Open Letter to EXIM Bank of the United States

Jan 05, 2024 Features / Columnists, Peeping Tom

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Kaieteur News – All lenders, including banks, attach conditions to their lending. The International Monetary Fund (IMF) and World Bank usually go a little further than most and impose economic conditionalities to their loans.

The IMF and World Bank usually impose specific requirements and policy prescriptions that borrowing countries must adhere to in order to access financial assistance. Economic conditionalities imposed by the IMF and World Bank typically include structural reforms, fiscal austerity measures, and other policy changes aimed at addressing underlying economic challenges. While these kinds of economic conditionalities are not imposed by import-export banks, this is not to say that these banks cannot demand certain actions from a borrowing country.

Given the concerns that have arisen in Guyana over the proposed gas-to-shore project and the gas-to-energy plant, the latter of which is likely to be funded with significant input from the Export-Import Bank of America (EXIM Bank), it will be understandable if the Bank demands certain conditions be met before it approves the loan. A project of this scale and size can have such serious effects on the local economy. As such, the bank cannot limit itself only to the commercial considerations in assessing the risks associated with financing this venture. But even in this regard, there are concerns as to whether there is a feasibility study specific to this project, as opposed to simply having a feasibility of comparing the use of gas to other energy sources. Has such a feasibility study been done and if so, why is it not being made public?

The viability of the gas-to-shore and the gas-to-energy plant is linked to the availability and cost of natural gas. No one can predict with any certainty what will be the future of natural gas in Guyana and therefore this is a highly risky financial investment for the bank.

Secondly, this is a major investment in Guyana, expected to be the largest public investment project in the country’s history. Given what has become of the Skeldon Sugar Factory and the now beleaguered Amaila Falls Hydroelectric Facility, the UIS Exim Bank should tread carefully in aligning itself with this project. It should do so only after it has assessed the full implications of a project of this size to the country.

The President of Guyana has already indicated that the amount of sand that this project will require is more than the cumulative amount of sand that was used in the country over the past five years. The project therefore has a high risk of supply constraints. This must be factored into the decision to approve financing for this project.

Thirdly, General and Regional Elections are due next year and it is not likely that this project can be completed by the end of this year. In fact, it now appears impossible for the project to be completed by the end of this year which means it will roll over into and possible beyond election year 2025 in time for the elections.

Fourthly, a project of this nature being activated so close to an election will increase its political risks. Exim Bank should bear in mind that the PPP/C government only holds a one seat majority in the National Assembly. Were the government to lose the elections or to have a minority government, it can affect the plans for this project since funds will have to be appropriated through the National Assembly. You will recall that the developer for the Amaila Falls Hydroelectric Project walked away from the project because it could not obtain agreement with the Opposition at a time when the government was a minority government with the Opposition holding a slender one-seat majority, the same one-seat majority which the incumbent PPP/C holds.

Even if the proposed loan from the Exim Bank is backed by an ironclad government guarantee, there is no certainty that any new government will go ahead with this project. Further if there is a default in the repayment of the loan, as experience suggests the Exim Bank could end up holding bonds instead of loan repayments.

Fifth, apart from the managerial capability, there will be a need for changes to the country’s regulatory framework to integrate gas and energy from gas production. So far, no legislation has been tabled to improve the regulatory framework for this project. Sixth, a wide range of environmental risks are associated with this project. There have already been grave concerns over these risks and the bank should therefore be cautious in approving any financing unless it is satisfied that the necessary steps are being taken to attenuate these risks. Exim Bank therefore should seek to ensure that the gas-to-shore and the gas-to-energy projects are viable before its sinks any monies into Guyana. It should also seek to ensure there is political consensus on this venture and that the regulatory and administrative frameworks are strengthened. Otherwise, the bank should walk away!

(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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• Economic, International Monetary Fund (IMF), loans, United States, World Bank

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