Creating the Guyanese model

Jeff Simmons, Country Manager of Esso Exploration and Production, Guyana, the Exxon Mobil subsidiary, said since the discoveries of the Liza and Payara fields, the company has invested US$700 million in the country, $100 million of that having gone to Guyanese companies. He also indicated that local content issues were at the top of the company’s mind and was worked into the development plan, with 400 local workers to be hired during the installation stage (over a 6 month to 1 year period), 250-500 workers during the development drilling stage (over a 3-5 year period), 200 workers during production operations (a 20-year period) and 150 to 200 workers as the local affiliate settles down in the period after the first 20 years.

Noting that Esso was starting “from scratch”, Simmons said there was still the challenge of working out what skills would be needed, how workers would be trained, what percentage of this talent would be Guyanese and whether they would be located in the high or low skilled brackets, as well as how this would be done in a way that benefits the company, Guyanese energy sector and the country as a whole.

With an estimated 400 billion barrels in recoverable oil worth US$200 billion at current prices, Guyana needs a way to take the guesswork out of setting up its industry in a way that benefits the country and its people. Fast.

Kevin Ramnarine, a former energy minister of TT, has written and spoken on the topic and offered Business Day his thoughts.

His first, was the hope that Guyana not turn into Venezuela.

“Nobody symbolises the Resource Curse and Dutch Disease better than Venezuela.

There is a spectrum that starts with Venezuela and ends with Norway. Guyana has to decide which position it occupies along it,” said Ramnarine.

He also encouraged the energy newcomer to learn from Trinidad and Tobago’s experience, to adopt what we got right and to reject our mistakes.

Among the things we got right, he said, are the stable political and business environment, the establishment of downstream industries, the creation of NGC, transfer of skills from multi nationals and establishment of programmes to benefit the country based on oil and gas revenues, such as GATE and the establishment of the Heritage and Stabilisation Fund.

Ramnarine said one of the things we keep getting wrong however, is the compensation of qualified energy personnel employed with the government.

“One of the weaknesses of the Ministry of Energy is that it sits as part of the wider public service,” said the former energy minister.

“This means that salaries for professional staff at the Ministry are much lower compared to their peers in the oil and gas companies.” He said this resulted in a constant turnover of geologists, engineers, commercial analysts and lawyers at the ministry and he said if Guyana wanted to retain its best and its brightest to Exxon, the best way would be to provide adequate compensation from the start.

Ramnarine also listed inefficiencies at the state-owned oil company, Petrotrin and what he termed the sector’s “counterproductive” industrial relations climate as negatives.

The lack of sufficient insulation from political decision making at Petrotrin and to a lesser extent, the NGC has also proved to be problematic and TT’s energy infrastructure was aging with little being done to address the issue.

The former energy minister also spoke about misuse of our energy earnings.

“While we have used the two oil and gas windfalls to invest in infrastructure, health care and education, it is accepted that there was a lot of wastage and inefficiency in how various governments of Trinidad and Tobago expended the oil and gas rents.” He warned our Guyanese neighbours to avoid these pitfalls.

He advocated that the government negotiate local content terms that would be truly beneficial to the country and that Guyana could go the route of legislating local content like Norway or Nigeria or including it in Production Sharing contracts with the companies, like TT. He recommended that Guyana stick with the Production Sharing contracts since these gave the government more control over the industry.

“Local content also means local private equity participation.

I am of the view that the local capital market should participate by financing a portion of oil and gas investments. This could be mandated by the Government,” said Ramnarine.

However, the situation demanded that Guyana understood some realities. The first, said Ramnarine, was that the industry was unlikely to employ many people. The second, was that Guyana’s energy sector had to develop downstream industries to be truly beneficial to its people, something he said was unlikely to happen at this point since the Liza field was too far out at sea to pipe oil back to land for any land based activity.

The former energy minister also said Guyana should establish its own State Energy company.

“This company’s board and management must be insulated from politics. A percentage of this company’s equity must be listed on the Guyana Stock Exchange. This will allow institutional investors and citizens the opportunity to directly own Guyana’s oil industry.” He said two separate companies must be formed along with the main enterprise: one to develop support infrastructure and the other to take on marketing activities.

With regard to starting “from scratch”, Ramnarine believed this may not necessarily be a bad thing for Guyana.

“Guyana has an opportunity to take the best from the experiences of other countries and make its own model. It may be that 20 years from now, we won’t be talking about the Norway model. We may be talking about the Guyana model.”