Kaieteur News- Many of Guyana’s political leaders have never run anything. Not even a cake shop. But it would be much better if they had run their own cake shops rather than running the country like a cake shop.
This is not to suggest that persons without experience at running things should not be entrusted with political office. Even the dull and ignorant, guided by sound policy-making, can deliver results and ensure returns.
Policy making compensates for the lack of experience. However, policy making cannot remain in anyone’s head. It has to be documented so as to serve as a guide for action.
Unfortunately, we are being saddled with a situation in which there is no written national depletion policy for the country’s most precious resource, its oil. What exists as a policy is in the head of someone. Such a scenario is the worst form of cake shop-styled governance.
It is tragic not to have a written depletion policy. Last year during the pandemic, demand for petroleum fell so precipitously that at one stage the oil companies were paying countries to buy their oil, rather than the other way around.
The oil companies, operating in Guyana did not stop pumping even though the prices had fallen below rock bottom. This example, extreme and rare, highlights the importance of having a depletion policy in place to regulate production levels during periods of cascading prices, gluts or a slowdown in demand.
Depletion policies are used to control the rate at which oil is extracted. It is one means to ensure that when prices are high, production is maximized and when prices are low that production is limited, all other factors being the same. But a depletion policy also has other purposes.
A depletion policy helps to protect and add value to a country’s oil reserves and guards against the risk of inefficient production. An article in the Guyana Chronicle of November 10, 2019 made the following observations: “From the late 1970s into the early 2000s, US oil reserves and oil production declined sharply from a high of 39 billion barrels to less than 20 billion by 2008. There was oil still in the ground trapped in shale formations and undiscovered fields, but low oil prices and a lack of technology meant that finding and extracting this oil wasn’t cost effective or feasible and so it wasn’t considered reserves. But since the late 2000s, the technology of hydraulic fracturing has made this oil more easily obtainable and higher prices have incentivised more development. US oil reserves have jumped back up from below 20 billion barrels above the all-time high of 39 billion.”
Depletion policies also help to protect the economy during periods when the terms of trade deteriorate. With a proper depletion policy in place, any government facing a balance of payments (BOP) problem can adjust production and exports accordingly in response.
As is well known, when the oil crisis hit in the 1970s, it was treated also as a national security crisis, and a national energy crisis. A depletion policy is extremely useful in ensuring that economic conditions do not result in national security crises.
Guyana has offered the oil companies generous concessions. Had there been a national depletion policy in place, these concessions could have been tagged to the rate of production, thereby ensuring efficient allocation of fiscal resources, including concessions. The absence of a written depletion policy now means that the same concessions will exist whether production is 120,000 barrels per day or 750,000 barrels per day.
National security is often linked to energy security. At one time, when widespread blackouts were a daily occurrence, a proposal was floated for Guyana to purchase energy from the Yuri Dam project in Venezuela. But because of national security considerations, Burnham and Hoyte were both unwilling to tie the country’s energy needs to a country which harboured a territorial claim against Guyana. It shows how even an oil-importing country needs to have a policy in place when it comes to energy security.
Guyana is now an oil-producing state. It is now a competitor with Venezuela, the country with the largest reserves in the world. Its oil production appears to be recovering, albeit slowly. A national depletion policy will provide a safety valve against any attempt at external interference in oil markets to Guyana’s detriment.
A depletion policy is necessary for the sustainable management of any natural resource. Without a national depletion policy, then Guyana’s oil wealth will not be enjoyed by future generations. It will be exploited as quickly as possible and will be exhausted in a short time, leaving no reserves for future generations.
Now not even the operators of cake shops think this way. But don’t tell that to Jagdeo. He holds the key to Guyana’s National Oil Depletion Policy. And it is all in his head.
(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)
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