GUYANA CANNOT SPEND THE EXPECTED OIL PROCEEDS

Mar 07, 2017 Features / Columnists, Peeping Tom

Guyanese have been paying attention to the possibilities of local content for the country’s soon-to-become oil industry. They are more concerned about the benefits of providing supplies to ExxonMobil operations offshore of Guyana than they are about ensuring that the country gets a good deal from the company.
All those who feel that there will thousands of jobs created as a result of the oil production in Guyana are wallowing in delusion. Tell those businessmen who feel that they will be able to make money by providing supplies to the oil rig, that they are in the same position.
ExxonMobil will not be refining oil in Guyana. They will, whenever they decide to engage in production, ship the oil out. They will not be refining it. This much has been reported in the media.
So what is Guyana getting in return?
The Ministry of Natural Resources needs to come forward and tell the people. They need also to dampen the expectations of people who feel that the oil industry will produce massive amounts of jobs and make everyone rich, including the thousands of overseas-based Guyanese who are planning to come back to Guyana to enjoy what they believe is the oil windfall.
This will not happen. There will be no refinery. Despite Exxon claiming that the discovery is impressive, they have opted not to invest in a refinery, a most perplexing decision. The Guyanese people should be told the reasons why despite the oil find being said to be large and therefore capable of producing oil for a long time, the company is opting not to invest in local refining capacity. This is a very strange decision indeed.
Guyanese expect, of course, that with the monies from the oil, more jobs will be created locally, since the government will invest the money into the economy. Well, the usual investment for oil proceeds is in infrastructure. So the government is likely to spend its billions from oil royalties and revenues on infrastructure. This will therefore create thousands of jobs. Yes? Not really!
Guyana has a problem which is known as a lack of absorptive capacity. It means that government cannot spend as much money as its wants to at any one time. It is an age-old problem. It still exists. This is why we are witnessing, once again, the shuffling of the pack – the moving around of permanent secretaries. It is a game of illusion. It does not solve the problem of the economy not having the absorptive capacity to spend all the money in the Budget and therefore only 60% of the government’s budgeted expenditure is being expended.
Guyana simply does not have the capacity and moving around Permanent Secretaries will not end this problem unless the government works with the private sector to build capacity.
The windfall from oil, therefore, will not lead to the massive amounts of jobs that people expect, because the local construction companies do not have the capacity to handle a great many projects at the same time. If you call any local contractor and say to them you want them to build twenty schools all at once, they will tell you that this is impossible, given the lack of capacity.
What I am saying is that we do not have the capacity to spend the oil monies that we will be receiving. The Chinese government can spend it for us, though, so that is where the jobs will go.
But all of this depends on us getting money for oil. Are we certain that we are going to get what we expect? If the deal is 50% of profits or 50% of the oil, as reported in the media, then which should we take?
If Guyana takes the oil and does not get a good refining deal then what happens? How can we negotiate the best refining deal when we have no options on the table for local refining? We will be negotiating from a position of weakness.
If on the other hand we decide to take 50% of the profits, then we are at the mercy of ExxonMobil. What happens if they do not make a profit? Or what happens if they claim that the cost of production is $50 per barrel and the price on the world market for the crude is $52. Guyana cannot afford to place its future in the hands of the cost accounting by Exxon.
Omai Gold Mines took out thousands of ounces of gold from the bowels of Guyana. They never declared a profit, so all that Guyana got was a miserly royalty. All the gold is gone and the company never declared a profit. So why is it then that we have opted to have a profit- sharing and production-sharing agreement with ExxonMobil? Guyanese had better ask their government.

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GUYANA CANNOT SPEND THE EXPECTED OIL PROCEEDS

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