Sep 21, 2020 News
This is a recipe for disaster – Industry expert
To date, Guyana’s Natural Resource Fund (NRF) which is held at the Federal Reserve Bank of New York, holds over US$98M based on royalties and sales executed thus far for the State’s share of the Liza crude; in order to ensure this account does not become a slush fund, industry experts are strongly advising that key oversight mechanisms need to be put in place as quickly as possible. Specifically making this appeal recently was Arthur Deakin, an analyst at Americas Market Intelligence. There, Deakin conducts political, economic, and other risk analysis activities for the mining, energy, and infrastructure sectors in both Latin America and Africa.
In his latest opinion piece on Guyana’s oil industry, Deakin noted that the current NRF Act stipulates that three committees ought to be in place to ensure transparent and accountable spending of the oil money. These committees are: The Public Accountability and Oversight Committee, An Investment Committee and a Macroeconomic Committee. None of them are up and running.
Deakin recalled that the Irfaan Ali administration has vouched to change the NRF Act to make it more transparent, but he was keen to note that the new government has not made it clear about if and when it will follow through on this pledge. In the meantime, the Fund remains without all the mechanisms that are needed to ensure proper oversight.
The industry expert said, “…Allowing for a few executives to control vast amounts of funds, while simultaneously having no oversight, is a recipe for disaster. The Ali administration must begin to implement certain accountability measures to assure investors, and more importantly its people, that these funds will not be squandered.”
To cement his case on the need for proper oversight mechanisms, Deakin made reference to the 1Malaysia Development Berhad scandal (1MDB) scandal. In 2015, Malaysia’s then-Prime Minister Najib Razak was accused of channelling approximately US$700 million in oil money from the 1Malaysia Development Berhad, a government-run strategic development company, to his personal bank accounts. He was able to do this for years as there was no proper oversight in place to prevent same. International media reports on the case noted that the event triggered widespread criticism among Malaysians, with many calling for Najib Razak’s resignation – including Mahathir Mohamad, one of Najib’s predecessors as prime minister, who later defeated Najib in the 2018 general election and returned to power.
Anwar Ibrahim, a political leader in opposition to Najib, openly questioned 1MDB’s credentials. He had told the Malaysian Parliament that, according to records held by the Companies Commission, the company “has no business address and no appointed auditor.” According to its publicly filed accounts, 1MDB had nearly RM 42 billion (US$11.73 billion) in debt. Some of this debt resulted from a $3 billion state-guaranteed 2013 bond issue led by the investment bank Goldman Sachs, who have been reported as receiving fees of up to $300 million for the deal, although the bank disputes this figure. The Malaysian Conference of Rulers called for prompt investigation of the scandal, saying that it was causing a crisis of confidence in Malaysia.
After the 2018 election, the newly elected Prime Minister, Mahathir Mohamad, reopened the investigation into the 1MDB scandal. Malaysian authorities barred Najib Razak from leaving the country, then seized cash and valuable items from premises linked to him.
Najib was charged with criminal breach of trust, money laundering and abuse of power. Also, the U.S. Department of Justice had pursued its own investigation into 1MDB, alleging that more than US$4.5 billion was diverted from 1MDB by the former PM and other conspirators including officials from Malaysia, Saudi Arabia and the United Arab Emirates. Najib was subsequently found guilty of seven charges and was sentenced to 12 years imprisonment.
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