Mr. Jonas seems be supporting Exxon’s unfair contract

Jan 23, 2019 Letters

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Dear Editor,

I am responding to a letter by Mr Timothy Jonas, titled “Untangling the Gordian Knot.” My response is because:
1. The letter concerns oil and Guyana’s development.
2. I believe oil should be the top agenda item for all parties in the
next elections.
3. The letter is from a member of a new political party.
4. All political parties should explain their plans for oil and how to
ensure Guyana benefits from oil.
5. All political parties should explain their reasons for/against
re-negotiating the contract with Exxon for the Stabroek Block.
6. All political parties should explain their plans for investigating the highly suspicious awards of oil blocks in the run-up to the last election in 2015.
7. The letter links Guyana’s unemployment problem with the sanctity of contracts (of foreign investors).
8. The letter suggests Guyana’s unemployment problem can be overcome by increasing the extraction and exploitation of natural resources.
Although my response here to Mr. Jonas’s letter will be seen as critical,
I generally support all new political parties because Guyana has suffered 53 years of failed politics, failed development, and injustice.
My main concerns with Mr. Jonas’s letter are that it seems to be a veiled
attempt at supporting the unfair contract with Exxon, is based on
spurious reasoning, and it makes inappropriate recommendations.
The linkage between unemployment and sanctity of contract is not evident
in Guyana. Where is the historical evidence in Guyana that
overwhelmingly links Guyana’s unemployment problem with the breaking of contracts with foreign investors? Guyana does not have a long history of breaking contracts with foreign investors. Guyana’s unemployment problem is due to a myriad of other factors, such as an inappropriate system of governance, flip-flopping racially based government,
corruption, mismanagement, the brain-drain, an abandoned education
system, etc.
Mr. Jonas claims that Guyana can only attract foreign investors if Guyana
respects the sanctity of contracts, i.e. Guyana can only attract investors if Guyana does not re-negotiate the contract with Exxon. But
I view this claim as incorrect. Contracts in the oil and gas industry are commonly re-negotiated as conditions change. The 1999 Exxon contract has already been re-negotiated in 2016, and it needs to be re-negotiated again. Guyana is losing US$ 2.6 Billion on the first project alone,
i.e. Liza Phase 1 (assuming internationally benchmarked terms for
royalty and tax). And Guyana will be losing more on the second project
Liza Phase 2, and even more on the third and subsequent projects. If
Guyana does not get a fair deal now, this will jeopardise the sustainability of our new oil industry. Guyanese may react severally in the future once they see the value being forfeited. Just look at
Venezuela next door.
With regard to investor confidence, please consider the following
alternate view. The fact that large natural resource companies are
attracted to our country is not a sign of investor confidence. Far from
it, it might in fact be the opposite. Companies like Exxon thrive in
chaos, and they are able to make huge profits in war zones. Just look
at some African oil producing countries. Being able to attract Exxon to
Guyana is not a sign that Guyana is open for business. Guyana will know
it is open for business when small/medium regional companies and
diaspora feel safe to open shop in Guyana, and when there is a level
playing field. Guyana will know it is open for business when
small/medium companies from Europe and the Americas know they can
operate in Guyana without having to bribe some government officials for
permits and when they are not vulnerable to shake downs. Guyana will know it is open for business when visiting businesswomen know they do
not have to meet with high level government officials, but instead can
follow an efficient, transparent and respected process to setup a
business. Guyana will know it is open for business when some government
officials stop taking bribes to have meetings, and when some commercial
judges/magistrates stop accepting bribes to influence court decisions.
So let us not be fooled that because Exxon and other natural resource
companies are here, we are somehow suddenly open for business. There is
much work still to be done to make Guyana attractive to real diverse
sustainable investment.
It is good that we have oil and it is good that Exxon will be a contractor to help us extract our oil, but also remember these companies are able to thrive in chaos, and these companies will likely make even more money from our oil if Guyana falls apart (social unrest, militarisation, police state, etc). Some claim that multinational natural resource companies not only benefit from chaos, and that they sometimes encourage the degradation of democratic institutions so as to increase profit. Hence large multinational companies and their
sovereign backers can benefit by keeping border disputes alive. For
example, they may demand a higher risk premium for investing in a
country with a border dispute.
Mr. Jonas states “To create these jobs, Guyana needs new investors who
can set up shop in the interior and extract resources without having to
rely on our failing infrastructure”. But Guyana should not focus on the
extraction of natural resources in its interior. These industries rarely
help countries develop in sustainable ways, and usually do serious and
lasting damage to the environment. Guyana should instead focus on
getting a fair deal for its oil (by re-negotiating the Exxon contract),
and on using that revenue to develop the country and its infrastructure,
and to spur other sectors such as agriculture, manufacturing, green
tourism and research, etc.
Mr. Jonas uses Singapore as an example for sanctity of contract. Although
it seems Singapore did in fact honour investor contracts, these were
likely to be fair contracts negotiated by qualified bureaucrats, and not
the lamentable form witnessed in Guyana with Exxon. But Singapore did
not succeed in its project of nation building because of some blind
adherence to respecting contracts with foreign investors. No, Singapore
succeeded because of the rule of law, and because of a rules-based
system for every aspect of the country’s business and its people’s
lives. Singapore succeeded because it had long-term visions and
stability via an authoritarian and somewhat benevolent leader, and
because Singapore dealt with its racial issues with a strong hand (race
became subservient to a higher goal, which was economics). Singapore
succeeded because it invested huge sums in education.
The letter by Mr. Jonas raises another issue. Many of Guyana’s best law
firms are now working for oil companies or their contractors. This could
pose a conundrum for some lawyers who may feel they have to choose
between advocating for the best interests of their country folk versus
advocating for the best interests of their clients, in instances where
these interests might diverge. Hence all those in politics or entering
politics should declare their ties to oil and associated companies.
Guyana needs more of its young sons and daughters to step up like Mr.
Jonas and Mr. Shuman, and I admire and support them for what they are
doing.
The best course for Guyana is to develop a long-term plan which addresses Guyana’s existing deficiencies, for Guyana to fix its existing failed political system, and for Guyana to focus on routing out corruption. We should not use oil as a panacea for our ills. This will
not work.

Regards,
Jan Mangal

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