Understanding Energy | World Bank Funding For Energy Industry Management

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THE government recently signed a deal for a US$20 million loan from the World Bank to help build capacity to regulate, manage, and tax Guyana’s emerging oil industry. The bank already has a Petroleum Resources Governance and Management Project tasked with providing capacity-building support to the government, and the loan will likely expand upon those activities.

Some of the funding will be used to hire additional professionals with specialised experience in resource governance. These individuals will help increase the capacity of Guyana’s ministries and train local staff. The World Bank stated that a strong system of governance and careful, transparent management will help the industry bring positive and sustainable impacts to Guyana.

According to reports, “the project envisages that Guyana’s legal and regulatory frameworks for the sector will be reviewed and updated with a view to maximising benefits to the country and affected communities; managing the technical, environmental, social, and financial risks linked to the sector; and building capacity to engage effectively with investors.”

As part of its appraisal, the World Bank conducted estimates for future investment in Guyana. The results showed that over the lifetime of the initial planned developments in the Stabroek Block, the companies drilling there will invest more than US $19.4 billion into developing and supporting the offshore fields. For comparison, Guyana’s GDP was $3.7 billion in 2017.

The World Bank also projected potential revenues to the Government of Guyana of more than US $45.4 billion over the life of these projects, even at the fairly low estimated oil price of US $54 per barrel. This is in line with other estimates of government revenues from international energy analysts. The figure includes only the revenue from the projects that have been announced so far on the Stabroek Block and does not include additional projects that might be sanctioned on the Stabroek block or discoveries and oil and gas projects that might occur on the other blocks nearby which are still largely unexplored.
Revenues could be substantially higher if oil prices rise – a barrel of Brent Crude, an international benchmark, currently trades for more than US $70 per barrel.

The World Bank cited these revenues as the primary economic benefit of the oil industry to Guyana and said it could offer an opportunity to expand public investment in developing human and physical capital. That means investing in things like education and infrastructure to remove constraints on growth that, in the opinion of the World Bank, are currently lacking in Guyana and could inhibit development in the future.

Another portion of the World Bank’s assessment cited a huge opportunity for cheaper and more reliable power in Guyana if the natural gas found in the Stabroek Block can be used to generate electricity. Gas would provide a much cheaper, cleaner source of fuel for power generation than the heavy fuel oil that is currently imported from abroad. Guyana currently imports and burns heavy fuel oil for much of its power-generation needs.

Thoughtfully placed investments in education and infrastructure could also allow more Guyanese and local businesses to participate directly in the industry, accelerating the positive impacts that are already underway. Already, local businesses are gaining more expertise, allowing them to capture bigger and better opportunities.

The World Bank and the government emphasised that many layers of the Guyanese economy will be affected by the industry’s development. If handled properly, the impacts will be felt in the environment and local communities, now and for generations to come. That is why the World Bank views it as critically important that Guyana build capacity now to effectively and transparently manage the sector. A poorly managed resource sector can have serious costs to the country’s economic development and consequently the quality of life for its citizens.

This World Bank funding will help the relevant agencies, particularly the Department of Energy, Guyana Geology and Mines Commission, and the Environmental Protection Agency, add expert staff. Experienced international consultants and advisers can train a generation of Guyanese who can quickly gain the technical knowledge needed to oversee the oil sector for themselves.

The World Bank also hailed the progress made so far, particularly with Guyana’s candidacy for membership in the Extractive Industries Transparency Initiative, as a reason to be optimistic about Guyana’s future. The World Bank concluded, “These are important steps towards enhanced transparency, the promotion of dialogue among key stakeholders based on reliable information, and the responsible and effective governance of the O&G sector in the pursuit of sustainable development.”