It would be comical if money wasn’t being lost

Feb 19, 2023 Letters

Dear Editor,

I was recently reading a letter written on the gas to shore project where the author says that Exxon will be financing the pipeline and the government will pay them back over 20 years. Then the author goes on to say that it doesn’t matter where the financing is coming from because the government makes all the profit.

This is where I respectfully differ with the author. No one allows you to go into their wallet and take their money, to buy them a meal for which they now have to pay you back for with interest. It was their money to begin with. Who does that? This is what the author is not explaining to the public. It is almost comical what is being allowed to take place, but unfortunately it is affecting the national treasury, which in turn can affect all of us. No government should be willing to sign up for such a deal. You don’t even have to be able to divide to figure out that it’s a bad deal.

Can you imagine, here comes a guest to our house who says let me help you get the food we will eat from the store. “Where is the money”, the guest says. We tell the guest, “Oh, it’s over there in our wallet”. The guest then takes the money form our wallet and says, “Ok, I am coming back just now”. Then the guest comes back from the store with the food that they will also eat and says to us, “You owe me money for buying the food. Plus it will cost you another 11% because I had to borrow the money to buy it”. We will obviously then ask the guest, “Didn’t I just see you take the money to buy the food out of our wallet?” The guest then says, “Yes, but you have to pay me for having to go for the food”. That is the sort of nonsense that is going on with this pipeline agreement.

We can safely assume that Exxon is using the decommissioning funds, which they are collecting as part of cost oil, to finance the pipeline portion of the gas to shore project. Then in return they are asking the government to pay them back for the financed pipeline cost over 20 years. I seriously doubt that this is an interest free arrangement.

The current structure of the deal has Guyana losing approximately 7% from not being able to earn interest from lending our decommissioning funds to Exxon, and losing another 10% if the cost of financing the gas pipeline is at Exxon’s estimated weighted average cost of capital. That’s approximately 17% if a conservative approach is taken. The range is approximately 17% to 21%. That’s money down the

drain and into the pipeline that leads to Exxon’s pockets. The decommissioning funds which they are taking via cost oil are not needed until 20 years from now. What a coincidence! Of course where the finances come from matters. This significantly alters the net present value of the project. The discount rate could have been 3% or even less, instead of what appears to be closer to 17%. The government should not be in a hurry to lose money.

By better managing the decommissioning costs and taking a better upfront revenue generating approach, this project would be more financially sound. Guyanese have always been strong in finance when there is objectivity leading the way. We must not allow Exxon to have its cake and eat it too. It is time to sharpen those pencils and get back to the drawing board on this project to ensure that it is correctly structured to maximize our return on the investment. We must do better and we can do better than the current approach being taken. It is time to make the necessary improvements to the Capital Expenditure (CapEx) project management team that is responsible for the projects of this magnitude.

With concern,

Mr. Jamil Changlee

Chairman

The Cooperative Republicans of Guyana

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