Guyana: The Country That Wasn’t Ready to Win the Lottery

The Country That Wasn’t Ready to Win the Lottery

Oil rigs and production

Guyana just discovered it owns enough oil to solve all its problems — and cause even bigger ones.

Micah Maidenberg, Manuela Andreoni  | Foreign Policy

GEORGETOWN, Guyana — Amid the narrow streets and rusty docks of Georgetown, the quiet capital of Guyana, the first signs of an oil boom are visible. Steel pipe destined for deep-water projects can be seen stacked on wharves near the city center. Over at the Marriott, the country’s only five-star hotel, the bar fills up throughout the day with Brazilian oil workers and American contractors. Boats embark from a new depot on the Demerara River, ferrying supplies to oil projects hundreds of miles from the coast.

Driving much of this activity is ExxonMobil. Three years ago, the company’s Guyana subsidiary found crude in sandstone reservoirs about 120 miles offshore, the first of a string of offshore discoveries that have raised the country’s reserves to an estimated 3.2 billion barrels from nothing at all. Decades of dry wells had made such a cache impossible to imagine.    

With ExxonMobil expecting “first oil” — that is, to start pumping crude — in 2020, Guyana is bracing for a wave of newfound money to hit government coffers. The government anticipates collecting $300 million in petroleum funds each year from the company’s initial phase of work on a single well — a sum that represents about a quarter of the current national budget. Analysts at a Norwegian energy consultancy are even more bullish, claiming the government could rake in as much as $5 billion per year from oil by the end of the next decade.

That money will go a long way in this sparsely populated former British colony of about 750,000, where political competition between the country’s African- and Indian-descended populations has long stunted development. The country’s needs are many. Guyana’s power supply is erratic, leaving even parts of the capital without electricity at times. Its infant mortality rate is almost double the average of Latin American and Caribbean countries. Its unemployment rate stood at 11.8 percent in 2017, according to the World Bank.

“This is the best thing that has ever happened to Guyana,” Minister of Finance Winston Jordan said in an interview. “I can say that not since perhaps when sugar was introduced in the colonies have [there been] such opportunities for massive transformation of the economy.”

Oil will also generate tremendous pressure on a country known for fragile government institutions, ethnic divisions, and little transparency. The speed and focus with which ExxonMobil and its partners, Hess and China National Offshore Oil Corporation, are doing their work aren’t always being matched by elected leaders in Georgetown, who are moving far more slowly in building government infrastructure to manage the oil industry. Officials insist they have time to develop those institutions.

“We’ve always dreamed,” Jordan said, “but we’ve never had the resources to convert our dreams to reality.” But Guyana’s oil windfall could easily convert the country’s dreams into a living nightmare, one that leaves it with greater inequality, more corruption, and internal strife. Many fear that’s exactly what will happen.

Guyana has always depended on trading commodities for its survival. Its earliest existence as a polity was rooted in sugar; colonial planters forced enslaved Africans — and later, after Britain abolished slavery in 1834, indentured servants from India — to harvest the crop. In later years, and still today, the country’s economy is driven by the export of gold, rice, and bauxite.

Then, on May 20, 2015, just nine days after the current government in Guyana won the general election, ExxonMobil made public news that had been quietly discussed in government circles for a couple of weeks: The company had found crude.

ExxonMobil’s interest in the country dates to the mid-1990s, when the company said it identified Guyana’s deep waters as an “area of interest” for oil after completing a series of geologic surveys, and in 1999, a subsidiary signed an agreement to hunt for petroleum in a vast offshore concession.

But for years, the company carried out little work, ostensibly because of a maritime border dispute between Guyana and Suriname that began in 2000. That fight was resolved in 2007, clearing the way for ExxonMobil to restart exploration a year later. Seven years after that, the company issued its press statement lauding a “significant” find at the Liza-1 well, located northeast of Georgetown in the Atlantic Ocean.

Oil has historically generated wealth like few commodities can — but it’s also recognized as a double-edge sword, one associated with the so-called “resource curse” that has marred the development of countries like Angola and Venezuela.

In worried conversations across government ministries and offices in Georgetown, Guyanese are expressing worries they will be the curse’s next victim. “I’ve heard of the resource curse … and all the ills of oil, and I can tell you I am quite petrified,” acknowledged Raphael Trotman, the minister of natural resources, in an interview in late April.

“Lower-middle income countries like Guyana,” said Michael Ross, a political scientist at the University of California, Los Angeles who has written on the subject, “tend to have great difficulty using the wealth they have newly discovered in a way that benefits their people.”

The problems associated with resources are multidimensional, according to Ross and other researchers. Commodity prices rise and fall unpredictably on the global market, whipsawing a country’s economy and budgets. Oil and minerals can become so valuable they displace other sectors that could potentially generate growth. And all too often, members of government and elites seek to benefit financially from their country’s resource endowments. There are also plenty of cases where international investors cooperated with corrupt, or simply short-sighted, local officials if they stood to benefit themselves.

The resource curse isn’t inevitable, and Norway and Canada, with their rule of law, diversified economies, and strong institutions, are frequently cited exemplars of resource management. Yet in the worst cases, the control of resources can descend into armed conflict. Petroleum is “a very highly concentrated economic activity that requires permitting and things like that from the government, so it’s just incredibly tempting for the executive branch to capture those resources,” said Sarah Chayes, a senior fellow at the Carnegie Endowment for International Peace.

In Guyana, observers fear oil will intensify the longstanding competition between ethnic Indians, who make up about 40 percent of the population and people of African heritage, who comprise about 29 percent of the population, according to the country’s 2012 census. Both have longstanding complaints about the other, going back to the days of the Afro-Guyanese strongman Forbes Burnham, who ran the country between 1964 and 1985, rigging elections to ensure his power. The Indo-Guyanese-dominated People’s Progressive Party won elections in 1992, ruling for the next 23 years but generating criticism for alleged corruption.

Managing the transition to an oil-powered economy will likely be at the forefront of elections scheduled for 2020. The current government, led by the People’s National Congress, which draws its support from the country’s Afro-Guyanese community, and the People’s Progressive Party will vie to control government as the petroleum revenue starts to roll in.

“There will be a huge fight over it, in elections, and who is going to be in government,” said Thomas Singh, an economist at the University of Guyana. “So, I anticipate a lot of our revenues will be dissipated in conflict. I mean this, by the way. I expect conflict.”

ExxonMobil, meanwhile, is quickly establishing itself as a dominant economic force in Guyana. The company and its main contractors spent around $60 million last year and during the first quarter of 2018 working with hundreds of Guyanese-based companies, according to ExxonMobil. Those benefiting include companies ranging from Maggie’s Snackette and Catering to bus services and hotels, a list issued by the government shows.

While the administration has released petroleum contracts and the ExxonMobil contractor list, other basic accountability and transparency standards are still lacking. In a country where politicians have helped themselves to well-located land plots and the political parties regularly mount corruption investigations against each other, the underdevelopment of these systems is a major issue, given the money set to arrive in Guyana with oil, according to observers like Troy Thomas, a leader in the Guyanese branch of Transparency International, a global non-profit organization.

“We don’t have freedom of information,” added Thomas, who recalled asking Guyana’s open-records commissioner for information, only to be ignored. “He didn’t even write us back.”

Oil production is expected to begin in 2020, the same year as the next election, yet the country has no campaign finance laws. An Integrity Commission collects asset declarations from politicians, but it keeps these documents confidential. Corporate records are not available online, making it difficult to keep tabs on shareholders and owners in local companies.

And even though the government plans to join a major extractive-industry transparency group, the government is still in the dark about critical aspects of the oil sector. Earlier this year, the country’s securities commission took out a newspaper advertisement seeking information about a company called GGC Resources. The firm owns about 30 percent of a company that controls an offshore block in Guyana under a 2013 agreement. According to the securities regulator, GGC lists its address in New York, on the ninth floor of a building on Park Avenue. Beyond that, little is known.

In the ad, the regulator asked the public to share any details of GGC’s “incorporation, principals, directorship, nature of business, its shareholders and any other relevant information.” Shaun Allicock, an attorney at the securities commission, confirmed the agency still does not know who “the actual, real owners are.”

That raises a red flag for experts in managing natural resources, who point out that hidden shareholders in valuable resources could include politically powerful individuals. “Not knowing who the true beneficial owners of a company that obtained a major oil license are opens the door to the risk that finite oil resources aren’t being maximized for public benefit but for private gain,” said Erica Westenberg, the governance programs director at the Natural Resources Governance Institute, who was speaking generally.

Some Guyanese simply assume that oil won’t produce meaningful change in their lives. A well-worn cynicism was on display one sunny morning in April at the Stabroek Market, where vendors sell everything from pineapples and clothing while touts organize bus trips to the interior.

“I think just those in power will be more-rich,” said Michael Persaud, an accountant who was sitting in an ice cream parlor near the market. “The small man will never see his way in this country under oil.”

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Comments

  • Chris Prashad  On June 26, 2018 at 12:12 pm

    May I ask how many Guyanese were given the opportunity to own shares in the oil industry?????? The truth is that there may be none and if I am right then my next question is why not????? This resource belongs to the people who MUST have a say or a voice in the decision making of this industry if we are to avoid the CURSES and corruption by the money hungry cockroaches. TRANSPARENCY is a MUST and all corrupt bastards must be exposed and dealt with to the fullest extent of the law to serve as a deterrent. The law against corruption must be revisited and revised with penalties severe enough in place to stop this evil activity.

  • panbrowne  On July 21, 2018 at 3:54 pm

    How about investing in Exxon stock if you believe that there is where the profits will go,

  • dhanpaul narine  On July 21, 2018 at 4:08 pm

    Come 2020, if not earlier, many will want to be Guyanese. I can see foreigners marrying Guyanese and getting that Guyanese passport. They will set up communities in Guyana’s hinterland and claim rights to its land and resources, while those that are born in Guyana watch with folded hands.
    What or where is the policy to protect the patrimony?

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