OIL: Guyana not yet in position to adopt Norway model for a wealth fund – Ali

DIASPORA CONFERENCE – May 22. 2021

Irfaan AliPresident Irfaan Ali yesterday announced that while his government is committed to the transparent spending of Guyana’s oil revenue, it cannot at this stage commit to implementing the internationally praised Norway model for a Sovereign Wealth Fund (SWF).

During the opening session of the inaugural Diaspora Conference, held virtually, Ali along with Vice President Bharrat Jagdeo responded to series of questions from participants.       

Asked specifically if the PPP/C government plans to use the Norway model to manage oil revenues both men said that Guyana situation is very different from Norway. “There is a lot of academic debate on different funds and different ways in which Natural Resources Funds are managed globally but what a lot of academic debate don’t tell you is that for example in the Norwegian model it was adopted after the country had a certain level of infrastructure, a certain level of service, a certain level of development,” Ali noted.

He stressed that in considering the best model to implement, discussions must include the state of the country when a particular model was approved. His government, he noted, is currently examining several models, including the Kazakhstan model.

This model prioritises the dual purposes of economic stabilisation and savings. Notably while the National Bank of Kazakhstan serves as operational manager for the fund, all major strategic and policy decisions regarding the fund are made by the management council, consisting of the President, Prime Minister and high-ranking ministers, government officials and parliamentarians.

While deposit and withdrawal amounts are made public, there is virtually no public reporting on specific assets or asset allocation and the transfer of funds in and out of the National Fund is governed by presidential decrees.

In contrast the Norwegian model, which also performs both budget-stabilisation and saving, is an integrated part of the government’s annual budget with its income providing stable, predictable funding of up to 3% of the fund’s capital in the annual national budget. That means Norway can withdraw as much as 3% of the fund each year.

‘Dire need’

According to Ali, Guyana’s is in dire need of infrastructure transformation, in dire need of transformation in the health sector, in the education sector and in the energy sector. “We have to create the framework for the expansion of these and other important sectors that will bring jobs and create the platform through which our country will evolve into the future, and through which these funds can be modelled, and that is the stage we are in now in Guyana,” he stressed explaining that the drive is to enhance the lives of all Guyanese and give the country the opportunity to become competitive, to access world-class services and world-class infrastructure.

The model adopted will suit these needs, allow for transparency and include input from local sectors, he explained.

“Look at the Petroleum Commission. We are going to establish the involvement of the Parliament and everything we have outlined layers in management of the fund,” he said.

Jagdeo reminded that his party was very critical of the current Natural Resource Fund Act because it did not believe that the model used did not offer enough distance for politicians from its management. “We have always adopted one principal of the Norwegian fund. The fund must be managed in a professional manner distanced from political interference. Second, we are committed to the Santiago principles in terms of transparency in use of the Natural Resources Fund. Thirdly it was the PPP/C government which signed up for the Extractive Industry Transparency Initiative, so we are fully committed to that,” he said, before adding that the PPP/C will also criminalise non-disclosure of receipts from oil companies.

These principles aside, Jagdeo stressed that it would be unconscionable to have children in the present day unable to attend school while the country saves for the future.

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Comments

  • brandli62  On 05/24/2021 at 2:00 am

    How can Kazakhstan’s sovereign wealth fund serve as a model for Guyana?

    “Notably while the National Bank of Kazakhstan serves as operational manager for the fund, all major strategic and policy decisions regarding the fund are made by the management council, consisting of the President, Prime Minister and high-ranking ministers, government officials and parliamentarians.”

    Here are some facts about Kazakhstan taken from Transparency International’s Corruption Perceptions Index 2020 (www.transparency.org/en/cpi/2020/index/nzl)

    – Norway (Rank 7)
    – Guyana (Rank 83)
    – Kazakhstan (Rank 94)

    Do the Guyanese people want their country to look in the future more like Kazakhstan or Norway? I guess the answer is a no-brainer.

    • Ram esh  On 05/24/2021 at 6:48 am

      “Do the Guyanese people want their country to look in the future more like Kazakhstan or Norway? I guess the answer is a no-brainer.”

      You are comparing apples to oranges. Guyana is currently the second poorest nation in the Western Hemisphere after Haiti.

      For the past 500 years, our natural resources were managed by the Dutch, French, and British. Wednesday, May 26, marks the 55th anniversary since the colonizers and plunderers finally left our shores.

      Any rational, educated person would know that Guyana has dire needs in the areas of infrastructure, healthcare, education, etc.

      Those are the pressing, urgent needs which must first be addressed before you can consider the Norwegian model. Norway currently has a trillion US dollars in the bank and that is commendable. (Guyana has 0 US dollars in the bank). Guyana has gaping economic needs before she can begin to save up for the future.

      What the current and future custodians of oil revenue must ensure is that there is always transparency in how oil money is spent. To that end, it is necessary to enact legislation to criminally prosecute any mismanagement and misappropriation of that revenue and to put all would-be violators on notice.

      So, first thing first. You have to crawl before you learn how to walk. With efficient management of our natural resources, we could also, like Norway, save up for future generations. But for now, the urgent needs today’s generation must be looked after first.

      Ramesh

  • Henry Horton  On 05/24/2021 at 7:36 am

    “Comparing apples to oranges” isn’t that what the government is doing here? What about a specific Guyanese model, designed to it’s own rather tragic (political, economic and social! ) situation, aimed at developing and dragging it’s working people out of the mire of poverty and hopelessness. The PPP was once, historically, a party dedicated to the pursuit of socialism, has it lost all semblance to that cause?

  • wally n  On 05/24/2021 at 11:30 am

    I would not think it is beyond the ability of Guyanese to develop their own model, it might be easier, maybe by using the better features of the models out there.The problem might be transparency and the suggestion of any degree of Socialism. Mentioned before, a Conservative wiseguy once suggested that money given and spent on Natives should be constantly updated on a large electronic Billboard, there was constant lament that the money was always missing. Of course the idea was as severe as the doomsday clock, but there must be some way the public can be aware plus experience in “real” time,or close to, the growth while removing doubt, and can also serve as a powerful motivator.

  • Dennis Albert  On 05/24/2021 at 4:12 pm

    The “Marxist” PPP should already have taxed the Portuguese elite who are banking it rich on the prime real estate in GT.

    • Ramesh  On 05/24/2021 at 11:31 pm

      ‘The “Marxist” PPP …’ Dennis Albert.

      Two Questions:

      1) What is your definition of Marxism?

      2) What evidence do you have to show that the PPP are Marxist practitioners?

      Ramesh

  • JoE  On 05/24/2021 at 9:04 pm

    Frankly, once I read what Brandi has read viz: “all major strategic and policy decisions regarding the fund are made by the management council, consisting of the President, Prime Minister and high-ranking ministers, government officials and parliamentarians. While deposit and withdrawal amounts are made public, there is virtually no public reporting on specific assets or asset allocation and the transfer of funds in and out of the National Fund is governed by presidential decrees.” that sees me devoid of any trust in how Guyana will move forward.

    How can anyone in their sane mind, accept that only the key Ministers will make decisions, without a concomitant duty for public reporting on the assets and their allocation and in addition, the transfer of funds–which latter action will be done by presidential decree? Now I would have to believe that Mr. Irfan Ali and Mr. Jagdeo are so eminently qualified to make decisions among their own that we should not require any public report from them and their decree should suffice?

    I’m glad that Brandli had the wit to track the Transparency Index to guage Kazakstan’s standing in it. Even Guyana ranks ahead of it. It is a no-brainer for me.

    The excuse that Guyana has all these outstanding issues justifying a high-handed approach is dust thrown in your eyes. Guyana has a very small population and for now utilizes only so much land. It hardly needs a blanket use of sovereign funds drawn upon willy-nilly for probably bad decisions depending on who’s bending the ear of the President from one day to the next. Further, all this fancy talk about world class this and that is a pack of nonsense. Even the USA fails to reach world class in many areas of its operations. Canada’s politicians love to throw around the phrase but in different areas, it fails to register as having that exalted ego-boosting level. It’s a description politicians love to dangle. Just figure that our capacity to travel in Canada to even small towns depends mostly on the automobile..meaning that a very sound public transportation system as exists in England and China is not to be had. Even the USA has less world class public transportation than does China.

    With the level of ignorance, crudeness, violence and bad habits among a portion of the youth population (I’m aware of the many who are working hard to promote their lives under the guidance of devoted parents and teachers), and the stubborn indifference to public order, cleanliness and good maintenance of public places, it’s a hoot that suddenly these poor folk will, with a snap of a finger become world class in their way of life. Who’s smoking what here?

    From the get go…full public consultation, voting and public accountability at regular intervals, I would suggest, would be the way to go. If different communities need different levels of investment, decisions should be seen to be fair and equitable to all, overall. And what’s the rush? We’re going to be world class in a hurry? Really? With how many crooks coming in by plane to sell you their latest pie in the sky?

    This plan if implemented will see me no longer interested to have any faith in what will ensue in Guyana. If the overlords of the past did not involve us in their high-handed economic decisions, why would anyone think a local is going to do any better under these obviously fatuous guidelines? Kazakstan! Really!? The Govt. really went fetching around quite far afield for like-minded souls out there for their plans for the future. Now if you don’t believe me read this:

    “In Kazakhstan, uncover of numerous corruption scandals involving government officials has become almost a normal feature of life. Behind the high-profile acts of waging a battle against corruption, however, is a serious and systemic phenomenon. The most endemic form of corruption is the various transfers of funds in the state structures and national companies which remain opaque and thus unaccounted for. There are questions about the volumes and spending of revenues earned from natural resources, and there is no independent monitoring and control of the flow of funds in national oil and gas companies. The main actors involved in the shadow economy are state officials and informal pressure groups, who distribute resources among themselves, and accumulate wealth by way of legalising informal incomes or obtaining official business using connections. While important decision making is carried out among the close circles of the elite, formal institutions remain weak and ineffective.”

    “Nuf said”. If this goes ahead, I will never ever look back at Guyana again. I’ve never written at such length before, but reading this news raised concerns sky-high.

    • Bernard  On 05/24/2021 at 9:43 pm

      Jagdeo and Ali cannot be trusted- sheep in wolf clothing. Be reminded that Ali had 19 alleged land fraud charges brought against him in 2018 for attempting to defraud the state of $174 million. Those charges were dropped after be became president in 2020. Even his credentials are dubious. Guyana is in trouble. The opposition must keep an eagle eye on them and expose any questionable business transactions. 🇬🇾🇬🇾

      Bernard

    • Dennis Albert  On 05/25/2021 at 2:26 am

      Russia, Ukraine and a few former Soviet nations are gangster capitalist countries ruled by oligarchs.

      “GOD” under the new democracy is “Gold, Oil and Drugs”. Guyana will have a very high GDP per capital due to a small but growing populace of 800,000 persons, but most of that money will be siphoned off to corrupt politicians and crooked financial banks in NYC, Toronto and London.

      The same poor voter base will like, comment and subscribe to the Playboy and diva lifestyles of the corrupt politicians. They will congratulate Ali as he takes a selfie with dozens of bikini models like Dan Bilzerian.

    • brandli62  On 05/25/2021 at 3:59 pm

      JoE, I am very happy for our detailed response. I completely agree with your analysis. Sound management of the Natural Resources Fund (NRF), Guyana’s sovereign wealth fund is the most important pillar for the nation’s economic success for years to come. This will also determine whether Guyana will look more like Norway and not like Kazakstan or Nigeria.

      Those attending the recent Diaspora Conference will have noticed that it was me, who asked the President the specific question on the envisaged model for the NRF. I was surprised that the moderator actually selected my question for the President (and the VP) to be address. When I heard him mentioning the Kazakhstan model, all my alarm bells went up. First, I had never heard of that particular model. It is not portrait in the media as an example to my knowledge. Second, Kazakhstan is a corrupt state that has been run in an autocratic manner by Nursultan Nasarbajew (and his family) ever since it gained independence from the Soviet Union. He retired in 2019, but still pulls the strings in the back. His family has hundreds of millions of assets stashed away in Switzerland, the UK, UAE and elsewhere. Third, Kazakhstan can hardly be called a liberal democracy with true oversight by the Kazakh people. There are no free elections and press freedom is inexistent. Why does President Ali believe that such a nation is capable of running a sovereign wealth fund in a transparent and accountable manner? It’s an enigma to me.

      My advice to the PPP/C-led government is to adopt the Norwegian model of a sovereign wealth fund 1:1. It is the best run sovereign wealth fund in the world. Its mechanisms of sound management, long-term asset allocation, insulation from political interference, and strong parliamentary oversight are recognised internationally. The model has been proven to be successful for decades.

      Why does Guyana want to invent the wheel again from scratch? Guyana is a country with 800’000 people and lacks currently the expertise to develop it’s own model of a sovereign wealth fund. VP Jagdeo might complain about how the NRF was implemented by the previous government. Fact is that the oil revenues have so far remained on a New York bank account out of reach from wreck-less spending. This gives the Guyanese people sufficient time to decide who they want to run the NRF. In my opinion, Guyana will gain huge international credibility by implementing the Norwegian model of a sovereign wealth fund and it will gain the deserving trust of the Guyanese people, too. Isn’t this no-brainer? Personally, I would initially even ask the Norwegians for help in managing the assets. This has to include a training program for young Guyanese to learn from the Norwegians.

      Now let me address President Ali’s argument that we need the money now. This is a false argument. The NRF started out small, but it has within 18 months grown already to 300 million USD. This is with just one FPSO operating off the coast producing an average of 100’000 barrels of oil per day. By 2025, Guyana is projected to produce 500’000 barrels per day, which 5x more than current numbers. As a consequence, the assets in the NRF will grow exponentially. I anticipate that the NRF would have by end of 2025 assets of at least USD 3 billion USD. By contrast, Guyana’s national budget for 2021 is at USD 1.84 billion (GYD $383.1b). Hence, the NRF will be close to twice the national budget by 2025. With the Norwegian model, Guyana could withdraw about 100 million USD in 2025. Furthermore, the oil revenues will rapidly grow year by year as more FPSOs will come online. The projections are that Guyana will be producing 1 million barrels of oil by 2030. In addition, the sale of liquified natural gas (LNG) will contribute additional funds to the NRF. Overall, this will be a lot of oil and gas revenues for a nation of 800’000 people.

      Besides preserving the core of the oil revenues for future generations, implementation of the Norwegian sovereign wealth fund model has also the advantage that the Guyanese economy will not overhead. The oil reserves will gradually increase as a contributor to the national budget, which will give the nation time to absorb all the changes happening as a consequence of the offshore oil production and the onshore changes. A lot of the required onshore oil infrastructure will be developed by the private sector. To pay for urgent public infrastructure projects, the Guyanese government should use loans from international organization for financing, which would take advantage of the low interest rates. Guyana could use the annual returns from the NRF to pay for the interest own. This model makes in my opinion much more sense. It will also force the government to set clear priorities as there will not be enough money to finance everything at once.

      In closing, I hope that the readers of GO and the Guyanese people will stay engaged and vigilant. The NRF is the key instrument to provide long-term and sustainable prosperity to the nation long after the oil reserves are depleted or stay in the ground due to a decline in world-wide demand for non-renewable hydrocarbons. The newest projections of the International Energy Agency suggest that the word-wide demand for oil will drop 2/3 by 2050. Guyana has therefore only 30 years left to build up its NRF with sufficient funds to survive well after 2050.

  • wally n  On 05/25/2021 at 4:27 pm

    Norway might have the best method, but I don’t think they accomplished, country before party, over night. Guyana is in a state of distrust, and I don’t think they are quite there yet. Regardless of the method selected, transparency is going to Trump (sorry) everything.Some Governments, shady ones, have to ability to sneak money to whatever, see covid. Guyanese will question every penny, it is in their DNA.
    I do support using 2050 as a target,or maybe earlier as a motivator.
    Hopefully the Guyanese Government uses the information derived from Diaspora Conference, and not just as a PR stunt.

    • brandli62  On 05/25/2021 at 4:40 pm

      Wally, as always all valid points. As a community will have to press for change. The lobbying for a transparent and accountable NRF is an important start!

  • JoE  On 05/26/2021 at 4:50 pm

    Thanks Brandli for clearly articulating the details pertinent to the Norway model. Odd, isn’t it that Minister Trotman had no problem investigating the major funds that are managed with integrity. There were no false issues (red herrings) brought up to excuse obscuring the management of the funds. This is no way to build trust. Thanks all for airing this issue openly.

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