Oil money each year only enough for two projects – Jagdeo tells Berbicians

Sep 21, 2022 News

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By Davina Bagot

Kaieteur News – Even though Vice President Bharrat Jagdeo has argued in the past that Guyana’s profits remain larger than the oil companies’ share, he recently admitted that the money Guyana receives for its petroleum resource is in fact not “a whole lot.”

While addressing an audience in Berbice this past weekend, he told citizens there that the funds collected annually are barely enough to complete two projects.

He explained, “When you hear a lot about the oil money and we’ve collected about US$350 million per year so far, the first two years, you think it’s a lot of money. But the Demerara Harbour Bridge alone, the four-lane bridge, there is US$260 million and the hospital, the Children and Maternal Hospital that we are building which will be a World-class hospital for our children and women – specialised hospital with the best care that you can get like any part of the world that’s about US$170 million. That alone is one year of the oil money.”

He went on to note that these two infrastructural projects alone could use up the funds gathered, without even considering the highways to be built on the East Bank of Demerara and other road works scheduled for their Region.

The Vice President, nonetheless, assured that Guyana’s revenue from the oil and gas sector would increase over the next few years. He said, “So it’s not a whole lot of money. Later from the oil and gas sector, once we stay the course, we are going to collect more money but the money that we are spending that we are receiving now and the money that we are collecting because our economy is expanding generally – that is taxes – we’ve made it clear how we want and where we will spend the money and we are not gonna sway everyday like a leaf in the wind. We have laid this out in our Manifesto, we said the first priorities are one world class health care and now you are seeing us, we have just awarded seven new hospitals for the country that will cost nearly US$400 million…”

The Vice President was at the time explaining that the Opposition, for example, has suggested solutions without any analysis underpinning same. For instance, he detailed that some sections of society believe that the treasury is overflowing with revenue from the oil and gas sector, which means that all of the funds collected should be distributed. However he noted, “The same people say oh the cost of living is too high and you have a high rate of inflation. Well if you send more money into the market and you are not careful, you don’t have a solid fiscal and monetary policies to support the spending then you would simply be promoting greater inflation.”

Even though the Vice President has accepted that Guyana is not receiving “a lot of money” for its oil wealth, he has no plan to change the lopsided Exxon contract which several experts have advised Guyana to change.

In its Mid-Year Report, the Ministry of Finance said the total balance in the Natural Resource Fund (NRF), inclusive of interest income, at the end of June was US$753.3 million, after a withdrawal of US$200 million in the month of May.

By Kaieteur News’ calculations, Exxon’s subsidiary and operator of the Stabroek Block, Esso Exploration and Production Guyana Limited (EEPGL) is poised to walk away with US$3.9B while CNOOC will get US$2.2B this year. It therefore means that Exxon and partners will walk away with US$8.7B profit, tax-free, in 2022.

Meanwhile, Guyana must pay the company’s share of income taxes for 2022 from its projected US$957.6 million revenue.

Despite this, the former Head of State had rebutted Guyana’s earning being less than the oil companies share.  Back in June during a press conference, he said, “I have seen in the newspaper a lot about how Exxon is drawing down hundreds of US billions more and we are getting a pittance. But people making such statements are mistaken.”

He then went on to explain the formula for calculating profits as outlined in the 2016 Production Sharing Agreement (PSA) for operations at the Stabroek Block.

The Vice President told the media that in 2021, there were 42 oil lifts, which brought in US$3B as gross revenue.

According to him, “If you split that into two: cost oil which would be 75 percent is US$2.3B and profit oil is US$700M. The contractor group is supposed to get 50 percent of profit oil and we are supposed to get 50 percent as well. So that works out to US$360 each. Now the contractor has to pay royalty on this…”

He insisted that the oil companies are left with 10.5 percent of gross revenue while Guyana gets 14.5 percent. In other words, the government received US$420M in profit for 2021 while the contractor group collected US$300M.

This newspaper has highlighted in the past that in the absence of the ring-fencing provision, Guyana can lose out massively coupled with the country’s inability to monitor costs associated with production. Presently, Guyana does not authorise purchases made by the oil company; instead, the country conducts a yearly audit to verify the spending.

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