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A National Oil Company for Guyana would be a perfect avenue for corruption warns Dr. Mangal

 

 

 

By Kaieteur News

GEORGETOWN
Petroleumworld 10 06 2018


If Guyana creates a National Oil Company (NOC) now, or even two to three years after oil production, it would simply be another avenue for corruption. This was essentially the position of former Presidential Advisor on Petroleum, Dr. Jan Mangal, during a recent interview with this publication.

The consultant said that Guyana is already facing serious capacity and governance issues. As such, a move to develop a National Oil Company (NOC) now would not be in the country's interest.

Dr. Mangal said, “What Guyana needs to focus on is the regulatory framework. There are several new pieces of legislation which need to be passed as well as existing Acts which require amendments.

“There is also the issue of scanty or minimal human capacity. So to go and say ‘let's develop a national oil company' then that is a recipe for disaster. You have low capacity to do other things, now you are going to dilute it with using the limited capacity for a NOC? That is not good.”

The Oil and Gas Consultant added, “If you look around the world, there are several instances where NOCs are prone to corruption because of the lack of human capacity. Trinidad is one example. So Guyana needs to step back from that idea, get the basics first, get qualified people on board, and see that things are working in the regulation of the industry.”

The Oil and Gas Consultant said that once the authorities can prove that it can regulate the industry properly, only then should consideration be given to the establishment of an NOC.

He added, “There would be a lot of pressure to do that NOC because if people in Government want to get their hands on money, through corrupt means, then the NOC would be the perfect way to do it.

“There will be many in the business sector and also externally, who would be pushing elements in the government to do a NOC because they know they can make vast sums of money. But it would not be in the country's best interest.”

PROS AND CONS

The Government has indicated that there are plans to create a national oil company before yearend. However, several international institutions have called for there to be serious consideration of the pros and cons of that construct.

Chatham House, for example, held a special forum for Guyana last year. It focused on the preparation for oil and the type of governance that would be needed. The anticorruption body noted that there was a preoccupation by Guyanese representatives with the formation of a NOC.

Chatham House in a report of the seminar said that NOCs are important to emerging producers because they can be vehicles for developing technical and commercial skills in the petroleum sector, enabling countries to participate in the production of their natural resources.
It noted, however, that the net financial gain to the state depends very much on the efficiency of the NOC and the soundness of its commercial strategy.

The body said, “Many Guyanese were positive about the idea of having an NOC… However, several external speakers urged Guyana to consider some of the negative considerations. Firstly, there is an opportunity cost to financing an NOC: indeed, are those funds better spent on other budgetary priorities such as vocational education to train Guyanese for jobs in the oil sector, for example? Secondly, financing an NOC can be difficult when it does not have equity stakes in producing licences that generate revenue.”

Chatham House continued, “In Guyana's case, the offshore acreage has already been awarded (with no provision for an NOC stake) but minority equity stakes could feasibly be reserved for the NOC in acreage that is relinquished.

Finally, other producers in the room also suggested that Guyana would need to be ready to confront the likely rush of requests and favours that would follow the establishment of an NOC. In this respect, other producers were clear that it would be sensible to establish careful governance mechanisms to reduce the opportunity for nepotism and corruption.”

It added, “One speaker suggested that should the government decide to create an NOC, it should include the right of an NOC to minority equity stakes in future licences but work to establish the capacity of the regulator first. Also, when establishing an NOC it is important to carefully delineate its mandates and ensure that it is affordable.” See link for full report

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