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‘ExxonMobil must benefit on returns from financing Stabroek Block projects’- Jagdeo
…as company walks away with US$7.4B of US$9.8B in 2022 for costs alone
Kaieteur News – Vice President Bharrat Jagdeo on Thursday told reporters that oil giant ExxonMobil must benefit on returns from its investments in the Stabroek Block.
Vice President Bharrat Jagdeo
He was at the time responding to a question from this newspaper on the interest rate Guyana is paying the Stabroek Block partners when he pointed out that this is a standard practice. The VP was however reluctant to reveal the rates attached to the investments being made.
He reasoned, “The thing is that financing, so a project could be financed from equity or loans, so if you make a loan to the local company then you have to get a return in the form of an interest payment at a particular rate. If you make an equity injection, you get a return on your equity so that is it. Regardless of whether you make the financing in the form of a loan or equity, you have to get a rate return. There is a cost of capital and that is how it is.”
The former Head-of-State went on to explain that Guyana had an experience with Blackstone, the company that was interested in constructing the Amaila Hydropower project where it wanted a 20 percent rate of return on equity. Jagdeo said at the time Guyana could have borrowed at an interest rate between eight or nine percent “so it was in our interest that we co-invest in the equity”. According to him, this is how the country ended up utilizing the funds from the Inter-American Development Bank (IDB), since equity was remunerated at a higher rate.
Jagdeo then told Kaieteur News that the question of Exxon’s return rate should be put to the company and he will then provide a response.
The former President was however asked to explain if Guyana was paying a standard rate of return on the equity contribution from the companies when he pointed out, “We are not paying anything. The Government of Guyana is not paying anything because they have to raise the financing using the best efforts; the cheapest cost of financing that is what they are supposed to do as a company so this is what can be analyzed even when you look at the cost bank.”
The subject of a standard rate is particularly significant, given that Guyana has already been warned by the International Monetary Fund (IMF) that the country could lose massive revenue by failing to cap the interest rates on the investments for its oil projects.
The IMF said it is an industry norm that the government of the day disallows interests from being recovered on loans. Even if this is allowed, the administration sets a cap or limit to prevent the full interest amount from being recovered. The IMF pointed out that Guyana not only allows the recovery of the interest but also sets no cap.
Before further questions could be asked, Jagdeo requested that the press conference “move on”. The response from the country’s chief spokesperson on the petroleum sector casts a gloomy picture on what the true cost of capital is, and the total revenue Guyana could be losing annually on interest payments.
The 2016 Production Sharing Agreement (PSA) inked with ExxonMobil and its partners Hess and CNOOC allows for 75 percent of the Stabroek Block revenues to be recovered by the companies for their investments. Guyana then shares the remaining 25 percent profit with the partners, meaning the country collects 12.5 percent of the revenue. It also receives a meager two percent royalty on its sweet light crude.
This newspaper reported that the 26,800 square kilometer (6.6 million acres) Stabroek block, raked in gross revenue of US$9.8 billion in 2022. Currently, Esso Exploration and Production Guyana Limited (EEPGL) commonly referred to as ExxonMobil Guyana is producing oil from two projects there, the Liza One and Two.
From its gross revenue, ExxonMobil deducted a whopping US$7.4 billion towards the recovery of its investment for the petroleum related activities. Meanwhile, Guyana benefitted from a meager total of US$1.4 billion from the activities in the Stabroek Block last year.
- benefit, Equity, investment, oil, return
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