Avoid overinvestment, unrealistic promises
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Vice-President of Energy and Sustainability at the Institute of the Americas, Jeremy Martin
Vice-President of Energy and Sustainability at the Institute of the Americas, Jeremy Martin

– energy expert urges gov’t

AS the new government takes up management of Guyana’s oil and gas sector, there is a list of actions the Ali Administration should avoid if it is to evade the resource curse and the mistakes of its closest neighbours.

Vice-President of Energy and Sustainability at the Institute of the Americas, Jeremy Martin, recently put out a ‘not-to-do’ list for the administration, based on his research and experience in the industry. He was assisted by graduate student at the School of Global Policy and Strategy at the University of California, Kathryn Hillis.

First, Guyana was advised to avoid overinvestment in the oil and gas industry. An example given of this is the construction of an oil refinery. It was pointed out that while there should be adequate infrastructure for drilling and shipping the oil, any refineries built would likely be “deeply unprofitable”.

Reference was made to the last refinery built in the US in 1977 highlighting that, since then, over 40 years, no such refinery has been built again due its infeasibility.

Added to this, energy economists point to an oversaturation of global refining capacity even as many countries are looking to decrease their use of fossil fuels and COVID-19 has negatively impacted the global fuel market.

In 2017, Director of Advisory Services at the US-based Hartree Partners, Pedro Haas, stated plainly that the construction of an oil refinery in Guyana would be unprofitable as it would cost the country some $5 billion with a negative rate of return on investment at between US$2-3 billion.

“In addition to the cost issue, a refinery built before the state has enacted proper oversight and regulatory agencies could become a vehicle for corruption and crony capitalism. Look no farther than another neighbor, Brazil, as to the pitfalls of this issue,” the writers stated.

This Brazilian political corruption scandal, which began in 2014, involved the indictment of dozens of high-level businesspeople and politicians after investigations alleged that millions had been given to officials of Petrobras, Brazil’s majority-state-owned oil company.

Second on the not-to-do list was the advice for Guyana not to subsidise gasoline. Martin explained that while a gasoline subsidy can provide a quick boost of economic growth to a developing country, this is only temporary and is not worth the long-term debt.

“To avoid the future need for the IMF and possible citizen uprisings, Guyana should keep gasoline at market value… in Latin America, an abundance of oil has led to a sense of resource nationalism, causing citizens to view gasoline as a public good rendered nearly free by government subsidies,” the writers acknowledged.

CASES OF VENEZUELA AND ECUADOR

Giving examples of this mistake, Venezuela was put in the spotlight as the most drastic and Ecuador as the most recent. It was noted that once implemented, the subsidies become expected by the people and making them nearly “politically impossible to remove”.

Thirdly, it was recommended that Guyana refrain from turning away dual citizens as it transitions. They said that transitioning a largely agricultural country into the world’s newest oil nation requires significant technical expertise and talent which may not be present in Guyana in the numbers.

“Fortunately, Guyana has a large diaspora across the globe comprised of individuals with experience and ability. The government should appeal to its far-flung citizens to return home and share in the newfound opportunities. While this seems obvious, there is a pervasive nationalistic pride that makes accepting dual citizenship difficult,” the individuals outlined.

One case of this they pointed to was the illegality for a Member of Parliament (MPs) to serve while holding dual citizenship status. After the December 2018 no-confidence motion in Guyana, several MPs were forced to either resign from the post or give up their dual citizenship. Martin said that this type of nationalism cultivates the exact nature of policy that could hinder the success of Guyana.

Fourth on the list, Guyana is being urged not to disregard the potential to monetise associated natural gas resources. There has recently been much talk in this regard as many Guyanese want to see a gas-to-energy project which would bring cheaper electricity costs.

Martin and Hillis said that this gas can also be used to improve Guyana’s power system that is currently in need of enhanced reliability. Guyanese country-wide have been consistently affected by blackouts because of inefficiencies in the services offered by the Guyana Power and Light Incorporated (GPL).

Still, the writers advised: “Major developments around the use of natural gas as a cleaner burning power generation source, as well as the importance of avoiding flaring for emission and environmental reasons point to an obvious win-win for Guyana to monetise the associated natural gas primarily for use in power generation.”

MUST BE GROUNDED

The final action Guyana has been urged not to do as regards the “delusions of grandeur”. In all its doings, Martin said that the Ali Administration should ensure that its people are grounded when it comes to their expectations of the oil and gas sector.

While there will no doubt be significant economic development, it was noted that the average citizen will not likely not see a large-scale change in their circumstances that is immediate.

“When the population is anticipating wealth that may not occur on the level or timetable perceived, the simmering displeasure with government could lead to unrest and destabilising protests,” the cautioned.

“The reality check and need to manage expectations, while politically unpopular, will also help to ensure for the population that governance of the oil wealth is wise, long-term and not one associated with the expectation of a rapid, endless financial windfall and deluge of funds.”

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