Jagdeo misleading Guyanese on monies owed to Exxon—Sanzillo
…says country now has to borrow more after being short-changed on cost oil
By Gary Eleazar
Kaieteur News – Guyana’s Vice President Bharrat Jagdeo earlier this week lambasted the analysis of Director for Financial Analysis for the Institute for Energy Economics and Financial Analysis (IEEFA) Tom Sanzillo, over his assertion that each Guyanese is currently on the hook for $9M—monies purportedly owed to ExxonMobil Guyana.
Tom Sanzillo, Director of Financial Analysis for the Institute for Energy Economics and Financial Analysis
Sanzillo had made the pronouncement during an online forum last week had contended that based on the amount spent by the operator and partners to date in the Stabroek Block.
Vice President Jagdeo on Monday however, sought to discredit the analysis by saying Guyana has no such “public debt” telling reporters, “I don’t owe Exxon $9M, do you.”
According to Sanzillo however “the contract clearly states Guyana must pay 100 percent of all costs out of its oil revenues before it is able to receive an actual share of that revenue. “
Jagdeo position, Sanzillo said, is that Guyana is not obligated to pay Exxon for the dollars it lays out, “Guyana is contractually obligated to make the payment.”
The financial analyst in responding to Vice President Jagdeo who had described his analysis as “lunacy” recalled that he said that Guyana’s share is US$2B annually. He was adamant, “Guyana did not receive that amount in 2019, 2020 or 2021.” He qualified his assertion further by pointing out that the recent budget from the Finance Ministry anticipates that Guyana’s take will not exceed US$ 2B annually through 2025 and as such “either the Vice President is wrong or the budget figures are wrong.”
Sanzillo noted too that Jagdeo is of the view that the revenue from oil production is abundant, twice the size of the country’s debt and questioned rhetorically, “why did Guyana have to borrow in 2019, 2020, 2021 and will likely continue to borrow through 2022?”
The International Monetary Fund (IMF), according to Sanzillo made it clear that Guyana needs to reduce its debt but “It appears that Vice President Jagdeo is choosing not to follow the IMF’s advice. The problem is the assumption that Guyana’s rising debt levels will be reduced by future oil and gas revenues.”
Guyana, he said, is spending money it does not have and may never receive. The assumption is very risky. Sanzillo drew reference to Jagdeo’s assertion that Guyana will receive 14.5 percent of the revenue and that is fair, “It is not.”
According to Sanzillo, “what would be fair is if Guyana did not have to pay 100 percent of all costs and that a 50:50 split would come to Guyana sooner.” He reminded that even top international oil consultants from IHS Markit and the IMF have expressed concerns about Guyana’s relatively low take of oil profits.
Sanzillo used the occasion to caution that “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.”
To this end, he said, “IEEFA has a profound awareness of the need to spend more to meet the actual needs of Guyana’s citizens, in health and education and to stimulate the economy; Having to borrow more money to meet those needs is wrong and unfair.”
With this in mind he was adamant, “Guyana has to borrow more because it has been shortchanged on cost recovery and the delayed subsequent revenue split. “In the past, Vice President Jagdeo has acknowledged major weaknesses in the contract. Unfortunately, he also has to manage this unbalanced deal,”
According to Sanzillo, “the fact remains that the oil consortium is taking advantage of Guyana. My organization 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.”
Jagdeo during his press conference at Office of the President on Monday last had repudiated Sanzillo’s analysis saying, “I wonder if he has been thinking before saying these things.”
Elaborating further, Jagdeo pointed to the IMF recommendations for use of the Natural Resources Fund, namely to reduce the fiscal deficit, reduce national debt and save for future generations and in dismissing the objective, pointed to Norway which he said is used as the diamond standard for management of oil and gas money and pointed out that its Wealth Fund was only established in 1996
Vice President, Bharrat Jagdeo
having been in the industry since the 1960s.
“Thirty years after Norway start to produce oil and gas, Norway then established a Sovereign Wealth Fund,” which by then had seen the Norwegian’s per capita Gross Domestic Product (GDP) already reaching some US$37,000 up from the US$2,514 in 1967.
To this end, Jagdeo stressed that Guyana needed to utilise its oil earnings to build the country before addressing the other objectives such as saving for future generations. He was adamant, 30 years after started producing then it started to save because it was recognised “that you had to build national capability first.” Guyana, he said, did not wait 30 years and further noted that there was a sliding scale dictating the amounts to be withdrawn from that account.
The IMF he said, called on Guyana to pay down the deficit but “if you reduce the deficit now in this stage, that means we can’t build our highways; we can’t build the power plant, we can’t build the ports necessary to catapult our economy.”
According to Jagdeo the IMF’s core job is to balance budgets and to ensure that there is balance of payment sustainability, “they are not a development institution.”
He was adamant that paying off the deficit was absolutely not needed at this time. As it relates to paying off debts, Jagdeo said the stock of US debt is more than 100 percent of that country’s GDP and that this was not the case with Guyana.
“Our total debt is less than 30 percent” Jagdeo said, and disaggregated further saying, external debt for the country was just 16 percent of the country’s GDP and as such its borrowing is sustainable. “Our capacity to borrow is significantly greater than most of these countries,” Jagdeo said.
As such, the Vice President is of the view “we don’t have to reduce our debt, we have to borrow for our highways now; our hospitals, etcetera; our capacity to repay is greatly enhanced.” On the point raised that each Guyanese owes ExxonMobil G$9M or US$44,000, Jagdeo quipped “I don’t know I owe Exxon no $9M, do you owe Exxon $9M.”
To this end, he said, ‘the only debts that this country has to repay, is debt contracted or guaranteed by the State.” Sanzillo had contended that given the developments already undertaken and underway, each citizen of this country owes the oil company some US$44,000.
Additionally, at the rate Esso Exploration and Production Guyana Limited (EEPGL)—ExxonMobil Guyana—has envisaged the developments, the ones already identified would see the country repaying ExxonMobil at least US$75B to develop which would mean that the country would be repaying debts on that amount until 2070. This situation, he said, is likely to change, since the rapid pace of discoveries would also lead to the rapid increase in debt.