Gaskin’s Gasp

Mar 12, 2018 Features / Columnists, Peeping Tom

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The Minister of Business, Dominic Gaskin, last Monday was reported as making some comments on the ExxonMobil contract and the reaction to its disclosure. The Minister was speaking at an oil and gas summit organised by the Private Sector Commission. This column will attempt to respond to some of the Minister’s reported comments.
The Minister is reported to have rapped the daily onslaught on the ExxonMobil deal.
What some consider as a daily onslaught is taken in democracies to be fair comment. There is hardly a day, which goes by in which Donald Trump, the United States President, is not subject to ridicule and criticism. Yet no one complains about the daily onslaught against the President.
If the government, which the Minister represents had done the right thing and had released the contract and confirmed the signing bonus, the debate would have long ended. But it is only now that the truth has come out and the shaving cream is being spewed all over. The contract is so flawed and there is hardly a day in which some egregious aspect is not featured in the news. The public has a right to benefit from critical comments on the contract and this all that is happening at the moment.
The second contentious point made is that we cannot play hardball with investors because they can take their investors elsewhere.
Who says that we cannot play hardball? It is for Guyana as the owner of the oil resources to maximise its benefits in any deal. The problem with the contract is that it does not allow for Guyana to maximise its benefits. ExxonMobil or any investor is free to walk. If the resource is valuable, there will be others waiting to take a bite.
The Minister is reported as saying that there is lot of room for improvement in the agreement.
Well, if there is room for improvement, why was it not improved? Why did Cabinet give its approval to the deal when it would have been presented with an opportunity to improve it? In some jurisdictions this is not an oversight. It is considered as negligence or failure to do something, which ought to have been done.
Minister Gaskin is reported to have said that the paradigm has shifted and that Guyana is now in a better position to negotiate the other blocks.
In fact, the opposite is true. The ExxonMobil contract has weakened the government’s negotiating position. For one, ExxonMobil now holds 55% of the petroleum blocks in the country, giving it great leverage. ExxonMobil is in a position of such dominance that it can crowd out other investors. Secondly, other investors will use the Exxon Mobil contract as a precedent to demand similar conditions. Guyana, therefore, has weakened its position in future negotiations.
It is said that the US$300M that Guyana will earn in its first year oil revenues is what Guyana earned over an eight-year period in royalties and is what it would have earned in royalties and revenues from ExxonMobil.
Missing from the Minister’s analysis is the foreign exchange earnings from gold, which was over US$830.7M in 2016 alone as compared with his US$300M that he says the industry generated in revenues over an eight year period. What impact on the economy did this US$830.7M have on the economy?
Business is still stagnant. The gold industry, also, employs tens of thousands of persons and will have more linkages to the economy than oil. It just shows how we got a bad deal from ExxonMobil.
Finally, the Minister threw cold water on the comparison between the ExxonMobil contract with Guyana and the one the company signed with Ghana. The Minister pointed out that these are two entirely different models of contracts.
He is right; they are two different types of contracts. Ghana has the better model. Ghana has entered into a partnership with ExxonMobil. Ghana holds 15% equity under that arrangment, Exxon holds 80% and a local operator is expected to hold the other 5%.
Ghana will receive 15% of the proceeds of oil, 35% corporation taxes and 10% royalties. Compare this with Guyana’s 2% royalties, zero corporation tax and 12.5% profit oil. The contract with Ghana has to be ratified by Parliament. Ghana got a better deal than Guyana even though that deal is being criticised within Ghana.
Guyana had options. It could have adopted a better model rather than sticking to the exploration model.
Guyana was advised very early to examine the establishment of a state-owned oil company which would have given greater control of its oil resources and avoid some of the mis-steps which have taken place.
But do not tell that to the Minister of Business. He is convinced that Guyana got a decent deal. And many supporters of the government are stifling their conscience and agreeing with the Minister.

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