The Americas / Black Gold: Energy law in Guyana
The discovery of oil in Guyana has proved transformative beyond all expectations for both itself and its main investors, namely ExxonMobil for whom the small South American country now represents roughly 6% of global production. With output having reached 300,000 barrels of oil per day, Guyana now accounts for one third of all crude oil discovered in the world since May 2015, according to consultancy firm Rystad with further finds being uncovered as recently as late July. The transformation of Guyana into a major oil producing nation ranked 17th in the world alongside Mexico and Angola has been celebrated as a major triumph for its citizens and a win for a global oil industry that has been struggling to meet high world-wide demand.
However, the task Guyana now faces with passing appropriate energy legislation and reforming key agencies in a short time, comes at a time of increasing global debate about the nature of energy law as a discipline and the often piecemeal nature in which laws have emerged in response to different geopolitical circumstances. Indeed, academics have highlighted the relatively few legal principles applicable solely to the energy field, with most energy issues being resolved by principles of law established in other contexts such as torts, contracts, or property law (see the Deepwater Horizon oil spill which was resolved by tort law for example). Calls have been made for a paradigm shift around current thinking of what constitutes energy law to incorporate more concrete guiding principles that assist with its design, development, and practice. In this article I will examine three of these principles; national sovereignty, energy justice, and environmental protection through the lens of Guyana’s recently discovered petroleum sector and the obstacles its government has faced with trying to enforce them.
The close legal connection between sovereignty and energy has been highlighted as a guiding principle in the evolution of energy law and one that should be considered in its design. The concept was of importance when governments of former colonies gained increased control over the exploration and production of their resources which had hitherto been the sole preserve of international oil companies. The formation of Organization of Petroleum Exporting Countries (OPEC), UN General Assembly Resolutions in 1962 and 1974 as well as the Stockholm and Rio Declarations of 1972 and 1992, all sought to establish state sovereignty over energy resources. In practice, however, the power balance has not always reflected this principle. This issue came to the fore in Guyana when the terms of a contract between Exxon and the Guyanese government, negotiated in 2016, became public and were met with outrage from some of the national press and members of the public, not to mention the Inter American Development Bank and the IMF. The 2% royalty rate granted to the Guyanese government came under significant attack alongside clauses that exempted Exxon from paying any income tax on their profit share and granted them the right to receive substantial cost recovery oil right from the beginning of the project to cover distant future costs.
While there were those who lamented Exxon’s superior experience and knowledge of contracts as an unfair advantage that was a threat to Guyana’s national energy sovereignty, others took a more pragmatic approach by pointing out the risk involved with investing in a country that had no history of oil finds at the time of the contract. Donald Singh from the Guyana Geology and Mines commission highlighted the importance of honouring the contract as a marker of Guyana’s reputation as a reliable producer. He also noted that the gamble had paid off with the country being in a stronger position for future negotiations.
As oil exploration has yielded considerable success with twice the amount of oil being recovered than expected in some wells, Guyana could now find itself with more bargaining power. For instance, being more assertive about which clauses in the current contracts require government approval and using them to adjust terms that some see as disproportionately favourable to Exxon, such as gas flaring rights.
Energy justice is another area that has been proposed as a guiding principle within the practice and development of energy law. Having emerged in the late 20th and early 21st centuries, the concept centers around apolitical decision making regarding energy resources that guarantees equality to all citizens of a nation. Tasked with avoiding the “resource curse” (i.e. the corruption and conflict, that can prevail when a sudden cash injection hits a new oil power), the literature around energy justice is split into three key themes; distributional justice (transparent and just siting of energy projects), procedural justice (equal access to participatory decision-making for proposed energy projects) and recognition justice (importance of considering perspectives from different groups based on cultural background, class, gender etc).
In Guyana last year these ideals were presented as a priority, with the drafting of the Petroleum Commission Bill. This was proposed as a means to ensure that the state’s main energy regulatory agency was insulated from political shifts and partisan policies. Measures put forward as part of the bill included clearly defining and separating the responsibility for collecting energy related fees, fines, and revenues between the countries’ two main energy agencies (the Petroleum Commission and the Revenue Authority). It also ensured the transparency of administrative tasks such as permitting, environmental impact assessments, and safety inspection through transparent recruitment based on expertise rather than connections.
Again, political reality has proven difficult and as of September 2022 the bill has still not been passed, amidst accusations of oil money being used for patronage and the country’s two major political parties (representing the two main ethnic groups of the country) disagreeing over key issues on how to govern the Natural Resources Fund (i.e. the sovereign wealth fund holding Guyana’s oil royalties).
The Local Content Act, (LCA) passed on the 30th of December 2021 has also been called into scrutiny for going against the ideals of energy justice. It could be argued that by providing an unfair advantage to Guyanese nationals it risks breaking the Revised Treaty of Chaguaramas- a treaty drawn up between CARICOM countries to ensure free movement of services and freedom of establishment. The LCA stipulates that foreign actors operating within the country must use companies owned by majority Guyanese nationals to supply the services and goods that are essential to their petroleum operations.
Finally, environmental protection has long been identified as one of energy law’s most important guiding principles if not its major dilemma, with the energy sector representing a major source of CO2 pollution leading to climate change. On one hand, the availability of affordable and reliable energy is the mainstay of any modern sophisticated economy and is also considered essential to economic growth. On the other, many forms of energy- particularly fossil fuels- are associated with serious and permanent risks to the environment. By now, the eventual abolition of the carbon economy is no longer seen as just an environmentalist issue, but also one necessary for survival.
Guyana with its sea-levels rising several times faster than the global average and devastating floods brought about by abnormal rains seems to embody the dilemma inherent in this principle of energy law. Prior to its oil discovery, Guyana was one of very few countries that had been paid to conserve its forests, and thus capture carbon in a ground-breaking scheme with Norway. However given the $150 million over a decade that Guyana earned on the scheme compared with receiving double that per year from oil revenues today, many feel that the government of one of South America’s poorest countries has had little choice but to now more loosely enforce and implement legislation such as the Environmental Protection Act (EP Act) 1996. This imposed penalties for environmental infractions and sought to control pollution.
The establishment of guiding principles of law within a certain discipline is intended to clarify and sometimes reform what constitutes that law as well as to identify barriers to its proper administration. This brief analysis of three energy law principles in relation to modern Guyana and its recent offshore petroleum development has highlighted some of the economic and socio-political factors that can impede the enforcement of energy law and is hopefully of some relevance to policymakers, academics, and lawyers.
Chereen Rebecca Ball
GDL Student at City, University of London.
U.K./ Guyana (paternal origin)
Chereen Ball studied Development Studies with African Studies at SOAS, University of London and is currently a candidate for the Graduate Diploma in Law at City, University of London. She began her career working in Colombia on a water-related poverty research project led by Kings College London. She later worked for the British Council in the Middle East. She has recently qualified as a civil and commercial mediator and is aiming to establish a practice as a commercial barrister.