Either the Vice President is wrong or the budget figures are wrong
Features / Columnists, Letters
DEAR EDITOR,
Vice President Jagdeo has responded to a recent series of reports my organisation (the Institute for Energy Economics and Financial Analysis/IEEFA) published regarding the contract between ExxonMobil and its partners and the government of Guyana. The Vice President states
that Guyanas share is USD$2billion annually. Guyana did not receive that amount in 2019, 2020 or 2021. The recent budget from the Finance Ministry anticipates that Guyanas take will not exceed USD$2
billion annually through 2025. Either the Vice President is wrong or the budget figures are wrong. The Vice President says that the revenue from oil production is abundant, twice the size of the countrys debt.
Then why did Guyana have to borrow in 2019, 2020, 2021 and will likely continue to borrow through 2022? The IMF made it clear that Guyana needs to reduce its debt. It appears that Vice President Jagdeo is choosing not to follow the IMFs advice. The problem is the assumption that Guyanas rising debt levels will be reduced by future oil and gas revenues. Guyana is spending money it does not have and may never receive. The assumption is very risky. The Vice President says that Guyana will receive 14.5% of the revenue. IEEFAs research confirms this. He says this is fair. It is not. What would be fair is if Guyana did not have to pay 100% of all costs and that a 50:50 split would come to Guyana sooner. Even top international oil consultants from IHS Markit and the IMF have expressed concerns about Guyanas relatively low take of oil profits. Vice President Jagdeo says that Guyana is not obligated to pay Exxon
for the dollars it lays out. However, the contract clearly states Guyana must pay 100% of all costs out of its oil revenues before it is able to receive an actual share of that revenue. The Vice President acknowledges as much when he tries to tell the public that the current 6 to 1 split of revenue is fair. Guyana is contractually obligated to make the payment. Counting on the positive economic impact
from oil and gas revenues without also accounting for the contractual obligations Guyana has taken on to obtain those revenues is a fiscal gimmick that will cause the country significant pain.
IEEFA has a profound awareness of the need to spend more to meet the actual needs of Guyanas citizens, in health and education and to stimulate the economy. Having to borrow more money to meet those needs is wrong and unfair. Guyana has to borrow more because it has been shortchanged on cost
recovery and the delayed subsequent revenue split. And IEEFA also appreciates the willingness of the government to disclose to the public the revenue it is receiving. Continued open disclosure is imperative to ensure transparency and oversight. The problem Guyana faces is that the world is moving away from fossil fuels. Oil and gas production face unprecedented price competition in the electricity sector from solar and wind energy. Competitive pressures in the transport and petrochemical sectors also are undermining the future outlook for oil and gas sales. Guyana has entered the market at a time of very high risk and volatility. The risk is compounded by having to pay 100% of all development costs. This also includes, presumably, the development costs of the 15 new additional discoveries
that may never come to final investment decision and a proposed gas project. The Vice President did not challenge this part of IEEFAs analysis. The International Energy Agency tells us that it is contrary to sound policy to start new oil exploration given growing obligations to decrease carbon emissions.
In the past, Vice President Jagdeo has acknowledged major weaknesses in the contract. Unfortunately, he also has to manage this unbalanced deal.
The fact remains that the oil consortium is taking advantage of Guyana. My organisation will continue to
monitor the situation based on reliable data and evidence. Like the Vice President, we are seeking to identify sound policy that will benefit both the people and the economy of Guyana.
Tom Sanzillo
Director of Financial
Analysis, IEEFA
