Oil and gas – The New Economic Horizon (Part 1)

As Guyana moves to First Oil – that long dreamt event with the possibility of transforming our country – it is hoped that this column will contribute to a better understanding of the vast opportunities and the unobtrusive pitfalls that await us. As historian Nigel Westmaas reminds us, more than 86 years ago, the headline in the British Guiana’s Daily Chronicle exhorted us: “Every Man, Woman and Child in British Guiana Must Become Oil-Minded!”.

Yet, the announcement by oil giant ExxonMobil on May 20, 2015 that it had struck oil in deep waters in Guyana’s territory took Guyanese by total surprise. We have simply had too many cases of hopes raised, only to be dashed, of traces of oil found in various places in Guyana. The unsuccessful search under the first petroleum licence issued in our colony in 1938 did not deter further attempts, particularly in the fifties, to find the black gold. In fact, Standard Oil, the progenitor of ExxonMobil was issued with a licence in 1958 to carry out offshore and coastal exploration.

While this column, courtesy of Stabroek News, is not about looking back, the paucity of legislation to regulate the exploration or production of oil in Guyana stands out in the country’s quest for oil. In fact, the first piece of petroleum legislation passed in 1930 was about the importation and regulation of the distribution of refined petroleum products. More than fifty years later, Deputy Prime Minister, Planning and Development, Haslyn Parris presented to the National Assembly the Petroleum (Exploration and Production) Bill 1986.
Continue reading Oil and gas – The New Economic Horizon (Part 1)

PPP/C recklessly ignored 12 COTED warnings that environmental tax violated treaty

Mr Anil Nandlall, former Attorney General, berates the government for not settling its environmental tax case with SM Jaleel and its subsidiary Guyana Beverage Inc, a decision on which was handed down by the CCJ on May 9. Had Mr Nandlall disclosed that the root of the problem was the PPP’s failure to withdraw the 1997 tax which became unlawful on the coming into force of the Revised Treaty of Chagauramas in 2001, his letter would have had more credibility. In fact, the PPP recklessly ignored twelve warnings from the Council of Trade and Economic Development (COTED) of Caricom between May 22, 2001 and March 30, 2012, that the tax was a violation of the Revised Treaty of Chagauramas (RTC). Mr Nandlall places the blame on APNU and the AFC for their failure to support an amendment in 2013 but does not state why the PPP/C did not use its majority prior to 2011 to amend the legislation, or why it did not simply stop collecting the tax after it lost its parliamentary majority, as the CCJ pointed out.

It is also important to recall that Mr Nandlall himself argued the similar case brought by RUDISA against the government but failed to raise important points of law, one of which the CCJ indicated would have been an attractive proposition. The CCJ ruled in its entirety against Guyana in RUDISA which was awarded judgment for the full sum of US$6,047,244 they claimed. In the SM Jaleel case, the claim against Guyana was for $2,277 million for the period January 2006 to August 7, 2015. The CCJ ruled, however, that only $1,178 million collected between May 7, 2011 and August 7, 2015 must be refunded. That works out at approximately 52% and after tax adjustment to approximately $700 million.

I believe that Mr Basil Williams was right in taking the case to the CCJ and that Guyana has reason to consider that the ruling was particularly harsh against it. In fact, had the CCJ not rejected two applications by Guyana for reasons that are highly debatable, Guyana would have fared much better. The applications were to produce expert evidence from Dr Maurice Odle and me, and the second a request for documents. Continue reading PPP/C recklessly ignored 12 COTED warnings that environmental tax violated treaty

Guyana needs an informed and dispassionate debate on local content policies for oil industry

The heading of yesterday’s Sunday Stabroek column by Professor Clive Thomas “Why local content measures are considered ‘backward backdoor protectionism?”, while framed as a question, conveys in my view, an unfortunate negative connotation about local content policies. Dr. Thomas holds the prestigious and influential position of Presidential Advisor on Sustainable Development and his writings will no doubt help to shape national policies. Admittedly, the two preceding columns seemed more disposed to local content requirements (LCR) in oil and gas contracts but in this latest column, I am less sure.

Oil discoveries have been made in deepwater areas off Guyana, which means that the first time we will be able to use our oil is after it has been shipped off to a refinery and re-imported into Guyana. If the advisers, policy makers and the managers of the economy, choose to think that local content is not an important matter, the public needs to understand that the major difference between when the first oil flows and now, will at best be manifested in lower domestic fuel price and the balance going into the public revenues. Under Guyana’s model Production Sharing Agreement, there is no separate tax revenue: the Government’s share of profit oil includes the taxes. What this means is that we can use our share of profit oil as we see fit: the Government can sell the oil on the domestic market at reduced prices, or put the value into the Consolidated Fund, or a combination of the two. At this stage, the Constitution allows only for a single Consolidated Fund and would need to be amended to create a Sovereign Wealth Fund.

Dr. Thomas’ column yesterday seeks to summarise two reports on local content policies in the petroleum sector. The first is by the United Nations Conference on Trade and Development (UNCTAD) and the other by the World Bank. I do not share Dr. Thomas’ view of these as examples of “even more formidable body of empirical studies examining the operations of LCRs in the oil and gas sector”. Guyana has certainly gone through an intellectual transformation from the days when the World Bank-endorsed IMF’s Economic Recovery Programme (ERP) was parodied as Empty Rice Pot by the leadership of both the PPP and the WPA. Continue reading Guyana needs an informed and dispassionate debate on local content policies for oil industry

Current petroleum regulations require oil companies to incorporate local content in their operations

Guyana’s oil discovery has attracted droves of foreigners, from near and far, even as the country grapples with concepts of local content – presumably for the current generation – and Sovereign Wealth Fund for succeeding generations of Guyanese. What is surprising is that we speak of local content as if the concept is new to Guyana and the sector. In fact, it is not and here is why.

The Petroleum (Exploration and Production) Regulations 1986 contains a requirement that the application for a petroleum prospecting licence and for a petroleum production licence must contain a statement giving particulars of the applicant’s proposals with respect to the employment and training of citizens of Guyana while in the case of the production licence there is the additional requirement that the application shall include a report of the goods and services required for the production and processing operations which can be obtained within Guyana and the applicant’s intention in relation thereto. Continue reading Current petroleum regulations require oil companies to incorporate local content in their operations

January tax revenue figures show gov’t can remove VAT on private education

The Ministry of Finance has disclosed that tax revenues for January 2017 was $11.9 billion or 40% more than tax revenues in January 2016. Total tax revenue for the entire 2017 was budgeted at $162.7 billion, or 8.67% over 2016. Clearly, it is not expected that total tax revenues for the entire year will match the 40% increase but is there any reasonable observer who will say it is not going to be much more than 8.67%, more than enough to make up the $350 million? All it would require for the Government to replace the $350 million it has said it will lose by removing VAT on education services would be a meagre 0.22% over the 2017 budgeted revenue.

The January figures which come from no less a place than the Ministry of Finance remove the final straw of an excuse that Prime Minister Nagamootoo and Co made for the retention of VAT on education. Come on Mr. Nagamootoo, do the right thing, the bright thing and the decent thing. You showed with your dispiriting prediction at the National Cultural Centre that you can sway Cabinet. Do it again. The Government can afford it. And just in case you need to be reminded, the tax revenues come from many of the parents whose plea you so callously rejected.