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Does our endowment count for anything?
Dear Editor,
When the PSA with Exxon was first released, the public was disappointed to learn that every dime of the initial investment – cost for Exxon’s search for oil plus infrastructure to first oil, would have to be repaid from our oil resource – until it was known that it was the norm with our model of PSA. Nevertheless! The burning reality struck home. It was rightly deduced that Exxon was going to command a 50 percent share of profits from our resource without investing a dime. It was apparent that Exxon was going to share our resource with us on an equal footing. So all the talk about “the oil resource belongs to the people of Guyana” by the Government was utter trash. Since none of the signing parties, Exxon and the Govt, will have any expenditure in the search and infrastructure, it means that our endowment (being blessed with oil) counts for nothing. The narrative should read, “The oil resources of Guyana belong to the people and the contractors that extract and sell it”.
So what happened to endowment? Doesn’t that count for something? Should we not enjoy this gift of nature on a better footing than the oil companies extracting and marketing it?
Logic decreed that all these companies would have invested is “time”, from discovery to a point in the production phase, where the investment cost would be repaid by a computation based on a percentage of the volume and price of the oil sold (a repayment plan).
That has now changed for the worse! The adage, “Time is money”, has now come to fruition in our PSA. Recently, it was disclosed that our PSA caters for that “time” to be paid for from our resource in the form of interest at an uncapped rate, on loans incurred by these companies – an asininity that no longer prevails in PSA around the world. The red flags, much to our demise, keep popping up in our PSAs!
The realities of our PSA with the Stabroek block contractors, does not require any degree of rocket science to see that the contractors can increase their profits by inflating the cost of expenditure and cost of production, on paper. Collecting monies, they never spent, as repayment! Now it is obvious that Exxon and company can mint money, at an uncapped rate, from our resource by simply pretending that they did not have or had money to invest. Don’t be surprised if the contractors (Exxon and partners) turn up with paperwork, sometime after production begins, to show that 70 percent or more of the cost for their search for oil and infrastructure to first oil was borrowed from one of their subsidiary companies at a rate of 35 percent – the contractors has a precedent to support this rate because it occurred in Guyana from 1985 to 1992.
In this scenario, the contractors would not be in a hurry to collect their pre production costs. They may even offer the Govt. of the day – who may be willing to accept to prove the critics wrong – a larger percentage split on profit than catered for in the PSA in an attempt to slow down collection of pre-cost. At an interest rate of 35 percent on some 2 billion US$, it would be like a secret oil well draining our resource.
On September 12, an article in KN, “Uncapped interest rates on loans will no longer be recoverable for future oil deals – Govt says”, was nothing more than the usual ad hoc response from the Coalition when cornered on an issue. The article states that KN had seen Govt documents on which is written, “Interest rates will no longer be a recoverable/ deductible expense” by oil Companies. No further explanation of how this will work. This statement does not speak of cutting “cap” alone – it takes the bottle away too! When the Govt. was being chastised for the giveaway in the Exxon PSA at 2 percent royalty, the Govt. had announced that there would be better contracts in the future. Tullow Oil was later signed at 1 percent royalty, which is allowed to be recovered. This is a classic example of the incompetence, mired in collusion, exhibited by this Govt. in the handling of the oil sector – it is a similar performance in other spheres of the economy. In their hands, the resource curse beckons!
Rudolph Singh
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