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Vice President Jagdeo defends incentives given to oil companies
Vice President, Dr. Bharrat Jagdeo
Kaieteur News – Vice President, Dr. Bharrat Jagdeo, sought to impress on Kaieteur Radio why it is important for oil companies to be granted incentives by the government, in an exchange with Kaieteur News’ publisher, Glenn Lall.
The two debated that and several issues on Guyana’s Oil and You on December 23 last year, hosted by Kaieteur News’ Senior Journalist, Kiana Wilburg.
Dr. Jagdeo’s explanation featured after he admitted that the tax regime granted to ExxonMobil for its Stabroek block operations is too liberal, as it effectively requires the company, its partners, affiliates and sub-contractors to pay no taxes.
This has resulted in a situation where, as the country battles a pandemic, local businesses are chased after by the Guyana Revenue Authority (GRA) for outstanding taxes they are struggling to pay, while multi-billion dollar oil majors operate tax-free.
“I know from a country’s perspective that we have to get more,” the VP said, after committing that future petroleum agreements would feature fiscal regimes which are very different from that of the Stabroek block Production Sharing Agreement (PSA).
Notwithstanding this, Dr. Jagdeo believes that it is important to incentivize oil companies because of the scale of investments they bring to these oil developments.
He said that the total assets in Guyana’s banking system amounts to $1.1 trillion, or about US$5.6 billion.
Comparing this to the scale of investments being made by Exxon, the VP noted that the Liza Phase One project has an estimated cost of US$3.5 billion, while Liza Two is estimated at US$6 billion and Payara at US$9 billion. The total cost of these three is estimated at US$18.5 billion dollars.
“If we look at the three developments, that’s close to 20 billion,” Dr. Jagdeo said, comparing it to the money in Guyana’s banks.
“To develop an offshore facility or any oil and gas industry far outweighs the capability of the country… Where are you going to get that money if you’re doing it? Don’t you understand the scale of it?”
“Often in economic terms, you have to look at transformation of a country and the scale of investible capital needed. So I’m just pointing out the scale here just for the oil and gas industry. Just three projects done by Exxon alone, leaving out all of the others, it is eight times more than all the deposits we have in all of our banks. So if you want those resources to be developed, you have to first incentivize but protect the country…” the Vice President said.
African Centre for Energy (ACEP), a policy think-thank has advised developing countries to ensure that they are more prudent in their determination of tax waivers for companies in their extractive sectors. ACEP posits that there is a need for those governments to establish a basis for exemptions, through scientific analysis of what they will cost the government and how they are expected to benefit the country in return.
The Centre noted that tax exemptions are generally given with an expectation that it would return increases in employment, investment commitments for specific locations, capital attraction to competition and domestic market efficiency, and investments in specific economic sectors or activities as part of an industrial development strategy.
It said that a cost-benefit analysis would objectively determine the costs and associated benefits before tax exemptions are granted. There is no evidence to suggest that Guyana has done any such thing.
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