It is a bad oil deal

May 19, 2022 Letters

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Dear Editor,

Reference is made to retort captioned: “Guyana is benefiting from oil deal” (May 18) by one Romel Khan (a name that appears for the first time in local media). I was wondering whether Khan (real or a fictitious name) actually read and understand my missive (May 10). His retort is replete with inaccuracies, deriving claims and assertions I did not make. In addition, it contains factual errors to buttress his hypothesis, making it hyperbolic if not outright propagandistic. I can’t comprehend the purpose of the retort contradicting me when several of our positions are similar except for his flaws and non-facts.
There is a silver lining in the retort. It has the hallmarks of a scholar perhaps educated in the UK – with good diction and using the English language correctly – well written, articulated and buttressed with figures — but highly flawed — deficient in facts. One can’t use one’s own imaginative and creative numbers to support an argument. It is not accepted in academia. A writer cannot have his/her own facts but what is objectively real and actual as available from credible sources.
Khan accuses me of engaging in hyperboles. No Sir, I stated facts that you have not debunked. No country gets only 2% royalty. The average is 16%.
It is not factual that “the Guyana deal is fair compared with other new oil producing states and that Guyana has similar oil benefits as Suriname and Brazil”. Ghana, a new oil producing country whose leader visited Guyana in March for an oil conference, gets royalty of between 5% and 12.5% depending on the block – more than double ours.
Suriname’s royalty is 6.25% whereas Guyana’s is 2%. Brazil’s royalty is 10%, five times ours. Brazil offers an incentive that if production reaches a certain threshold, royalty decreases to 5%, still more than double that of Guyana.
Oil companies pay dividends or profits and taxes to Suriname, and Brazil, whereas in Guyana, the state pays the taxes. Brazil has a minimum profit sharing agreement that varies between 18% and 41% depending on the block. It is an average of 25% for all blocks. And the companies pay taxes on profits. In Brazil, profit is taxed at 36% but subject to declining percentage based on profit. Guyana’s profit sharing is 12.5% (half that of Brazil’s) and with zero taxes.
Brazil got signing bonuses in the billions of American dollars. Suriname got $100M. Guyana got $18M although it has more reserves in oil than Surinam and Brazil.
Khan notes that the investors take the risk (working interest is the term used in economics) and Guyana does not (non-interest owner is the term used in economics) — points I also made.
Khan feels I used hyperbole but he used what the Greek philosopher Aristotle would call litotes. And I never stated that Guyana does not benefit from oil. In fact, I opposed the position of those who said leave the oil under the ocean; that would be idiotic.
The centre piece of my argument was the coalition entered into a badly negotiated deal. Contrary to what the writer penned, I did not cast blame on PPP or even Exxon but squarely on the coalition for such a poorly arrived agreement that cheated Guyana of a fair amount of funds to finance or industrial development. I also praised Exxon for its negotiating skills. My letter suggested what the coalition should have done – higher royalty, profit sharing, and bonus; reduction in cost recovery, taxes on profit; a clause for revisiting the contract, and a clause for reduction of cost recovery if price of oil increases beyond a certain amount so that we get more revenues. I don’t see how such a proposal can be considered as a critique of the PPP administration. In fact, Vice President Jagdeo is in agreement with my position. On May 12, Jagdeo on the Guyana Dialogue social media programme, described the contract as “lopsided and pledged to improve the benefits in other PSAs”. The VP also stated that this position was in the party’s manifesto.
Khan argues that Guyana benefit financially from oil; I too made that point. Guyana gets 14.5% of oil produced (hundreds of millions in American dollars annually) whereas before oil it was zero dollars. But benefits are relative and come with costs. There is a concept called externality in Economics – that is a cost that cannot be measured in dollar value (damage to environment, soil, coastline, sea life, etc.) and other losses (like income to fisherfolks).
Khan claims that Guyana gets 60% of profits (using dollar value) when 2% royalty is added to the 12.5%. That is utter rubbish, playing around with numbers. It is engaging in magician math akin to that of the coalition on what constitutes a majority of 65. All countries get royalty for natural resources and one must not mix or confuse it with profit which remains 12.5%. And when one deducts state’s payment of the taxes on Exxon profits, it is substantially less than 12.5%.
There are also several other questionable claims and inaccuracies. No need to address them all as the point is made that Khan plain wrong in his contentions. He has now quoted figures to show any country that has a worse oil deal than Guyana.
All the data I cite above are available from contractual sources on the web for Ghana, Brazil and Suriname and from the reputable New York Times. They can be accessed through Google.
I should note that the surname Khan does not come with first name ‘Romel’, not typical anyway. Khan comes in Nazar, Mohamed, Sharief, Wahid, Yusef, and the like. If one uses a fictitious name, use a credible one. And why hide behind a name? In this case, the writer may be right because his re-statement of what I wrote is distorted and his argument is erroneous. Guyana’s deal on oil is among the worst if not the worst.

Yours sincerely,
Dr Vishnu Bisram (PhD)

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