Guyana’s ‘weaknesses’ evident as new petrostate - Bloomberg

Guyana’s ‘weaknesses’ evident as new petrostate – Bloomberg

Dec 04, 2022 News

Kaieteur News – Guyana is already exhibiting its weakness in managing the country’s petroleum sector despite commitments from the Government that it is doing everything in its power to ensure Guyana and Guyanese benefit significantly from the sector.

According to a Bloomberg feature published early November several shortcomings have been identified by industry experts and other stakeholders.

The publication which examined Guyana’s attempt to use its crude reserves to protect it from climate change, as well as provide a sustainable economic future for its people, pointed out that Guyana continues to face challenges regarding its ability to protect its environment and its finances.

It reported that in face of threats posed to Guyana from changing weather patterns, the Guyana government is betting on a paradox: “The very thing that threatens the country will be its salvation as the country’s leaders, praised in the past for their environmental stewardship, now believe the most effective way to rescue Guyana from fossil-fuel-induced climate change is—crazy as it sounds—to fully embrace the business of fossil fuels.”

“They’ve promised to create a different kind of petrostate: an environmentally sustainable one that uses oil revenue to build a more durable infrastructure powered by renewable energy. Other developing countries with potential oil reserves are watching Guyana: They, too, want to know if drilling could be an acceptable way to pay for entry into a post-oil future,” the agency related.

It continued that “the collision of these elements—the tangible threat of climate change, the country’s extreme economic stress and the sheer enormity of the discovery—has turned this strip of South American coastline into something of a proving ground, the spot on the map where the contemporary tensions shaping the world’s energy landscape have most forcefully converged.”

Other countries have stumbled upon truly transformational oil finds, but none has done so under circumstances quite so stark, at a moment long after the developing nations of the world pledged to wean themselves off of fossil fuels as Guyana.

“Since the first oil was drilled three years ago, Guyana’s economy has become the fastest growing in the world, and some of the new petrostate’s weaknesses are already being exposed. Its contract with Exxon gives the company unusual advantages: a bigger share of revenue than normal with fewer tax requirements. Even so, Guyana is exploiting as much of its oil as it can, as fast as it can.”

Bloomberg reminded of the “unusually sweet deal” that Guyana gave to its Stabroek Block operator, ExxonMobil and highlighted why Tom Mitro, a senior fellow at Columbia University’s Center on Sustainable Investment, described the Guyana petroleum production agreement with Exxon as “the most favorable I think I’ve ever seen in the industry, anywhere.”

Mitro had highlighted that beyond the basic percentage split Guyana has agreed to with Exxon, even more surprising concessions are entailed within the production sharing contract.

“For example, the contract stipulates that any income taxes imposed on Exxon and its partners be paid for by the government. However, Guyana passes the companies a receipt for those taxes, which Exxon can use to earn a foreign tax credit in the U.S.,” the report said.

Exxon is also allowed to use current oil revenue to repay itself for future expenses for decommissioning and abandoning its wells.

Bloomberg said that both Exxon and Guyana’s government promised that the drilling operation offshore would have an unusually small impact on the environment. But while the oil company assured the government that gas wouldn’t be flared at its rigs and would instead be reinjected into the ground, “that promise has been broken, repeatedly. After the startup period, Exxon’s subsidiaries flared thousands of tons of gas, and they continued to do so throughout most of the first three years of production,” Bloomberg stated.

It said that Guyana announced that instead of requiring Exxon to cut production to manage the flaring, it would fine the company $45 for each ton of carbon emitted and based on the reasoning by former Environmental Protection Agency (EPA) CEO Vincent Adams, the penalty seemed more of an incentive than a deterrent since Exxon would make 30 times more money than if it were to cut back on production.

“Jagdeo and Ali have responded to criticism by amplifying their insistence that Guyana can, in effect, have its cake and eat it too,” Bloomberg said.

It quoted President Irfaan Ali as saying that Guyana has not moved away from its commitments. “As a matter of fact, we are expanding our commitments on the side of the environment,” the President said. “There’s absolutely no contradiction.”

Bloomberg said that government believes that today’s oil revenues can ensure that Guyana thrives even after the international demand for oil dries up. They figure they have about 30 years until that happens.

But “more than anything else, it’s this sense of haste—the desire to sign a contract and get the oil flowing with little regulatory interference—that has stoked the chorus of doubters. They’re armed with evidence from almost three years of drilling and analysis of a contract they say was flawed from the start. They believe the government’s plans have already begun to spin out of control,” Bloomberg concluded.