H@RD TRUTHS BY GHK LALL – Ring-fencing means no competitiveness

H@RD TRUTHS BY GHK LALL – Ring-fencing means no competitiveness – sez who

Jan 12, 2024 Features / Columnists, News, The GHK Lall Column

Kaieteur News – In the now standard formula, the PPP Government, instead of working diligently for the interests of this nation and its citizens, its top people are selling Guyanese a bag of bull on this ring-fencing issue. This is what Member of Parliament, David Patterson, had to say: “The government is parroting Exxon and other oil companies’ excuses -that without ring-fencing that the oil industry would not be competitive; that no ring-fencing encourages investment.” I have a few colorful words for that posture of the government that are unprintable, but these work almost as well. Trash! Balderdash! Hogwash!

GHK Lall

If it is Mr. Alistair Routledge feathering his corporate and other nests here who came up with that, and smoked it into the ears of PPP Government so-called oilmen, then I have some advice for him: take it and shove it in some dark spaces. Or, more civilly, put a sock in it, captain. If nobody else in the PPP Government knows that that business about “without ring-fencing…the oil industry would not be competitive”, [and I think that they don’t], there are two senior men who know that is nothing less than patented foolishness. The so-called analysts regurgitating what Freedom House sticks into their hands may have an inkling, but the two men in the PPP that I now name know the whole nine yards. I give to Guyanese, Dr. Ashni Singh, Guyana scholar, and Dr. Bharrat Jagdeo, Guyana oil czar. Both of them know full well that no ring-fencing is of supreme interest for oil companies, and if other companies were to yield on the issue, Exxon is capable of digging in its heels, and coming up with all kinds of concoctions to rationalize no ring-fencing. Specifically, they know that ring-fencing does not make an oil company non-competitive.

To help to lay this out in the simplest manner, I use the new Production Sharing Agreement (PSA) that is now operational and applies to everybody, except for Exxon and the luscious Stabroek Block. The relationship between an oil company and the host country is built on, and driven, by a matrix representing the returns to both sides. There is a whole package of variables to negotiate, and ring-fencing is just one of them. Truth be told, it is a very big one, all things considered, but it is not the only one. So, if anyone-Exxon, other oil companies, Dr. Singh, Dr. Jagdeo, or whoever else-were to say that ring-fencing equates to non-competitiveness, I believe that sounds and looks suspiciously as though disingenuousness, if not outright deceptiveness, may be at work.

Perhaps, an illustration that many should be familiar with may help to put this ring-fencing matter in its proper place. Think of an employment contract. For sure, the pay is a huge deal, but so are other incentives that form part of the entire compensation package (always think package), such as bonus (the biggest deal on Wall Street), share participation, and retirement benefits, among others. Personally, if the bonus is on the low gravy side, it is no thanks, and sayonara. But if there are other components that balance out to some extent, then let’s talk turkey. If not, then the total package of another company may even out for the better. I hope this little aside rams home the point about the importance of ring-fencing, but also how it does not standalone.

Just as how oil relationships and oil contracts do not hinge on a single risk alone, they also are not drop-dead dependent on one benefit or one return (provision) alone. In a quick run through of Guyana’s new PSA, there is royalties (10 percent), taxes (10 percent), expense cap (65 percent), and so on and so forth. I invite anyone from anywhere, including oil companies, to tell us how those numbers make a deal non-competitive, through the mere presence of ring-fencing of projects. In fact, those numbers are right up there in terms of richness, balance, and something material for both the explorer and producer, on the one hand, and the owner of the oil resource on the other.

It goes without saying that no ring-fencing provides the perfect cover under which a whole series of sweet shenanigans (for the oil companies) can be refined and put into action. To put this in Guyanese parlance: no ring-fencing is how and where the oil companies run cow. For starters, they get to play costly games with expenses, experiment with different scenarios that reward them, and then to top it all off, they get to perpetuate the trickeries that flourish under no ring-fencing by extending them to other oil projects. Under a regime of no ring-fencing, expenses carried over/forward could have more lives than a cat. To put differently, a country could run out of projects before it runs out of expenses still outstanding, but with nowhere to house or offset them.

One final note: the fact that Exxon is so adamant about ring-fencing should open the eyes of thinking Guyanese. There is something more for the company there than it is letting on. And with Exxon, Guyanese can reassure themselves that it is big, as in the billions. Citizens should ask themselves why is it that Exxon does not want the Guyanese public to see their expenses. And how is it that it got the PPP Government, and the likes of the illustrious Bharrat Jagdeo to tag along. If anyone needs more to be said, then they are dumber than I am.

(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.)