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Jul 07, 2022 News
Kaieteur News – Guyana’s downgraded performance on the World Bank Guyana Petroleum Resources Governance and Management Project (GPRGMP) loan is another indicator of how financially exposed the country remains when it comes to effectively protecting and managing the oil sector.
Given that the country’s institutional capacity, building priorities seem not to be moving apace with oil resource development, the Institute for Energy Economics and Financial Analysis (IEEFA) has reiterated the grim financial and environmental position Guyana further faces by not utilizing the 2019 loan.
The IEEFA has argued that not only is Guyana receiving “too small a portion of the (oil) project revenue but also is at risk due to weak environmental and fiscal contract requirements.” The agency said that given the haste to move forward with drilling, the government and the oil companies have left Guyana and its people exposed to a series of pollution and financial risks.
It was explained that one of the most important fiscal issues facing Guyana is determining if the oil companies are complying with the oil contract. Careful scrutiny of paperwork submitted with each oil lift and profit statement is important to make sure Guyana is protected. However, the World Bank review makes it clear that the government of Guyana does not have the right protections in place.
Recognising also that other solicitations for services to upgrade environmental monitoring and oversight were apparently dropped, the IEEFA opined that if Guyana had awarded and implemented the contracts, “it could have avoided a recent embarrassing judicial ruling that found the government broke the law by giving ExxonMobil a 20-year permit when the law only allowed for the award of a five-year permit.”
The IEEFA said that the World Bank makes grants to help countries work in good faith to provide a stable, predictable economic environment. And given Guyana’s own situation, it could learn from the experiences of other countries that work with international oil companies. “For many countries, the significant benefits from the venture turned into major scandals. Some combination of poor fiscal planning, lax environmental enforcement or undisciplined money management and spending usually spell trouble, either in the form of tragic environmental accidents or money ending up in the wrong pockets.”
The IEEFA stated nonetheless that the benefits from the World Bank grant program have yet to be demonstrated. “Oil companies and their project partners often object to environmental and fiscal rules because they take time—and in the oil business, time is money.” As such, ExxonMobil and its partners want to move quickly and given the recent turns of the oil market, more volume extracted at today’s extraordinarily high prices is a strong reason to move quickly.
IEEFA said that over the long term, ExxonMobil has seen revenues drop over the last decade as oil’s market position has been eroded by competition, and several ExxonMobil projects in Canada, Russia in 2018 and again in 2022, and the United States have come up short. The government of Guyana is similarly in a hurry, because the demand for oil may dry up before the wells.
The World Bank’s expression of concern is nonetheless a warning that unbridled speed of oil development poses risks, the IEEFA posited. They said that the companies have paid more than USD$700 million to Guyana for its share of profit oil and royalties, “yet Guyana has released no audit assuring the public that it has been paid the right amount. The public also does not know how costs have been applied to the project.” In the meantime, flaring pollution and other risks continue. “When a country makes a promise to reach for higher ethical standards and then walks back on the deal, it is worth asking a few questions,” the IEEFA stated.
In 2019, the David Granger led administration sought US$20M from the World Bank for the enhancement of legal and institutional frameworks and the strengthening of the capacity of key institutions to manage the oil and gas sector. Since the current administration had not requested any disbursements from the loan, the project’s overall implementation had been downgraded to ‘Moderately Unsatisfactory’, with around 24 percent of the total credit disbursed and no disbursement requests received by the Bank since October 2020. As late as December 2021, the World Bank said that government highlighted its intention to “refine the scope of the project to bring it in line with current government priorities.”
The US$20M project has four components: Component A – Enhancement of Legal Framework and Stakeholder Engagement: (US$3.20 M), Component B – Capacity Building of Key Institutions: (US $10.70 M), Component C – Enhancement of Fiscal Management Systems: (US$3.50 M), and Component – D. Project Management & Project Preparation Facilities: (Cost $2.60 M). The Bank said it remains on standby awaiting any guidance from the Guyana government.
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