Pres. Ali ‘sells’ Guyana cheap to access loans

Jul 26, 2022 News

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– says country needs low-interest financing; shrugs off rich nation status

By Davina Bagot

Kaieteur News – “Everywhere I go people say oh you guys are rich, you have oil and gas. I say no, no, no, hold a second. We are from a humble country of Guyana. We are poor, we need help and we need concessional financing.”

These were the words of President Irfaan Ali last Wednesday evening, at launch of the Pegasus Suites and Corporate Centre. Addressing a packed room, comprised of business executives, government ministers, members of the diplomatic corps and other top officials, the President was content to share that Guyana is a poor oil producing nation.

In fact, he told the gathering, “We need low interest financing, don’t tell us that we are rich, no. You classify us as low income, once concessional financing is there, we are very happy.” The President sought to explain that development does not take place over night, but is likely to take a ‘longer time’. He said, “Let’s not rush to this thing that oh we come from an oil producing country of Guyana and we are this rich country. Don’t fall into that narrative. That narrative will self-destruct.”

Instead, he reasoned: “development is a glide. It’s like a caravan, according to the guys in the aviation sector, they told me you know the caravan is very safe because it has longer gliding time, so if you are coming down, you have a longer time to decide how you are coming or how hard you are coming. Similarly, development takes a glide. It’s not a steep up…”

The Head of State’s remarks come at a time when Guyanese across the country have been protesting for a renegotiation of the contract with United States oil major, ExxonMobil. Based on the 2016 Production Sharing Agreement (PSA) the country has with the oil company, Guyana is entitled to two percent royalty from its natural resource wealth. It also receives a 50 profit after ExxonMobil deducts 75 percent of the oil earnings to service the development costs. The other 50 percent is shared with the operator the Stabroek Block, Esso Exploration and Production Guyana Limited (EEPGL), the local subsidiary of Exxon.

Both the People’s Progressive Party (PPP) and the former A Partnership for National Unity/ Alliance For Change (APNU/AFC) Coalition have been reluctant to renegotiate the deal, citing the sanctity of contracts. Experts in the field have however warned that Guyana may never see the promised benefits of the sector if the contract is not modified to rake in additional value for the country. For instance, an independent report coming out of the Institute for Energy Economics and Financial Analysis (IEEFA) has concluded that Guyana may never see the promised annual revenues from its oil sector, as the “one-sided” oil contract gives ExxonMobil and its partners the benefit, leaving Guyana and its people out of their fair share of the wealth.
The report by the body, titled ‘Lack of Ring-Fencing Provision Means Guyana Won’t Realize Oil Gains Before 2030s, if at All- Loophole Allows ExxonMobil-Led Development Team To Use Profits To Pay for More Oil Exploration in Guyana’ details that Guyana’s failure to implement a “ring fence” provision has provided Exxon an opportunity to reduce the country’s share of profits.

According to the document, “Among the contract’s weak provisions Guyana never imposed a “ring fence,” which means that the oil companies can charge the government for costs incurred for new development and pay for it out of the revenues from Liza Phase One, an oil field that commenced production in December 2019. A strong ring fence provision would have allowed ExxonMobil to charge only costs related to Liza Phase One against revenues received from oil from that field.” The Institute went on to say that Guyana only received US$344 million in the first 16 months of production.

To date, ExxonMobil has received approval for four projects, including Liza One and Two, Payara and more recently, the Yellowtail development. In addition, the company also made several other discoveries, along with about four dry holes, of which the costs are being charged against the oil produced at the Liza One well. This, the report says, reduces Guyana’s share of the profits. IEEFA estimated that Guyana should receive upward of $6 billion annually by 2028 or sooner. However, the organization believes that due to all of these new costs, Guyana will be shortchanged until the 2030’s, if not longer. In the meantime, the country’s leaders are content with receiving less money from its oil and being a poor state so that its status at lending institutions is not upgraded. If the status is changed, Guyana will not be able to access loans at low interest rates.

 

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