Dear Editor,
The consequences of Guyana’s Socialist past continue to hamper the development of the people and the nation. Failure to understand capital investment, risk, and return on investment leaves us without a compass in a modern capitalist world. Our local economic commentators are unable to explain why we cannot have bigger shares of oil revenues at this time, and the buzzwords/phrases “equitable distribution of resources” and “sharing the corn” fill the space between the ears of the ignorant. A quick primer in pragmatic capitalism is long overdue.
ExxonMobil, CNOOC, and Hess took the massive risk of capital when they decided to explore the Stabroek block. Had Liza1 been dry, those companies would have been saddled with a loss of US$600M plus. Those companies gambled on finding oil with money garnered from the sale of shares and reinvestment of profits from previous ventures. Had Liza been dry, thousands of shareholders would have borne the losses collectively; that is to say, the more shares in Exxon, Hess, and CNOOC they had, the more money they would have lost. These are the people who put up the capital for the venture into Guyana, and they did so in the hope that oil would be found and there would be a return on their investment. Currently, those companies continue to invest in exploration and production in Guyana, and repayment is capped at 75% of the oil produced, 2% royalty is paid to Guyana, and then and only then is ‘profit oil’ shared between the companies who invested and Guyana equally.
It would be at least a decade before shareholders are repaid, and can see dividends on shares. Guyana, however, began drawing profits from day one of production, without a cent of investment or an iota of risk. When all the development and production costs are paid off in an estimated 10 years, Guyana would take home a 2% royalty and 50% of the profits, while the three companies that invested would share 50% of the profits.
Guyana’s oil is often described as a ‘bonanza’ for Guyanese. Hopefully, there is a better understanding of why now.
Nigel Hughes says “the PPPC is not distributing oil wealth equally”; to date, no oil revenues have been distributed to any group. Cash grants to school children, pensioners, and various vulnerable members of society have been done based on need, and without dipping into the NRF. One wonders this: if oil money should be used to build a bridge across the Demerara River, would Hughes stand and count the number of persons by ethnicity and then pronounce on inequity afterward? Hughes and his ilk would be better off seeking out those within their communities that require capital investment in their businesses or start-ups and investing some real hard cash, instead of lip service.
Hughes can lead the change from the socialist mindset of “Government must provide contracts to my company” to “We can invest capital in each other”.
Capitalism beckons, risk and rewards are on offer for all. Guyanese can form capital venture companies to bid for oil blocks, build shore bases (see NRG and TRI-Star), provide transportation services or any number of creative ventures; but first, we must understand there is the risk of losing every cent invested, and there are no guarantees.
I look forward to the day when we can discuss the impact of Gas-to-Energy and multiple shore bases on the economy versus the temporary low catch by a few fishermen as the mouth of the river is dredged; for some would have us abandon the big projects and rely on the fishermen to lead us to prosperity. Such idealism abounds in the utopian socialist minds shaped by the Burnham years, and a strong reality check in long overdue.
Sincerely,
Robin Singh
