By Kiana Wilburg
Nigeria, Chad and Venezuela are just a few of the countries which have been damaged, to various degrees, by oil. In fact, those who have studied the industry have often described oil to be a curse, bringing nothing but corruption and conflict to its discoverer.
Since the announcement of significant oil finds in 2015, many have questioned if there is any way Guyana can turn this resource into a blessing or at the very least, escape many of the associated risks.
For Nick Butler, a visiting professor at Kings College London, the answer is yes. He stressed however that Guyana can only escape the “oil curse” with “strong leadership.” Butler said that the active support of ExxonMobil as the main operator and investor in the Stabroek Block would also be needed.
UK Professor, Nick Butler
The Energy Commentator said that the first and most important step for Guyana is to set the pace of development with a Depletion Policy. Butler said that this would phase production over a long period, avoiding a rush and allowing local companies to build up their capabilities to enable them to win a share of any oil-related activity.
Butler, who has worked with BP for 29 years, said that this covers everything from the development of a new port, infrastructure, engineering support and all the other essential onshore services from food to accommodation for the oil workers. Done too quickly, Butler said that the development of natural resources can easily become overwhelmingly dependent on expatriate labour.
The second issue Butler pointed to is how to spend the money that oil will bring. He said that the demands for immediate spending will be strong but should be resisted. In Butler’s opinion, it would be much better to devote a large proportion of the new money to the development of infrastructure.
He said, “Guyana needs everything from roads to schools to ensure that the rest of the economy can continue to develop and that the local population does not become accustomed to the sort of rentier economy that has done so much damage in the Middle East. Beyond that, the government of Guyana should establish a Sovereign Wealth Fund with strong withdrawal rules so that a proportion of the revenue earned each year is put aside for the medium- and longer-term future.”
Butler added, “The oil, even assuming that many more discoveries will be made, will not last for forever. The most successful oil economies around the world such as Norway and Abu Dhabi are notable for having saved for the future. Guyana is not yet in the league of the leading oil producers but the lessons are still valid.”
The third challenge the UK Professor said is for the government to develop its own skills and not only in the area of negotiation with the international companies. In the oil business, and many other parts of the energy sector, Butler said that companies are highly skilled and all too capable of exploiting the weakness of inexperienced authorities.
The UK Professor said, “Guyana needs to bring in expertise and, more importantly, must develop its own capacity to manage the process of licensing, regulation and the taxation of its new oil sector. The role of the international companies involved in this process is crucial. Exxon is highly professional but in areas such as Guyana, something more is needed. Again, that something is strong leadership. The leader of Guyana needs to ensure that oil operators align their activity to local needs.”
He added, “Exxon and others should be supporting a Depletion Policy and helping Guyana to develop its own capabilities. Successful sustainable development is a matter of mutual advantage not a zero sum game. In too many areas, the companies have stood aside, obeying to some extent, the letter of the law, but doing too little to limit the risks of the oil curse.”
The Energy Commentator said that the development of oil in Guyana will be very visible and the world will be watching the authorities of the day, hoping that strong leadership will be used to save Guyana from the fate suffered by the likes of Nigeria, Venezuela and Chad.
