. The minister was referring to the Natural Resource Fund Bill, which will be an amendment of the current Act.
Natural Resource Fund
Dr. Singh said the government had questioned whether the new Natural Resource Fund Bill should be amended, repealed and replaced. This is because of the legally unsound footing of the Bill, given that it was passed in January 2019 after the David Granger administration was defeated in the National Assembly by a vote of no confidence on December 21, 2018.
The minister said the Act has a fundamental flaw, which questions its legitimacy and constitutionality. In addition to this issue, Dr. Singh revealed that the government could find no record that the Act was brought into operation by the issuance of a commencement order. This order, he said, is required by Section 1 of the Act.
The government also believes that there are issues with the contents of the Act. First, Dr. Singh pointed out that critical governance structures are missing from the Act, which has alternate governance structures that seek to create a smokescreen that there is some form of governance.
There is no board of directors for the Fund, in its current configuration.
“Instead, all of the powers that would traditionally be vested in a board of directors, all of those powers are vested in a Minister,” said Dr. Singh. He described those powers as vast.
The smokescreen the minister referred to is the public accountability and oversight committee which draws its members with a wide cast net from all across Guyana. Minister Singh said such a committee cannot substitute for a board and perform day-to-day oversight of the Fund, including approval of operational policies and assessment of performance.
“That’s the role of a professional board of directors. It’s not the role of a multi-stakeholder committee. We would be the first to champion multi-stakeholder committees from the standpoint of access to information, performance of non-governmental oversight functions, accountability arrangements and so on…”
“So what you have here – you have no board of directors. You have a 22-member multi-stakeholder committee, which basically means that you have no real oversight of the management and operation of the Fund, and of the performance of the Fund, which really means that the only person performing that function is the Minister.”
Dr. Singh explained that this is why Vice President Dr. Bharrat Jagdeo expressed such concern about the over-excessive reach by the Minister. The Government intends for a board of directors to manage the Fund.
The Government also takes issue with the elaborate mechanism used to determine transfers from the Fund, which he described as smokescreens.
“A very elaborate macro-economic committee is established. That macro-economic committee is expected to recommend an economically sustainable amount and then the Finance Minister determines a fiscally sustainable amount and then there is an elaborate formula that looks at the economically sustainable amount and the fiscally sustainable amount, looks at benchmark petroleum revenue and looks at production constraints, petroleum revenue – a very elaborate mechanism.”
Dr. Singh pointed out that it is the Minister who appoints the committee responsible for determining the economically sustainable amount, as well as himself determining the fiscally sustainable amount.
“When you peel aside all of these elaborate layers, what you have really is a mechanism where the Minister completely controls how much is going to be transferred into the Fund.”
Moreover, the Minister said the structure is elaborate and complicated, so much that the man in the street cannot understand it. The Inter-American Development Bank has also criticised this feature of the Act.
He said the new formula will be very simple, linking the amount that will be flowing into the Fund in one year and the transfers to the budget in the next year.
Dr. Singh said the government intends to remedy these issues, in addition to establishing a provision which will require the Minister to publish, within three months, every deposit into the Fund, and to notify the National Assembly. The Minister would be held criminally liable for failure to do so.
Local Content
Putting good local content provisions in place, based on consultations with all stakeholders, means striking a proper balance between two opposing viewpoints – those of the industry and those of local non-oil businesses.
While the industry would want the freedom to operate without binding control over their expenditures, Dr. Singh said, the domestic non-oil economy rightly wants a large share of the pie from the oil and gas sector.
“In each of those extremities, there are constraints and issues that need to be considered,” he said.
While oil companies may want complete freedom, the Finance Minister said government has a responsibility to ensure Guyanese nationals get as much of the business as they possibly can.
The bill puts in place minimum requirements and timeframes for oil companies to meet, in their use of Guyanese goods, services and employees.
“We can’t stipulate percentages that will put the oil companies where it will be impossible to comply, or where they will be buying things where there simply isn’t capacity to supply them.”
Minister of Natural Resources, Vickram Bharrat has said that though the government’s Bill will set strong targets, and they will be realistic.
Dr. Singh said “We have to take account of domestic capacity to produce the goods and services at a scale that is required, with the level of timeliness, at the level of quality…”
I think we’ve struck a good balance between ensuring a viable and competitive oil and gas sector, and also ensuring that the level of inputs from the domestic private sector is optimised.”
To ensure compliance, the Minister said the Bill sets forth an architecture for monitoring of implementation by a local content secretariat. In the event that progress is not being met for monitoring of compliance, appropriate action is being provided for in the Bill.
The Government also intends to keep a close eye on the compliance side to ensure locals do have the capacity to deliver at the required levels of inputs. In some cases, the government may need to reassess capacity on the supplier side and consider whether the targets should be reconsidered to make them more realistic, Dr. Singh explained. He also referred to relevant provisions if companies are found not to be making the best efforts to meet their targets.
Long overdue
Dr. Singh said Guyana knew with certainty that there was oil offshore Guyana in 2015, and that concerted effort should have followed at the time to set a proper legislative framework in place.
“On the local content side, there is nothing on the law books. It causes one to wonder whether there was no concern whatsoever about local content, whether they were only paying lip service but had no interest in local content, whether they were more preoccupied with other things… It is tragically unfortunate.”
“In relation to the NRF, it’s extremely unfortunate that nothing was done while there was an active Parliament from 2015 shortly after the election and the Parliament was called, until December 2018. There was a very active Parliament. There was ample opportunity for an NRF Act to be taken to Parliament and be passed, but one was not, and instead one was forced through the Parliament in 2019. Most unfortunate, considering the importance of the legislation.” He said the new Government committed to putting these laws in place as soon as it came into office, and that it has been working hard to take stock of what existed, while addressing the immediate imperatives of the country.