Opposition calls on Jagdeo to prove ring-fencing oil projects could hamper future revenues

Oct 16, 2023 News

---

Kaieteur News – The comments made by Vice President Bharrat Jagdeo that ring-fencing oil projects could potentially leave Guyana with “nothing” in the future have left sections of society baffled at the reasoning behind this conclusion.

One such stakeholder is the A Partnership for National Unity (APNU) that represents a sizable portion of the country’s population.

On Sunday, Economic Advisor to the Opposition Leader, Elson Low said that the VP must justify his position with a proper study.

Low explained, “Jagdeo cannot just make a blanket statement about ring-fencing without citing a government study. His reasoning is not gospel.”

Ring-fencing is a provision that would allow each oil project to pay for itself. In Guyana’s case, it would allow for the country to benefit from 50 percent of the revenue generated after the cost of each project has been repaid.

In the absence of such a provision, the operator of the Stabroek Block, ExxonMobil is allowed to use the revenues generated from the operational projects to pay for developments that are yet to come on stream. This means that the country will continue to receive meager profits while the oil companies deduct 75 percent of monthly revenues to cover expenses.

Jagdeo during his weekly engagement with the media on Thursday said including such a provision could possibly leave the country with nothing to gain in the future.

He explained, “Thinking in policy making is much more complex, it’s never a linear way- oh ring-fencing can save all the money in the world; ring-fencing could lead now too to us having nothing in the future.”

According to Jagdeo, “We admitted that we are foregoing revenue now in exchange for massive future income because its going into new projects that will increase production and so even with the same share of the 50/50 plus the two percent royalty that the future income, because of the bigger scale will be massive in Guyana’s case and we are deliberately foregoing that in this period for that purpose and then trying to grab this bone now could cause you to lose all the bones, the bigger bones too in the future.”

Meanwhile, the Opposition explained that to correctly manage the industry, government must regularly conduct studies and review its position. To this end, Low said the Opposition intends to review the economics of each development.

He was keen to point out the importance of Guyana benefitting from revenue early on in the industry. Low reasoned, “Remember those early revenues can be reinvested and you can use math to determine the most effective allocation such as in healthcare, education, infrastructure.”

It must be noted that during the Leader of the Opposition’s press conference on Friday, Norton highlighted the need for government to budget resources to seek expertise on matters of importance.

He said, “You [need] a professionally trained core that can help political decisions. The stupidity of saying everybody is a specialist is real stupidity. What we need is trained professionals that can guide the politicians because as a politician you might study governance, well some ain’t study nothing, but we anticipate that you will study governance, understand some basis but you need the professionals to assist you.”

Norton admitted that when he was elected Opposition Leader, he had no expertise in oil and gas but he has engaged with specialists for guidance.

Similarly, the leader stressed, “A government should be informed by proper professionals with professional information rather than a Vice President running around like if he knows it all and talking whatever comes to his mouth, rather than what has come out of brains that are trained to deliver quality information to us.”

While Jagdeo fears Guyana not being able to gain revenue in the future from the sector due to a ring-fencing provision, experts in the industry have urged the nation to include such a provision to ensure it enjoys early returns from the sector.

In three separate reports dated 2017, 2018 and 2019, the International Monetary Fund (IMF) stated: “This asymmetrical treatment of profit and cost oil will benefit the contractor at the expense of delaying government revenue.”

Meanwhile, the United Nations Development Programme (UNDP), along with another international expert, Chatham House and the World Bank called on Guyana to include a ring-fencing provision for each project.

Painting a more graphic picture in one his reports on Guyana was Director of Financial Analysis for the Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo.

He said, “The lack of contract protections means that every time Guyana announces it has received more revenue it is actually being shortchanged…the country may never see the promised annual revenues in the billions of dollars.”

 

 

 

 

 

---

• oil, prove, revenue, ring-fence, study

---