Full transparency of oil revenues needed urges foreign expert

By Stacy Carmichael-James

The importance of a Sovereign Wealth Fund and other key factors to be considered as Guyana prepares for the development of the Oil and Gas Sector were underscored at the Guyana Oil and Gas Association’s latest public Lecture held at the Marriott Hotel, Kingston.

Speaker at the event,  Eli Whitney Debevoise II highlighted to those in attendance that there are different approaches to Sovereign Wealth Funds (SWF), noting that they tend to revolve around key variables.

Debevoise was the U.S. Executive Director of the World BEli Whitney Debevoise IIank Group. He is also a partner at Arnold & Porter LLP and served as Commissioner of the Maryland Port Commission in Baltimore.

According to him, objectives, sources of the assets, the relationship between the SWF and its management and most importantly its relationship to regular fiscal accounts must be considered. There must also be steps to insulate the budget and economy against price waves in the economy, this is particularly necessary for oil, which is a commodity where the price fluctuates.

One objective of the SWF as pointed out by Debevoise is saving funds for future generations, one way includes converting non-renewable assets into a more diversified portfolio of assets and to mitigate the effects of “Dutch Disease.” This was described as a phenomenon observed in many countries where an asset has an exaggerated importance in an economy resulting in misalignment of relative prices.

“In the case of oil, for example, huge oil wealth if it is not properly sterilized can produce other inefficiencies  in other sectors of the economy because if there is a lot of wealth being thrown around it may be cheaper to import lots and lots of things instead of producing them at home or if you have an export industry inputs into that industry may get more costly and reduce the competitiveness of your exports,” Debevoise underscored.

A Reserve Investment Fund could also be created, he noted, where there is an account surplus deriving from a defined level of receipts above an established threshold as reserve assets, which could be placed in a “sort of Sovereign Wealth Fund vehicle.” The country, also in preparation for the Oil and Gas Industry can seek to develop funds which are established to fund socio-economic projects or to promote industrial policies that may raise the country’s potential output growth or develop its infrastructure.

Steps may be taken Debevoise said, to enhance the governing capacity of the country for which there are tools to accomplish this. One such tool includes the Extractive Industry Transparency Initiatives (EITI) with the elaboration to this being the EITI Plus Plus, “In its basic formulation it involves full transparency about revenues coming from natural resources, this means disclosure of the arrangements under which the resources are being extracted and full transparency of the financial side of that. How much revenue is coming in and from what source.”

The EITI Plus Plus extends this transparency principle throughout the public financial management chain and caters too to the enhancement of the public procurement procedures.

This is the third public lecture hosted by the Guyana Oil and Gas Association and aims to sensitize persons on aspects of the sector, as the country prepares for the advancement to come.

Also in attendance were Attorney-at-Law Nigel Hughes, Chairman of the Association Bobby Gosai and Minister of Public Telecommunications Cathy Hughes, among others.