What is the interest rate?

Nov 22, 2023 Features / Columnists, Peeping Tom

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Kaieteur News – At his first press conference, held after more than three years as a minister, the Minister of Natural Resources., Mr. Vickram Bharrat, said: “The government is not directly investing in the oil and gas sector” and that this is a mistaken idea that some people have.

The minister’s statement is quite a naïve way of answering a fundamental question about which, the government has been evasive: What is the interest rate that ExxonMobil and its joint venture partners are charging to the government for the investment that is being made in Guyana?

The fact of the matter is that the government is investing in the oil and gas sector. It has a sunken investment in the form of the oil and gas resources. These resources belong to the people of Guyana and it is their investment in the oil and gas sector. Ironically, while Guyana and the oil companies are splitting profits half and half (after deducting expenses, of course), Guyana is carrying all the risks. Once oil was discovered, the entire Basin was de-risked in the sense that the oil companies can recover whatever investments they made.

If oil was not discovered, then the oil companies would have had to bear the total pre- contract costs. But once the companies struck oil, they can recover their expenses at Guyana’s cost. In other words, our investment is not only the oil that is being exploited but we are also repaying the oil companies every blind cent that they incur in bringing up the oil or what is called operational costs. The oil companies are not carrying the risks; it is Guyana that is carrying the risks. But Guyana is not only fetching the financial risks associated with the project. It is also shouldering the environmental risks. The absence of a full liability guarantee means that for Guyana to be indemnified due to any loss or damage, it will either have to depend on the goodwill of the oil companies to honour those obligations, or it will have to sue the oil companies. International arbitration processes are not resolved overnight and the legal fees are enormous. In the event on an oil spill, Guyana cannot afford neither.

But back to the issue of the interest rate. Obviously, the oil companies do not have a piggy bank with US$30B standing by to make the investments which they claim they have made in Guyana.  Therefore they have to borrow the money. And it is only fair that if they are going to reclaim costs, including their capital expenditure, they should be able to reclaim the interest which they have to make to procure and install the equipment for oil exploration and drilling.

But is it not also a reasonable entitlement that since Guyana must repay the money that Exxon says it invested, that Guyana knows the interest rate that is being charged. Suppose Exxon says that the rate is multiple times what exists internationally for such borrowing. Should Guyana be obligated to pay some unknown interest rate?

The government is being reckless in not declaring what is the interest rate which is being charged by the oil companies on their investment and how this interest rate compares with global interest rates for the sector. Suppose Exxon were to say that they borrowed US$40B this year alone to invest in Guyana. Suppose they claim that they are repaying this sum to their creditors at an interest rate of 10 percent. This would mean that Guyana would have to repay the oil companies US$4B per annum in interest payments alone. This will be far in excess of what Guyana will be earning from its oil revenues for this year. It speaks to the quality of governance over the oil and gas sector that such a fundamental issue as interest rates on investment (not rate of return) the government is silent. There has been a stubborn refusal and downright evasiveness by the government is giving a direct answer to a direct question. It was hoped that during his inaugural press conference that the Minister with responsibility for Natural Resources would have been more enlightening on this question. Perhaps, it is time for a new approach to obtain the necessary answers. Perhaps it is time for this question to be put to the oil companies. After all, when the previous government was pussyfooting with making public the Production Sharing Agreement, it was ExxonMobil which announced that it had no objection to the said contract being made public. And after all, Jagdeo was suggesting that the auditors get the production data from the government.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• Government, interest, Minister of Natural Resources, Mr. Vickram Bharrat, Peeping Tom, rate

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