SCENESETTER FOR MARCH 3-4 VISIT BY S/EGCI DAVID GOLDWYN

UNCLAS SECTION 01 OF 04 GEORGETOWN 000090

SENSITIVE
SIPDIS
FOR S/CIEA DGOLDWYN/PHUEPER/JWANG
DEPT FOR WHA/CAR VDEPIRRO/SWHALEN
USAID FOR MSCHLAGENHAUF
DEPT PLEASE PASS TO DEPT OF INTERIOR FOR USGS CWANDREY
DEPT PLEASE PASS TO DEPT OF INTERIOR FOR MMS KKUNKEL

E.O. 12958: N/A
TAGS: ENRG EPET EAID ECON ETRD PGOV GY
SUBJECT: SCENESETTER FOR MARCH 3-4 VISIT BY S/EGCI DAVID GOLDWYN


1. (SBU) SUMMARY OF PROPOSED TRIP AGENDA: Embassy Georgetown
welcomes you to Guyana March 3-4. On March 3 you are scheduled to
meet with President Bharrat Jagdeo, Prime Minister Samuel Hinds,
Foreign Minister Carolyn Rodrigues-Birkett, Finance Minister Ashni
Singh, Bank of Guyana Central Governor Lawrence Williams, and
Guyana Energy Agency CEO Mahender Sharma. Hotel reservations and
motorpool arrangements are being made. Although we are waiting
for confirmation for your meeting with Foreign Minister
Rodrigues-Birkett and your lunch meeting with CEO Sharma, we expect
both requests to be granted. Post will provide additional updates
and briefing materials through email to S/CIEA's Joe Wang and Paul
Hueper. END SUMMARY OF PROPOSED TRIP AGENDA; FOLLOWING TEXT
PROVIDES SCENESETTER INFORMATION.



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Overview and Context

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2. (SBU) You are visiting at a particularly interesting time
politically and economically. Local elections are anticipated for
2010 and national elections are scheduled for 2011. Local media
have speculated that President Bharrat Jagdeo may either seek a
constitutional amendment to allow a third term or seek to delay
elections and continue as President beyond 2011. Economically,
President Jagdeo is promoting growth in renewable energy and
high-value, non-traditional agriculture through his Low Carbon
Development Strategy (LCDS). While pursuing renewables under the
LCDS, he is also seeking to develop off-shore oil and gas.




3. (SBU) Guyana has a population of 760,000, mostly along the
Atlantic coast, a landmass equivalent to Idaho State, and a GDP of
US1 billion. It faces many development challenges: a political
climate that threatens the country's ability to consolidate
democracy; weak democratic institutions and inconsistent rule of
law; an HIV/AIDS epidemic that stifles the country's development
and strains an already overburdened health sector; and an unstable
security situation with bursts of violent upheaval. These factors
all contribute to the highest rate of "brain drain" in the world -
almost 90 percent of skilled professionals and college graduates
move overseas.




4. (SBU) U.S. interests in Guyana are shaped within the context of
these challenges and center on (1) stopping the spread of HIV and
AIDS; (2) encouraging market-directed, socially responsible growth;
(3) preventing visa fraud and illegal migration; (4) further
consolidating democratic governance; and (5) protecting U.S.
interests against transnational crime. Drug trafficking, alien
smuggling and other transnational threats are increasing concerns
threatening investment and development.



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Mining Protest Impact

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5. (SBU) Your visit also comes after several protests by mining
workers over the GoG's new mining regulations to limit forest
degradation as part of the LCDS. The proposed new regulations
require miners to provide six months notice prior to mining, while
giving the Guyana Forestry Commission (GFC) veto power over miners'
activities. The gold and mining industry is one of the few
industries that performed well in 2009. According to the Guyana

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Gold Board, small and medium scale miners declared a record 305,000
ounces in 2009, yielding nearly US300 million, one third of
Guyana's GDP. The Guyana Gold and Diamond Miners Association
(GGDMA) reported that the gold mining industry is projected to
produce 500,000 ounces in 2010 and by 2015 over one million. Given
such growth potential, miners are concerned that the new
regulations will hurt business and affect their livelihood.




6. (SBU) Large scale protests held in late January and early
February required President Jagdeo to intervene. He convened a
stakeholders' meeting with miners on February 11 to clarify the
GoG's position and allay fears. During that meeting, he signaled
his belief that the Reducing Emissions from Deforestation and
Forest Degradation (REDD) memorandum of understanding with the
Government of Norway, which includes up to US250 million over five
years, takes precedence over revenue generated from mining
royalties. Implementing REDD remains a top priority of the Jagdeo
administration, but an uncooperative mining sector could derail the
Norwegian agreement.



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The Political Scene

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7. (SBU) Politics in Guyana have traditionally broken along racial
lines, with overwhelming support among majority Indo-Guyanese for
the People's Progressive Party/Civic (PPP/C) and equally polarized
support from the slightly smaller Afro-Guyanese population for the
People's National Congress/Reform (PNC/R). This trend continues,
though inroads by the Alliance for Change (AFC) and other small
parties suggest a lessening of racial identity politics. The PPP/C
is the party in power. Bharrat Jagdeo has been President of Guyana
since August 11, 1999, winning elections in 2001 and 2006. Active
in the international scene, he has visited Kuwait, UAE, Iran and
Russia in 2010. He also served as Chairman of CARICOM from July
1-December 31, 2009 and is currently serving as Chairman of UNASUR,
which highlights Guyana's unique position within the Caribbean and
Latin America.




8. (SBU) President Jagdeo exerts full control over the executive
and legislative branches of government, and faces little pressure
to devolve power to local government or semi-autonomous agencies.
While the GoG includes a range of ministries and agencies which
should play a role in managing oil and gas revenues, the Jagdeo
administration's penchant for micromanagement suggests that oil and
gas royalties would only intensify political wrangling over budget
allocations. President Jagdeo is term limited; his second term
expires in late 2011.




9. (SBU) Now more than a decade overdue, local government elections
are anticipated to be held in 2010; re-registration is complete and
a voter education campaign is underway, though so far voters show
little enthusiasm for learning. Two other key issues need to be
resolved in advance: 1) Parliament must constitute several
commissions with oversight responsibilities for local governance;
and 2) dedicated funding for municipalities, currently at the whim
of various ministries, needs to be established. A bipartisan
committee supposedly is looking at these issues, but it has made no
substantive progress. Revenue-sharing from oil and gas royalties
to local jurisdictions would be a politically complicated affair
under the current system of local government financing.



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Economic Conditions

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10. (SBU) Despite its richness in natural resources, the economy
faces significant obstacles in reaching its full potential,
including a shortage of skilled labor, poor infrastructure, and
political instability. The country is entirely dependent upon
imported petroleum products for energy generation, rendering it
vulnerable to price volatility, as recently experienced in the
commodities surge of 2007-08 when the rising price of crude had
painful ripple effects on the cost of living, external balances,
and the competitiveness of Guyana's products on the world market.
The LCDS seeks to diminish this vulnerability by constructing a
hydropower station at Amalia Falls, providing more than four times
the county's current power consumption. In addition, the LCDS
seeks to invest REDD payments in high-value, non-traditional
agricultural products for export and other low-carbon sectors like
business process services, as well as human capital necessary for a
more knowledge-based economy. The LCDS does not envision
developing oil and gas resources. Guyana's per capita GDP of
approximately US1,300 makes it one of the poorest countries in the
Western Hemisphere.




11. (SBU) In November 2009, CGX Inc., a Canadian oil firm,
announced plans to begin exploratory drilling in Guyana's exclusive
economic zone during 2010. CGX expects to begin production in 2011
and ramp up output to 300,000 barrels per day by 2016. ExxonMobil,
Shell, Repsol, and other energy companies also hold petroleum
prospecting licenses off-shore of Guyana. CGX is concerned that
border disputes between Suriname and Guyana could potentially
affect business development. Security is a major concern for the
company.





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Previous Success in Promoting Better Fiscal Management

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12. (SBU) Between January 2008 and January 2010, the
USAID-administered Millennium Challenge Corporation (MCC) Threshold
Program i) helped reduce Guyana's fiscal deficit by restructuring
the Guyana Revenue Authority (GRA),ii) streamlined the business
registration process at the Deeds Registry, iii) modernized the
GRA's customs procedures, and iv) effected several other
complementary reforms at the Ministry of Finance, Guyana Office for
Investment, Parliament, and National Procurement and Tender
Administration. The Threshold Program represents a significant
success for U.S. economic development efforts in Guyana. Lessons
learned by Post during the program's implementation may usefully
inform proposed interventions by the Energy Governance and Capacity
Initiative in Guyana's fledgling oil and gas sector. In addition,
the program's success in modernizing the GRA provides a better
foundation on which the EGCI may build capacity among Government of
Guyana (GoG) agencies in responsibly managing oil and gas
royalties.




13. (SBU) Through implementing the Threshold Program, USAID/Guyana
established effective working relationships with senior leadership
within the GRA, transferred knowledge and skills to hundreds of its
technical staff, and succeeded in transforming key components of
the country's fiscal management - how it collects and accounts for
taxes and sanctions delinquent taxpayers. Given this experience,
Post believes that the EGCI could enjoy similar impact by deploying
a similar program targeting the GRA and other relevant government

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agencies.




14. (SBU) The GRA's overall effectiveness and efficiency has been
increased dramatically as a result of the program. While the GRA
is probably not ready to administer a large surge in oil and gas
revenue, it now has a functional organizational structure, a better
trained technical staff, and good information technology systems
for revenue management. Post believes this baseline of revenue
management capacity is a suitable target for EGCI intervention in
Guyana.



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Currency

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15. (SBU) USD is accepted at major hotels and businesses in Guyana.
Credit cards are also accepted, but are not recommended for use.
The exchange rate is 1USD equals roughly 200 GYD.
WILLIAMS