Guyana’s regulatory, legislative framework for oil sector still stuck in the dark ages

In two days, Guyana will be marking its one year anniversary as an oil-producing state.
But after five years under the APNU+AFC government and almost five months under the People’s Progressive Party/Civic (PPP/C) administration, Guyana has failed to address many of the bottlenecks that hinder its ability to effectively police the sector. Both have also failed to plug loopholes in oil contracts that lead to significant value loss.

Three institutions which have been providing advice on the weaknesses in Guyana’s legislative and regulatory governance framework are the Inter-American Development Bank (IDB), the World Bank, and the International Monetary Fund (IMF).
In the case of the IDB, this financial institution since noted, on numerous occasions, that Guyana is without a modernized legal framework that provides robust protection of the sector. The list of archaic legislation includes the Petroleum (Production) Act of 1938, the Petroleum (Exploration and Production, E&P) Act, Cap. 65:10 of 1986 and the related Regulations of 1986.

These instruments, along with the Guyana Geology and Mines Commission Act, the Mining Act, the Environmental Protection Act, the Occupational Safety and Health Act, and the Model Production Sharing Agreement (1986), among others, are yet to be adjusted to support the enhancement of the transparency, governance, legal, regulatory and institutional frameworks for the oil and gas sector in Guyana.
Five years later, Guyana is also without a modernized legal and regulatory framework that focuses on critical issues such as oil revenue management, licencing, contract models (Production Sharing Agreement), local content, and Health, Safety, Environmental and Social (HSES) management.

Notwithstanding the absence of an effective governance framework, the IDB in its most recent review of Guyana’s systems, has agreed that the country faces others challenges to its ability to execute its role in the sector due to an inadequate supply of the sector-wide leadership, management and technical talent required. While the number of Guyanese with formal training in oil and gas policy, economics, management, law, and engineering has increased in recent times, the IDB noted that the level of technical expertise and institutional leadership, required to effectively ensure the maximization of economic and social returns from oil and gas resources, remains at a nascent level.

Moreover, the institution found that developing the capabilities to manage and regulate an oil producing contract will surely overlap with those required for other oil blocks currently under exploration.
Other tasks that may prove difficult for the country to manage, considering the snail’s pace at with it is preparing itself, include rights (licence) management, long-term gas commercialization, and marketing of the government’s share of oil production. In light of this state of affairs, the IDB said Guyana has essentially increased the risks of value loss.

The institution was keen to note as well that Guyana has a very narrow window to get what other countries in the past have struggled to get right over decades.
With this in mind, the bank said it is imperative that authorities embrace the lessons learnt by countries that have had successful hydrocarbon sectors and avoid the mistakes of those that have failed to create long-lasting value.

Along with the other critical issues mentioned before, the IDB has advised that Guyana needs to urgently address the to-do list below.
1) Define, document and share a defined national integrated plan for oil sector with clearly established Key Performance Indicators (KPIs) and timelines for achievement, supported by operational and funding plans to support implementation.
2) Transparently delineate the roles and responsibilities among and within government entities – The IDB is of the view that the clear assignment of goals, roles and responsibilities has been identified and considered as one of the most valuable lessons learned by various countries. It has also stressed that good governance requires a clear separation between the roles and boundaries of policy making and regulation while stressing that the Department of Energy, the Guyana Geology and Mines Commission’s Petroleum Division and the Environmental Protection Agency must enact this separation.

3) Design and implement strong legal and regulatory frameworks. In this regard, the IDB has noted that some producing countries have successfully built strong state agencies to monitor the performance and compliance of operators. It said that Guyana can use this approach as well.
4) Develop local talent in alignment with integrated national plans. The IDB is of the firm view that Guyana’s local content policy represents an excellent opportunity for the country to build national capacity. It was keen to note, however, that success is only guaranteed with proper implementation.

5) Implement well-defined delivery models which promote strong planning project management principles as well as strong leadership, management, supervisory, technical and administrative capability. In this regard, the IDB stressed that development will not be a success simply because clear policies, strategic or operations plans are in place. It said that Guyana must embrace and implement a “gold standard” business model that aligns robust governance and leadership, human resource talent, processes and systems with business and project planning and management. In other words, the bank believes Guyana must move swiftly to develop an Energy Department and regulator that are competent institutions capable of efficient, effective, and economic “gold standard” performance.
To be continued…