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IDB says Guyana’s low revenue growth rates to GDP reflect Exxon’s contract
By Kemol King
The Inter-American Development Bank has projected that in the coming years, Guyana will experience significant growth in Government revenues. But when placed against the backdrop of the growth in Gross Domestic Product (GDP), the revenue growth rates are low.
These low revenue growth rates to GDP, revealed the IDB in its Caribbean Region Quarterly Bulletin for the last quarter of 2019, are due to the characteristics of the Production Sharing Agreement (PSA) Guyana signed with ExxonMobil and its partners, Hess and CNOOC Nexen, for oil and gas operations on the Stabroek Block.
That contract has been described as lopsided and unfair to Guyana by multiple industry experts and commentators.
The IDB stated, “While GDP is expected to almost double in 2020, Government revenues are projected to increase by 25.9 percent compared to 18.3 percent as previously estimated by the IMF.”
Furthermore, it stated, “Over the medium term (2020–2024), average annual Government revenue growth is expected to be 17.3 percent.”
Those are high projections, but they do indeed pale in comparison to the 85.6 percent GDP growth projected by the International Monetary Fund (IMF) last year in its 2019 World Economic Outlook.
The chart attached to this article, taken from the IMF, demonstrates the IDB’s point. It shows that in 2020, the steep increase in GDP is not even nearly represented by a correspondingly high increase in Government revenues.
The IDB made specific note of the cost recovery provision in the Exxon PSA.
The 75 percent recovery ceiling has been described by commentators as too high. Some countries set a lower cost recovery ceiling for their resource contracts.
On that provision, the IDB stated, “The PSA establishes that 75 percent of oil production profits are allocated to the operator for cost recovery in the initial years, while the remaining 25 percent are divided equally between Guyana and ExxonMobil.”
Guyana’s take would consist of a two percent royalty and 12.5 percent more from profit sharing after a maxed out 75 percent cost recovery. That’s a total of 14.5 percent of the value of the reserves for Guyana in such a year.
Interestingly, the IMF projected in its Article IV Consultation report last year that Guyana’s take amounts to about 14 percent of the value of the Liza-1 and Liza-2 reserves. The rest, inclusive of recovered costs, go to the oil companies. This projection is for 28 years, not just the first few.
Hence, it suggests that though government revenues will increase after initial recovery of costs, the increase will not be substantial.
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