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Exxon and economic development
When investors come to developing countries to court investment opportunities, they are fond of saying that they are here to contribute to the country economic development. They like to say that their investment will be good for the development of the country.
This was line that Exxon peddled when it announced that it had discovered oil. It claimed that this would help in the development of the country.
But the more one examines the agreement between Exxon Mobil and the Guyana Government, the more it is clear that Exxon has missed the idea of development and gone for a straight-out business deal.
An investor adds to a country’s development through its contribution to growth, revenue and employment. This is the most fundamental metrics for measuring how investors contribute to national development.
There is no doubt that if Exxon starts production in 2020, it will almost double economic growth, but that growth is not necessarily going to result in increased direct employment. The revenue projections are a bit ambitious. We are told that Guyana will earn US$1M per day.
So from the revenue side and the growth side, Exxon’s production is expected to contribute to national development. But that is until 2020 the earliest and there is no investment in a refinery. However, the real measure of development is not growth or revenues but jobs. And without a refinery, there will be limited job growth.
The more one reads the contract signed between Exxon Mobil et al and the Government of Guyana, the more one is confirmed in the view that the oil multinational used its superior negotiating experience to take advantage of Guyana and in so doing degraded Guyana’s future developmental expectations.
The government, on the other hand, has tried to present this agreement as an upgrade to the 1999 contract negotiated by the PPPC. Nothing could be further from the truth.
The government had the leverage to negotiate a new contract. Exxon could do nothing unless it has valid prospecting licences in place. The company used this as the basis to extort generous concessions from the government.
Instead of the government squeezing Exxon for a better deal, it surrendered itself to a give –away agreement which will leave Guyanese, who were expected to be soaked in riches come 2020, frustrated.
Exxon has got its prospecting licence for four years with options to renew for up to an additional six years. By that time, Exxon would have drilled all its exploratory wells and would be daubed in oil wealth while Guyanese scramble for the crumbs thrown at it.
For any government not to recognise the opportunity which was presented to it to seal a fair deal for Guyana because of the need of Exxon for prospecting licences, is regrettable. Exxon has taken advantage of this and has signed a one-sided agreement.
Exxon is not investing in an oil refinery. It is not obligated under the contract to do so. Guyana has been pushing for value added to its resources and this was a good opportunity for Exxon to demonstrate good faith and to commit to investing in a refinery. Instead development will be limited to crude production.
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” it is clear that Exxon has missed the idea of development and gone for a straight-out business deal.”
Indeed – instantly recognisable to anyone familiar with ye olde asset stripping takeovers.
Pay for a gatepost, own the entire property.