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Earnings uptick versus deadweight

Oct 17, 2021 Editorial

Kaieteur News – The headline in KN on October 13 trumpeted that “Guyana produced 20.2M barrels of oil at half year -Crude export earnings increase to US$1.3 Billion”. For a small country, this is good, and gives the impression that things are humming in the oil sector, with more such announcements pending. The reality check came quickly, thanks to that same KN October 13th edition with a caption that speaks for itself: “Guyana’s External Debt Stock stands at US$1.3 Billion.” That should give pause, prompt a little reflecting.
We will be gentle, helpful, supportive, but only as far as commonsense permits. That US$1.3B on the revenue side (oil only) seems to be wiped out by that US$1.3B in the debt column of the balance sheet. This was for “External Debt” only, as the Central Bank’s report indicated. We leave alone the differentials in interest rates, earned versus charged, in those sums coming in and due. Suddenly, this doesn’t look like a wash anymore.
We will agree that oil has only recently started to take wings, with much more promised in the future. Now, if Guyana was getting a bigger, fairer share of the sales proceeds, then there would definitely be great and prolonged applause, which we would lead from the front. Let’s not hold our breath, as we are sure to topple over from failed hopes and oxygen failure. Also, oil benefited from a coalition of circumstances, which positives literally trickled down to Guyana. Again, if only it were more than a trickle, we could cheer for a few multiples of current royalty numbers. But leaders are not listening, least of all to us.
Among the circumstances leading to that dollar uptick in oil earnings was the jump in price, and gathering demand for the commodity in world economies slowly reopening after a devastating pandemic. That good news is underlined by widespread awareness that supply discipline could lead to still higher rises in the price of this volatile product of which the world is starved, and which looks poised for a price breakout. A hundred dollars (U.S.) a barrel looks reachable in the near future, but it doesn’t take much for oil prices to spook, in either direction; and, increased oil prices lead to squeezes here. North American and European heating demands, traditional holiday travels, and rebounding consumer confidence can all play a part. On the other hand, the colder weather, and unchecked virus mutations could wreak havoc, forcing everyone to shut up shop, with things grinding to some standstill. This would not be rosy for Guyana’s upside with oil, with this country holding the dirty end of the money stick.
Another side of the local oil coin is that we have yet to account for huge amounts of expenses still to-be-reviewed, approved, and paid to Exxon. That could be considerably reducing the earnings numbers waved about today, or later. Sure, there is more oil out there to be discovered and produced. But Guyanese should be just as sure that Exxon has its big bag of tricks of how to skim every last cent in expenses out of us. Exxon is a wise old dog in this oil business, while Guyana is a puppy without sight and without teeth, one that can’t even walk around on its own presently.
On the debt side, that US$1.3 billion is external only, which means that internal/domestic-originated debt is not in that Bank of Guyana reckoning. And while, it is part of the local political pastime to gloat about how not a penny from the Natural Resources Fund has been touched, there is much more to that clever political story. Every lending institution of standing knows that though there is a process for accessing it, they know that we can borrow against that and future oil earnings. Guyana is the best credit around, with oil collaterals in hand.
Hence, leaders in the PPP Government have gone on a borrowing binge, which that raised debt ceiling allows. We can ignore interest charges today, but there are countless opportunities for corruption, and look who are the people in charge of the cash. That said, oil numbers may be glowing, but they conceal much that is dark and disturbing.

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