Expecting so much more from the oil wealth

Feb 23, 2020 Features / Columnists, My Column

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A lot has been said since President David Granger made the oil contract with ExxonMobil public, the focus has been on what many say is a lopsided deal.
There have been explanations and already oil has begun to flow. Guyana secured its first one million barrels, but the cost of the oil has not yet been made public.
Indeed, Guyana had sold its first three shipments by tender which was won by Shell. The price was not declared, but insiders report that Guyana got more than US$55 per barrel. The Head of the Energy Department almost confirmed this when he said that Guyana would get in excess of US$300 million from its five oil shipments this year.
Of course, this excludes the royalty of what is dubbed a paltry two per cent.
The shipments represent Guyana’s cut of the oil profits after Exxon takes its seventy-five cost recovery. This volume of cost recovery was thought to be too high, but at the time the volume of oil underground was not ascertained.
To this day none of the explorers could safely say how much oil there is in Guyana. What is emerging is that the supply will last Guyana more than forty years.
If that is the case, Exxon can reduce the cost recovery, stretching it over a longer period, thus giving Guyana more money. And this is expected to be one of the points of the negotiations when the contract would be reviewed.
Of course, some will argue that the faster Guyana clears its debt to Exxon the better it would be in the long run, but from my position, the need for more money at this time is better. Oil is being threatened with the global drive for green energy.
These past few weeks I saw how the price fell when the coronavirus hit China. That country with its large population and its expansion is a large consumer of oil. The coronavirus saw a slump in production and the consequent slump in oil consumption.
As fate would have it, Guyana sold its oil on the futures market, so the fall in price on the world market would not affect this country, at least for the first three shipments.
The arguments about a higher royalty and the scrapping of the profit share is beyond my scope of reasoning. As a layman, I am tempted to fall for the perception that as the cost recovery falls, the profit share would increase. The royalty will be constant and at the mercy of the world market price of oil.
But then again, I am no economist, so I will leave those things to the economist. I can however comment on local content.
This is something that every country demands. Local content is more than jobs. It is more than goods and services provided by the country, although this should be significant.
For more than a century, Guyana has been import-oriented. To this day, Guyana buys the foreign equivalent of its produce. It imports water, plantain chips, milk and even vegetables.
This country has an abundance of fresh foods, but the fast food enterprises are making their mark. They are so many, and all of them making tons of money, that I wonder whether Guyanese must be foreign-minded all their days.
Given this trend, although Guyana produces these things, one could see the foreign company attempting to do the same as many in the population—import.
The roar would hit the roof if Exxon should bypass Guyana to import its food supplies. But it is here that local producers should up their game. Packaging is crucial to marketing. This is an area that Guyana must develop.
Undoubtedly, the private sector is awash with money that should be invested in the many areas of food production and marketing.
I know that some businessmen got involved in the shore-based operations in the oil sector. Wharves have been transformed into offloading and onloading areas.
The not so surprising bit of news to emerge over the past few days is that more than a hundred foreign businesses, many of them from the United States, are heading to Guyana. They are coming because they see investment opportunities that have so far escaped the local businesses.
Perhaps, the government should insist in joint ventures. Every foreign investor must seek a local counterpart. In that way, not only will there be knowledge sharing, but there will also be skills development.
Some are of the view that the foreign investor is only interested in raping Guyana. He comes in, seeks incentives and concessions, and promises jobs. Guyana needs more than jobs. And in any case, the wages and salaries paid are comparatively low should that investor operate in his own country. That is why joint enterprises are best in such conditions.
The landscape is changing. A few years ago when the Marriott was mooted, the talk was that Guyana had many unused rooms. The Marriott was touted as a white elephant. Far from it, the Marriott is now a successful entity, almost always full. And this is because of the burgeoning oil economy.
More hotels are being constructed. One of them is being funded by a rich Trinidadian. Those Guyanese who got into the industry, albeit at a lower scale, are also in the money. They were forward looking although they never expected oil.
Guyana is seeing the spin-off in many areas. Money is also trickling down. But the talk is that there should be more. I travelled along East Bank Demerara by night and was amazed at the extent of street lighting.
The Soesdyke-Linden Highway is also being lighted. And these are early days. No doubt the trickle from the oil is being felt. But there should be even more local content. To my mind, Guyanese should create these opportunities.
They should be discussing with the oil companies what is needed and set about providing the services. There is no limit to what Guyanese could do, but given their inexperience in these areas, there should be greater collaboration with the oil companies. And the government should insist on this.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper)

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