Guyana/Suriname Arbitral Award: Conclusion

Guyana/Suriname Arbitral Award: Conclusion Friday, October 5th 2007 Stabroek News http://www.stabroeknews.com/index.pl/article?id=56530359

Last week's column dealt with the award to Guyana by the Arbitral Tribunal of the UN of maritime territory which had been a cause of dispute between Guyana and its neighbour and CARICOM partner Suriname, an area considered as having probable oil resources. This week we turn our attention to some of the implications arising out of the tantalising question, what if CGX and the other companies with exploration licences granted by the Government of Guyana were to strike oil? To some, the question has already been answered and is summed up in the five words of a friend 'we will all get rich'. Of course there is not a much better time for a developing country to hit the oil jackpot and some might even say that after all its economic experiments, adjustments and re-adjustments, Guyana deserves some special luck. Let us come back to reality and not get over-excited and believe that we have found oil or that even if we did find oil, it would be all milk and honey thereafter. For now, the principal and practical effect of the award is that CGX - and indeed the other companies that have been granted licences by Guyana - can resume exploration work in the area from which CGX was forcibly ejected by Suriname in 2000. Yes, scientific developments do allow for better technology and increase the chances of establishing - faster and possibly less expensively - whether or not oil exists, the difficulties of accessing it and the cost versus the revenue. And yes, current oil prices mean that opportunities that would otherwise be considered marginal or uneconomic become financially more attractive. And yes, there is a renewed spirit among Guyanese willing the exploration companies on, like Go CGX, Go. Now, if all these circumstances were to come together to deliver the black gold, would we all be better off? The answer, unhelpfully is, it depends. Some time ago in the highly regarded international magazine Foreign Affairs July /August 2004, writers Nancy Birdsall and Arvind Subramanian dealt with a similar issue in an article entitled SAVING IRAQ FROM ITS OIL and carrying the by-line "Escaping the resource curse". This column welcomes any oil find but it would be wrong to get carried away and not realise that oil alone does not make a country wealthy and can in fact have the opposite effect. The data and arguments by Birdsall and Subramanian are instructive for all of us and most especially for our policy-makers. Their research reveals that some thirty-four oil-producing countries are listed among the less-developed countries even while those countries derive 30 percent and more of their total export revenue from oil and natural gas resources. Of these, twelve have annual per capita income below US$1,500 while half of their population lives on less than $1 a day. Many of them are not democratic and barely a handful have a good record in terms of political freedom. We may want to note as well that even in Trinidad and Tobago that receives a substantial share of the revenue derived from oil and gas there have been persistent accusations of mismanagement and corruption by successive administrations. And as the country campaigns for elections on November 5, 2007 its huge social and political problems are becoming more evident. The lesson for us is that oil and wealth do not by themselves solve problems of poverty and insecurity. And as the writers point out the list is not limited to countries which are so readily dismissed as failures such as Angola and the Democratic Republic of the Congo but includes some of the newly independent, former republics of the former Soviet Union with considerable oil and gas resources. Indeed, the term 'oil curse' derives its origin from a developed European country and is known also as the Dutch disease, from the days when that country discovered natural gas in the North Sea and shifted its attention to oil at the expense of other sectors of the country's economy. Nor should we ignore our own experiences and potential for similar dangers. For us, one of the biggest concerns must be the impact which any oil discovery can have on the sugar industry on the Upper Corentyne . Would sugar workers resist the temptation of high-paying jobs in the oil industry and choose instead to stay with one of the most difficult jobs in Guyana and probably in the world? I doubt it. That could spell disaster for an industry on which this country has placed much of its future by investing approximately US$250 million on the Skeldon Expansion Project on the rather bold assumption that the workforce will stay in the country and the industry. And still with sugar, some of us will remember how the late Forbes Burnham found the windfall from the commodity boom in the mid/late seventies so attractive and exciting that he spent the sugar levy generously on some very ambitious projects such as the Upper Mazaruni Development project which ceased when the sugar price collapsed. With the prevailing daily increases in oil prices, it may seem that they have nowhere to go but that is to ignore history and the nature of the market. It would be wrong to assume that as wars subside in Africa, as Iraq settles down and as new deposits are found around the world or that with alternative energy the wave of the present, there will be no impact on the price of oil in the medium term. If we did start collecting huge oil revenues, would the Government not feel obligated to invest in modern infrastructure that the country needs and the citizens of an oil-producing country expect? Would we be satisfied with one single road to the only international airport, the poor river transport which many have to endure and continued reliance on the existing East Demerara Water Conservancy? And what happens if the oil price falls when we are in the middle of a major project - would we be able to cut-back? And if we become so ambitious, would oil revenues not tempt us to move the country's capital city inland away from the threatening ocean brought about by global warming? That is the kind of defining project with which any government would like to be associated particularly if it brings with it political and social benefits as well. Is there then a temptation to transform the talk of moving the city into reality without due regard to the colossal sums that would be involved, sums that we so readily associate with oil? It might be early days yet to indulge in such speculation but not too early for the Government to put in place mechanisms for revenue sharing and appropriate taxation instruments to ensure that Guyana not only gets its fair share for current revenue needs but also enough to invest for future generations. A couple of weeks ago, I referred to the Stabilisation Fund that is now part of the laws of Trinidad and Tobago and that country's policy of industrialization, both with an eye for when the petro-dollars stop flowing. For Guyana that would seem to be a necessity as investors including those from Russia, China and India search the world for natural resources to keep their factories running without regard for such esoteric considerations as democracy and freedom as we are witnessing with India and China in Myanmar and China in Sudan. Valuable deposits of the country's gold and bauxite have been extracted and huge chunks of our forests practically are exported while the communities from which these resources are taken are hardly any better off now, let alone for the future. It is time therefore that we give some consideration to the concept of a stabilization fund and while we are at it, our National Assembly should be thinking of effecting Article 77 A of the Constitution which has lain unimplemented from the inception. That Article imposes a duty on Parliament to "provide for the formulation and implementation of objective criteria for the purpose of the allocation of resources to, and the garnering of resources by local democratic organisations." That Article was designed to facilitate the devolvement of power from the centre and enhance democracy in the communities which we now need more than ever. We will also need to have strong institutions to regulate and oversee investors. In the existing scheme of things, whether in energy, investments, forestry and revenue, power and authority are vested in individuals rather than institutions, with little accountability and with all the attendant risks. Our law-making capacity is woefully inadequate, enforcement weak and remaining human capacity hopelessly deficient. All these institutions need to be strengthened now, in respect of all our resources and sectors. Let us not wait for the time when the oil starts to flow.