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Ringfencing provision
(Kaieteur News) – The absence of ringfencing provisions in the oil sector is killing Guyana, greenlights ExxonMobil to spend in the tens of billions of US dollars, and recover those from oil revenues. ExxonMobil can claim exploring for oil offshore, and without government knowing how much of that it did, pass those bills for billions to Guyana. If ExxonMobil is contesting every audit finding, every dollar, tooth and nail, then it doesn’t require too much thinking of what kind of partner Guyana has at its side, and what more it could be doing for more dollars offshore.
The APNU+AFC Coalition did poorly by this country in 2016, when it signed that oil deal that left Guyana without ringfencing provisions and protections. In addition to no ringfencing, no taxes, nothing but a paltry 2% royalty, no depletion policy, and no control of cleanup billions are among some of the other massive failures that cheat the Guyanese owners of this national oil wealth almost 10 years later. This grim prospect is what hangs over the heads of Guyanese for decades to come. Former Minister of Finance under the APNU+AFC Coalition, Winston Jordan, more or less shared those thoughts publicly. Mistakes have been made, and it is encouraging that the former minister spoke frankly.
“No ring-fencing has effectively transferred all the risks of investment decisions to, and the actual search for, new oil fields from Exxon to the Government of Guyana while Exxon maintains a high premium on such investments.” ExxonMobil was sharp enough that it has reduced its risk exposures to almost zero in its Guyana investment. Since those risks have been passed onto Guyana, this country’s partner in its oilfields has insurance on its explorations and operations, because Guyana is carrying that load. No ringfencing means that costs are not contained in a specific oil project, but could be spread across and applied by ExxonMobil to other projects, while this so-called new oil producing dynamo is left helpless. Hence, one reason why this over a hundred years veteran of oil keeps announcing new oil projects, with Guyana going along for the ride. New projects mean that old billions for past projects can be rolled over to the new ones, and Guyana paying from oil revenues.
Which company, oil or nonoil, would not be happy to have a deal like that? Which senior company executive, or board group, would want to let go of such an arrangement, not exploit to the fullest, by wringing every last dollar out of projects, because there is no ringfencing? Though it promised to ‘review and renegotiate’ all contracts, the successor PPPC Government has proven to be all smoke and no substance. Sanctity of contract has been found by the government to be the best substitute for ‘review and renegotiate’ of ExxonMobil’s contract, which prospers the oil giant, and continues to hemorrhage this country. When a government and its leaders are too cowardly to act for the greater good of its people, then there is not much that is good that can be said about both.
When the ‘review and renegotiate’ promise was broken, it meant that no ringfencing would remain a costly drain on Guyana. With that first huge promise broken, the way was set for more promises to mean nothing. The outlook on oil prices is not inspiring, which means that Guyana could be collecting less in the near future as its share of royalties and profits, unless it produces more daily. Oil reserves have now been stuck at 11 billion barrels for several years, so producing more oil to keep collections level is a drain on that reservoir, what shortens its lifespan.
One promise made by the PPPC Government came from Bharrat Jagdeo, Guyana’s chief oil and gas policymaker. Sacrifices are being made, so that Guyanese could get more soon. He has since done a slow retreat from the spotlight, while his promise of more for Guyanese look more remote by the day. More oil is being produced daily, and a million plus barrels a day draw within range, yet the people who own the patrimony can’t see their way. No ringfencing is an open invitation for ExxonMobil to take advantage of Guyana, while perpetuating Guyanese hardships.
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