THE NO-LEGGED ECONOMY

Dec 24, 2017 Features / Columnists, Peeping Tom

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Guyana’s has a one-legged economy at the moment. The government is waiting on gold to give it a second leg. The government may end up waiting in vain.
Exxon Mobil is not going to start production in 2020. The present government is much too politically shaky for Exxon to take such a huge risk. It is not as if the government is facing popular revolts. The government is imploding. It is making mistake after mistake. It is out of control, and this is of its own making.
The stain of the signing bonus scandal is not going to be easily erased. The full story about the signing bonus is yet to be revealed. This was a foul deal and the Guyana government came out looking like amateurs.
Guyanese can therefore forget about oil riches by 2020. It is not going to happen. Just as how one investor took his investment to Trinidad, rather than Guyana, so too will Exxon.
Renewable energy production globally is increasing. It is now approaching about 10% of global energy. This means that there will be competition for cheaper oil, rather than an increase in oil production. Oil production is already being constrained by OPEC.
Oil companies will therefore look at the best fields in which to invest. Exxon has a number of options. Guyana is likely to be last on its list. There are other fields with better potential to produce cheaper oil than Guyana, and it is to those fields that Exxon will go if it intends to increase its production.
Guyana’s shaky government presents a serious problem for Exxon. The oil giant is already facing a number of scandals. This newspaper has done an excellent job in exposing Exxon’s murky track-record in other countries. Exxon is facing problems over alleged covering-up of climate change. In Guyana, it signed an agreement with the government, which is now being accused of secreting the signing bonus it received under that agreement. Exxon has more problems than to take Guyana to add to its miseries
On top of this, Exxon is using Guyana. It really wants to get back its assets in Venezuela. That country has the advantage of being able to produce cheap oil, and has ready markets for the oil it produced. Exxon is playing Guyana off so as to force a deal with Venezuela, so that its sunken investments in that country will not be lost. Guyana is just a guinea pig in a high stakes game that Exxon has with Venezuela.
Exxon has about US$15B in assets in Venezuela. That is many more times the investment it will make in Guyana. Hugo Chavez had nationalised some of Exxon’s assets in 2007. The company took the matter to a World Bank tribunal which deals with the settlement of investment disputes. The tribunal awarded the company US$1.4 B. Exxon had been hoping for some US$10B. To compound matters, US courts have ruled that the award cannot be enforced.
Exxon therefore has set itself the task of negotiating with Venezuela in order to regain majority shareholding in companies in which its assets were nationalised. Exxon has the backing of Uncle Sam. The latter is trying to bully Venezuela by having a situation in which the nation, already deemed a national security threat, can face sanctions. This policy, however, has not worked. And therefore Exxon is likely to try to negotiate with Venezuela.
The President of Venezuela, Nicolás Maduro, does not have many options. He will eventually have to allow for at least a 50-50 share ownership of the oil industry in Venezuela. He knows he cannot win a prolonged battle with the United States without the backing of powerful allies in South America. Those allies are no longer there. Maduro will therefore go back to the bargaining table (Venezuela was offering Exxon book value rather than market value as compensation for nationalization) with a better offer than the one in the past, which led to Exxon going to the dispute resolution tribunal at the World Bank.
Maduro is going to settle with Exxon and the company will therefore push back production. Or Maduro can make some noise and force Exxon to delay its production in Guyana. Either way, Guyana loses. There will be no two-legged economy by 2020. Guyana will have to continue to have a one-legged economy. But trouble is in the making. That one leg may have to be amputated.
Gold, which is the one leg on which Guyana’s economy stands, is about to face a new challenge. Gold prices are high, because during the financial crisis, gold was needed to back other currencies as a storage of wealth.
Well a new currency has emerged. It is called Crypto currency. It is digital currency. There is no hard money. Financial analysts are saying that it will not affect the value of gold. They are wrong, because the reason why the Crypto currency emerged is to avoid it having to be backed by tangible assets.
Crypto currencies are going to be backed by intangibles. And this is why Guyana has to worry, because the gold industry is going to face a serious crisis come next year. As the volume of Bitcoin shares – a crypto currency – continues to increase, the value of gold is likely to collapse. Guyana will then become a no-legged economy.

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