Jagdeo is being disingenuous

Apr 25, 2024 Features / Columnists, Peeping Tom

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Kaieteur News – Dr. Bharrat Jagdeo, the General Secretary of the People’s Progressive Party, persists in offering absurd explanations regarding the intricacies of the oil and gas sector. His continued dismissal or mischaracterization of key issues impedes progress towards establishing equitable agreements that truly benefit Guyana’s interests in its dealings with the oil multinationals operating in the Stabroek Block.

He touts improved contract management and local content legislation as means through which the country can derive greater benefits from the oil and gas sector without having to renegotiate the oil agreement. As usual, he misses the point.

While contract management and local content legislation certainly play crucial roles in ensuring additional benefits from oil and gas exploration, they cannot fully compensate for the shortcomings in royalty rates, cost recovery thresholds, interest rates, and decommissioning terms. Renegotiating these aspects of the Production Sharing Agreement between the Government of Guyana and ExxonMobil and its partners is imperative for maximizing the country’s take from the sector and thus safeguarding its long-term interests.

Higher royalties directly impact the government’s income from oil production. Royalties serve as a critical form of revenue recovery, especially in the exploitation of a diminishing asset like oil and gas reserves. As these finite resources are extracted, royalties ensure that the host country receives a fair share or its finite resources. Guyana is not receiving a fair share. In fact, our royalty rates are among the lowest in the industry and Jagdeo has not demanded they be renegotiated.

Lowering cost recovery thresholds ensures that oil companies bear a fair share of exploration and development costs, do not seek to recover costs too quickly, and prevent them from disproportionately profiting at the expense of the host country. Capping interest rates on loans taken by oil companies for project financing safeguards against excessive financial burdens that could otherwise erode the government’s share of profits. The government refuses to make public the interest rates that are being levied on ExxonMobil’s investments in Guyana. Its mouthpieces are urging that reporters go to the oil company’s annual reports and calculate the interest rate. So much for transparency!

Another area of concern is decommissioning costs. Decommissioning terms are essential for ensuring that oil companies do not pass on unfair responsibility and costs for dismantling infrastructure and rehabilitating sites once extraction activities cease. Without better decommissioning terms, there is a huge risk that the burden of decommissioning could fall too heavily on the government.

Instead of addressing these issues through renegotiation, Jagdeo touts effective contract management and local content legislation as means through which Guyana can derive greater benefits.  While effective contract management and local content legislation contribute to transparency, accountability, and local economic development, they cannot address the fundamental deficiencies of revenue distribution and risk mitigation inherent in the existing Production Sharing Agreement. Better contract management and local content legislation cannot effectively compensate for the failure to renegotiate higher royalties, lower cost recovery thresholds, capping interest rates, and improving decommissioning terms.

Jagdeo touts local content legislation as allowing for greater benefits. But the numbers which his own government has generated indicate that the value of local content is a mere pittance in relation to the overall expenditure within the sector.

Guyana’s local content legislation came belatedly, long after the major contracts in the sector had already been farmed out to foreign companies. This column did a feature on those contracts, showing how the larger and more substantive contracts have already been allocated to major multinationals.

When asked by a Kaieteur News reporter, at his previous press conference, why Guyana could not be involved in securing a stake in these larger contracts, Jagdeo provided a most disingenuous explanation. He stated that Guyana is not a co-owner of co-manager of the project and sought to make a distinction between receiving 50% profit sharing and being a 50% owner of the project.

But what does this have to do with securing a stake in the large contracts. Guyana passed local content legislation but is limited to receiving crumbs in terms of overall procurement. Why cannot the Local Content Legislation be amended to insist on greater local participation into the larger contracts? And what does this have to do with management? If local content legislation allows for Guyana to participate in smaller contracts, what is to prevent it from insisting that locals have a stake in the larger contract contingent on the local capacity to do so?

Jagdeo could have sought refuge in arguing that Guyana does not have the capacity as yet, to participate in the larger exploration and production contracts or even in terms of some aspects of the oil operations. But he so often ends up in a kerfuffle by the questions posed to him that he goes on the defensive and offers the most ridiculous explanations.

He is only deluding himself that he sounds impressive and convincing. The reality, however, is that his arguments lack substance, ultimately failing to withstand scrutiny or sway informed opinions.

(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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• benefits, Dr. Bharrat Jagdeo, General Secretary, Peeping Tom, People's Progressive Party

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