Will Guyana's oil wealth bring prosperity or turmoil?

is Guyana getting rich after the discovery of massive offshore oil fields the small South American nation is now positioned to become one of the world's wealthiest but will that wealth reach the people or prove a curse for one of Latin America's poorest countries I'm andreasenke and today's newsmaker is Guyana [Music] less than a million people live in Guyana many of them below the poverty line but that could all change very soon the South American country is now set to become the fourth largest offshore oil producer in the world after a Consortium led by Exxon Mobil known as Esso Indiana discovered oil there in 2015 with 1.6 billion dollars in oil Revenue so far the government has launched infrastructure projects including the construction of 12 hospitals scores of schools two main highways its first deep water port and a 1.9 billion dollar gas to energy project president Irfan Ali says he's determined to avoid the curse of oil and is navigating the best way for his people to profit through a low-carbon development strategy carbon development strategy now as it is 2030 is the overarching development strategy that will ensure we develop our country in a sustainable way in a way that ensures the economy is resilient to different shocks in a way that that promotes Equitable development in a way that speaks to the transformative agenda of the government where we're focusing on well despite the president's plan poverty remains a major challenge in the country as the cost of living Source while some guineas will be employed by Exon many of the offshore jobs will go to experts from abroad still others are hopeful their fortunes will change got this opportunity to learn something new and and again uh you know some more money so I got the opportunity I took it and now look at me one year after I'm enjoying it I even got promoted not too optimistic but hopeful that we get it right and that we become a prosperous country rather than become another figure in terms of a country that had great potential but yet was not able to capitalize on the potential but some experts worry that Guyana not only lacks the expertise legal and Regulatory framework to handle the influx of wealth but that it also has a history of corruption and ethnic division that could be exacerbated by the massive Revenue now some believe the oil boom could weaken Democratic institutions and lead the country on a path similar to neighboring Venezuela a Petro State Rife with political and economic chaos still within the next few years Guiana could become the richest nation in South America thanks to oil and gas if profits are distributed fairly its GDP per capita would be on par with Italy what oil will do if used how it is being used is that it will intensify the ethnic problem it will result in the rich getting richer and the poor getting poorer and it will produce tensions in the society that will evidently in the future destabilize the society so is Guyana poised for a true economic miracle that raises the standard of living across the board for some of the poorest people in Latin America or will oil and gas prove the quintessential curse of natural resources that instead fuels corruption and poverty well joining me now to debate that and more are from Miami Arthur deakin he is the director of the energy practice at America's market intelligence from Georgetown is Belinda jenke she is an international lawyer challenging guiana's offshore deep water petroleum production and from New York Tom sanzillo Director of Finance for the institute for energy economics and financial analysis now we also invited representatives from Exxon to participate in this program but sadly receive no reply so let me start with Arthur and begin by telling us why even though Guyana still has one of the highest poverty rates in Latin America you're feeling pretty good about what's happening there yeah I would say that um what the government has done in the past five or so years um has been very fruitful in terms of bringing in investment from Exxon and its Consortium um it's one of the fastest development rates that we've ever seen for for an offshore uh oil field but when it comes to actually Translating that wealth into the population things do take time uh it takes structural planning it takes years for that investment that's coming into the national uh resource fund to translate into the budget and into infrastructure projects that were of national interest to to the country so the environment for new Investments come in for Maxon have been very fruitful but when you're thinking about it more broadly of other multinationals of other private companies looking to come into Guyana it's become it's it's been a little bit more challenging the local content what the Guyana has is quite stringent in the sense that it puts a lot of requirements for foreign companies looking to create new business in Guyana it has to be you know the the company the the structure has to be 51 owned by by Guyanese citizens uh the higher management has I believe it's 75 a Guyanese so in a country that has only a hundred and eighty thousand people it's very difficult to get the necessary skilled labor to fulfill that local content law so that is creating a slower development for sectors outside of the oil and gas sector the oil and gas sector has been doing very well but when you're talking about agriculture when you're talking about developing bridges in schools and hospitals that is taking a little bit longer than I would say is expected and the government lacks a a Clear Vision clear plan on how it's going to spend the monies that it's receiving from the oil revenues so I think there is a lot of room for improvement and it really is just it doesn't though I mean the government doesn't seem to think so if you watch you know interviews with the president that are out there he seems to think there is a plan he's not going to let this become a curse they know how they're going to benefit their population but what you're seeing is that there there isn't a clear structure going forward as to how how to get that money to the poorest people that's correct I mean of course the government is going to say that they're doing a a really good job um they wouldn't admit that they're not and and there's there's a lot of credit for what they're doing in terms of bringing in new investment for the oil and gas field for the starbreak block and also surrounding blocks are around the Starbucks block which is the most advanced one but but when you're thinking about structurally planning sustainable long-term wealth for the population I think there's still a lot to be done um okay I haven't seen it yeah I haven't seen a plan or clear structure of how the monies they're going to be spent in a way that's good for the population okay uh Tom let me raise you know something with you that Arthur was was talking about uh the view that that is local laws are actually hindering the next level of investment that would really benefit the population of Guiana is that true or are the bigger problems actually coming from the oil company and the macro scene itself were the real faults that it's not it's not helping the people well I think um well I think a couple of good points uh mostly I I disagree I think you have to um start where we are which is the budget of Guyana is about 3.6 billion U.S about a billion of that came from oil uh this year the budgets doubled in the last two years from just under um uh 2 billion and what you have is large expenditures on on Capital um and the idea that um there is no plan well there is a plan um it's very clear um there is no plan to put the money away in a sovereign wealth fund like Norway there's only a annual budget process in that annual budget process includes the oil revenues that come in and the local leaders choose how that money gets spent every year and they've been spending it so far on Capital expenditures um and that is not I'm going to do to um support the kind of um economic development in the poorer communities that you want it may be it may um work to exxon's benefit to put in New Roads it may be exxon's benefit to build a new gas plant but they don't need that kind of an electricity system in in Guyana and who knows if they actually need the roads that they are being built because there is no um a public process so what you have is a plan and the plan is to use the money to keep the existing political structure and power and that's what it's going to be that's what's going to be done okay so keep the existing political structure and power and keep the money in the wells at the top of the pyramid okay that's the plan let me turn to Melinda quickly because Melinda you need to explain what the environmental risks might be and will they exacerbate as well I mean the effects of climate change in Guyana which are all is already an extremely vulnerable country are they really taking into consideration the potential consequences for environmental damage here well I would say before we get to the environment because the minute you talk about you criticize oil people say oh it's about the environment in fact it's not the fact is that this is not investment in Guyana this is extractivism this is a foreign company coming in and refusing to obey national law and we had a perfect example when Arthur deakin complained about the local content law if you don't like National laws and don't come to Guyana but once you're here you have to obey those laws and if you don't think that Guyanese should have a say in what happens in this country then you're in the wrong place this is extractivism it's not investment in terms of the environment yes of course we have an environmental protection act which I drafted many years ago and which has to be complied with there have been seven cases in court now because there's very poor enforcement by the regulator of the requirements for doing business in Guyana complying with national legislation is the cost of doing business can you give us a quick example then Melinda of where you know National legislation is similar I'm thinking in in countries in the Gulf uh that's completely fine to abide by yeah well the legislation in Guyana says for example that you must do an environmental impact assessment it must reach certain it must comply with certain parameters you're granted an environmental permit and then you must comply with your permit nobody forces you to take the permit but once you accept that permit you must comply with it just last months the judge in one of the cases held that Esso this is exxon's subsidiary in Guyana was in breach of its permit and that the EPA had failed as the regulator to do its job and what he actually said was that they had put Guyana at risk by their failure to do the job to do their job and he said that Esso was never in any doubt as to what its liabilities were under the permit but they just didn't comply so how is that or would that affect the lives of ordinary people there what what does that put them in danger of for example if there is pollution such as an oil spill if there is a well Blowout at the moment the Guyanese people are on the hook for whatever that costs under the permit the judge said that Esso had to produce an uncapped unlimited parent company guarantee for all costs for pollution or for discharge of a contaminant so if there is pollution if there is a well blowout if there is an oil spill then Exxon Mobil is the person that the Guyana government turns to for the money to clean up remember Guyana has no experience of oil and gas the government has no experience of oil and gas nobody knows what will happen no there's nobody who can actually deal with an oil spill this country has no risk no capacity to do that the government has appealed against that decision now this is a decision that benefits the government of Guyana because it indemnifies the government of Guyana for all of the costs from a from an oil spill the government has appealed against that decision the attorney general has applied to join the action on the side of Esso the Environmental Protection Agency who is supposed to enforce the permit has appealed against the decision and you've said before deep water petroleum production is particularly dangerous when there is a disaster in that space it's bigger than I mean as bad as oil spills can be this is kind of the worst uh that you can do uh but let me come back to Arthur quickly if you don't mind because I want to get your response to the fact that what is the problem here there are there are always local and National laws that have to be abided by and it doesn't sound like the ones in Guyana are particularly more stringent than other countries where where oil companies have such dealings so why is it so difficult to just abide by it seems a standard national law yeah I mean I agreed the fact that you need National and and local laws uh to create a framework that works for the country but when it's too strict in the sense that it the requirements are too high for foreign companies to abide to it ends up hindering development instead of accelerating the development and that ends up hurting the local people in the long term so uh what we're seeing a lot with local content laws with the existing local content law is that there's fronting companies being created in Guyana where multinationals or foreign companies come into Guyana and are simply you know picking people to serve in their board uh so that they make up the 51 requirement that's that's outlined in the law but the guy in these people are not actually getting anything out of it um so definitely you want to have a Guyana first policy in which if you have a new open position you try to hire a Guyanese people for at least let's say three months and if you're unsuccessful then you can go into foreign talent but when you have requirements that are actually hindering the development I think that's when you start looking at revising the law okay quickly Melinda do you accept that is there an issue with fronting companies because we have to be honest as well that Guyana hasn't always had the most transparent government and there is an issue with corruption foreign yes but I disagree with the point that we should be changing our laws to facilitate foreign extractivism the purpose of national law is to protect the Guyanese people it is not to open the country up to exploitation by foreigners and that is a fundamental point on which I will not budge so what do you suggest then uh Melinda where is the balance between reaping The Riches of this offshore oil while not compromising the environment and not hurting the local populations well I think first of all we need to stop talking about the environment because the issue here is that there is no Financial case for oil in the first place before we move on to the destruction of the environment the destruction of the planet um this is a business model that is going nowhere oil is a declining Market Saudi Arabia has recently tried to cut production Guyana is increasing production coming to a declining market and increasing production now that is simply impossible and there is no business case to Pivot guyana's economy onto oil and gas which is declining there's more investment going into renewable energy now than there is going into oil and then we talk when we talk about this we should we should remember that Guyana does not need this oil the government is proposing to spend two or three billion on gas to shore okay to bring to Sure gas that we don't need and which the World Bank said there was no market for the argument that peak oil Global consumption has already passed us but in a second but first let me get back to Tom uh because you seem to think that govern that guyana's government is particularly ill-equipped to deal with this level of resource wealth and I don't know I think the government might come back and say well this is the typical perhaps condescending view of a foreign analyst that thinks we can't manage the way we've said we will but you really do believe that there is a specific issue with the Guyanese government and how it isn't prepared for the size of this find well I I think you have to you have to stop back a little bit where Arthur was which is this is the uh local content laws not exons only complaint I mean it came in there it read the contract it knew what the rules were now um since the beginning it can't meet the flaring requirements that it uh claimed it would meet um it had it had a permit agreement with the government that was illegal according to the courts and one of Melinda's earliest suits um they come they're complaining about every single provision when the IHS markets experts who looked at the contract said the contract was effectively one-sided in exxon's favor so they already have a favorable contract um and now they're saying they don't they can't meet these these what are effectively quite quite um I would say weak requirements um and the question then becomes from an economic and finance point of view um without all of these loopholes is this project profitable and uh my view is it probably um isn't and that's why Exxon is complaining that it came in and sold people a bill of goods and even it can't profit from a lopsided deal that's giving them a lot of the revenues um at the expense of the Guyanese people so I would say um at this point to answer your question you know directly um this is an agreement that was made between the government of Guyana and Exxon Mobil yes Exxon Mobil has far superior way uh to um to um beat the um Guinea's people in any negotiation around uh the the world but the um the willingness of the uh of the government to participate in this is something that does need to be uh does need to be addressed and um but it's not going to change because the they've made it clear that this is the plan and the plan will be um to allow lacks enforcement to allow this really lopsided fiscal deal to continue and to use the resources that do come in which are substantial I'm not going to say that's uh that's not true that is um but to use it in a manner um a pretty standard Economic Development manner where the politicians control it at the top and it doesn't get down to the benefits of the people but exxon's got some very big um finance and economic problems um that have not been brought to light and need to be brought to life that they need to be transparent and the people of uh Guyana really um in terms of their government they have better learn how to fight back um and um because we've seen um what happens when they don't okay I mean Arthur are you still convinced that this isn't just going to be profitable but actually there is a way to make it profitable for all even though and it's interesting to hear Tom speak about Exxon mobil's own Financial issues right now and also hearing Melinda mention you know the peak oil issue that the consumption is going down that we won't have the same demand I saw you respond slightly to that as well you might not think that's true yeah I mean I I agree with Tom with the fact that the existing PSA the production sharing agreement for the Starbucks block is is quite one-sided it's a very very favorable deal for for Exxon um you know for future deals you have to restructure the uh the profit oil that goes to to the Guyanese government you also have to increase the taxes that Exxon has to pay in the existing PSA Exxon does not pay taxes so you definitely have a lot of room to improve production sharing agreements moving forward um you know there's calls to revise the existing one because that's you know it covers a startback block which is where all the profits coming there's some Merit to that um but then you also have to think about you know the the validity of contracts and and how that will be impacted um yeah in terms of peak oil and gas you know I I it's important to to think about long-term sustainability for the world for sure you want to decrease oil and gas extraction as much as you can but I think Guyana has a type of crew that's light that is is less environmental environmentally damaging that you've seen some other countries developed countries that have already extracted all those resources in the past so it's tough to argue that Guyana should not extract these these resources uh when other countries have in the past and and there's a lot of wealth that can be made if used appropriately for the entire population okay I think uh I I agree with what Tom is saying right now the money is paying a lot in the hands of a few people at the top Melinda listen given how poor quickly Guiana is isn't a less than optimal profit model still better than nothing I'm Guyana is not a poor country and I think it's really important for people to understand that this is a country that is and always has been extremely rich in the people resources the people are poor and the reason the people are poor is that for six decades the politicians of Guyana have squandered the money that has come in all that is happening with oil is that it will make it worse and Mr sanzilla gave a very good example of how politicians are now using that money for their own purposes you played an extract from the president's speech in which he talked about supporting infrastructure and economic transformation that is not the role of the government the government's job is to take care of the people and the people will decide what happens with the economy you free up the economy to competition within the country and let the market decide you do not have the government making business decisions and that is exactly what is going on now and the government is not competent to make business decisions so when we hear all this talk about the oil wealth first of all there is no oil wealth because it's a very bad that contract secondly all the risk is on Guyana and thirdly when people talk about the fourth richest reserves or the fourth largest reserves of oil what we're really talking about here is the country that now has the fourth largest reserves of stranded assets because these will not be burned okay Melinda that will have to be the final word unfortunately we're out of time for this edition of the newsmakers I'd like to thank all three of my panelists sincerely so much for joining us and our viewers of course for being with us as well remember you can follow us on Twitter and do be sure to subscribe to our YouTube channel I'm Andrea Sankey we'll see you next time foreign

Channel: The Newsmakers

Views: 98,595

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Id: lOGBFbi8D7w

Length: 26min 0sec (1560 seconds)

Published: Fri Jun 16 2023