Further Considerations in GUYANA’s Impending Bonanza from Oil and the Political Storm

GOFAD out of an abundance of caution in interpreting the myriad of conflicting information, steered clear of the echo chamber of  ‘self styled experts’ and ‘media huskers and hustlers’ that may be capitalizing on the political storm on the eve of the Guyana’s General Elections on March 2, 2020. It advocated that discussions on the way forward needs to place the objectives of the National Resource Fund (Sovereign Wealth Fund) Act in the broader context of Guyana's sustainable development. These include: 

• The  strategic thinking of those countries particularly China, Russia and US whose self-interest would  embroil Guyana in the re-emergence of the Cold War. 
• Awareness of USA and its new strategic interest in Guyana — beyond enriching US Gulf Coast refiners — which involves  it taking note of China’s growing presence in the Western Hemisphere as one of the most obvious options for financing. China’s  potential for furthering  ties with Guyana should be no exception.
• The lingering effects of Venezuela Petro Caribe and Oil diplomacy  matched by Venezuela’s claims to the vast expanse of Guyana's territory now to be litigated in the International Court and the role of Russia as a patron of the current Madura regime in Venezuela. 
• Many global institutions like the World Bank, as well as governments and proponents  of sovereign wealth funds, are now climate conscious — reticent to finance infrastructure that will increase the world’s carbon footprint

Following up this week,  we draw on the opinions of two highly acclaimed economists, Professors Clive Thomas and Havelock Brewster.

Interrelations of Government Take

 Clive Thomas in an insightful article in the Guyana’s Sunday Stabroek News (February 16, 2019 p.13) referred to the debate on the Guyana 'Government’s Take'  of the impending oil bonanza as disappointingly “more noise and nonsense". He points out that the arguments in the debate generally fail to recognize the technical component and the challenges of measuring ‘Government Take’ which is a price “determined by forces of demand and supply in an economic market worldwide.” He illustrates that the owners of the supply of petroleum acreage negotiate the fiscal terms and other conditions for granting permission to explore and that these fiscal terms and conditions include bonuses, rentals, royalties and production sharing agreements (PSAs).  They also include investment incentives and the price the investor must pay to explore and develop the acreage.

Rystad Energy, an independent oil and gas consultancy service  provides a comparison of total government take from several upstream projects in selected countries and shows that Guyana with 60% compares favourably with Brazil 63% and Suriname 65% and is higher than USA 57% and Israel 55%.  But Thomas cautions that Guyana’s fiscal terms differ from those of other countries “irrespective of the competitiveness of these terms”. The significant lesson from Thomas’ analysis is that the fiscal terms are certain to be adjusted in time, since Guyana’s PSA is a dynamic document open to change and improvement.  




Greater focus on the Context of the Negotiations

At the same time, a comment by Professor Havelock Brewster provides a sanguine interpretation of the context of Guyana’s negotiation with Exxon.  He is of the view that the Guyana Government and its advisers had little or no access to insider information, nor the capacity to verify any of the crucial variables such as the amount of capital and start up cost; or the amount of output, operational cost, pricing and revenue. This is a true reflection of the adage ‘the devil is in the detail’. His view is that Guyana was treading in circumstances of ‘the unknown’.  In this regard, the view from The Global Witness report that Guyana could have secured a much better percentage of “revenue”, more in line with that of other oil producing countries, needs further scrutiny. Brewster points out that consideration must be given to both the prevailing internal political issues, and the international issues. He concludes that this brings to the fore the nexus of concerns about Exxon negotiating strategy and leverage, the ongoing International Court case on the Venezuelan claim, Guaido’s close relationship with the US President, with strong support coming from both the Republican and Democratic Parties, emboldening Guaido ‘s claim that the oil belongs to Venezuela, and the effect of Russia’s and China’s backing of Maduro and the US stance on Venezuela vs Guyana. “All this must create considerable uncertainty, and political limits to driving too hard a bargain with Exxon. To put it simply, there must be, in such circumstances, a leaning towards locking in the deal, even at some cost, going for the bird in the hand rather the bird in the bush”.  He goes further by indicating that the gamble could be obtaining the ideal or ending up with zero and states that “no other oil producing country, to my knowledge, has faced this kind of one-sided uncertainty in negotiating with Exxon”.

Charting the Way Forward 

As Guyana moves forward with securing its best interest, it is estimated that it will realize US$165billion over the life of the present contract with Exxon.  How it utilizes the oil bonanza to benefit the Guyanese people will be further explored. As a starter it will depend on the following: 

•  Application of the provisions for good governance and transparency enshrined in the Act establishing the National Resource Fund (NRF). 
• Examination of  the proposals for cash transfers and carbon taxes, among others. 
• Consideration of  the political and strategic influence in the continuing contest between Venezuela, intent on reviving Petro Caribe and USA anti Madura stance. 
• Engagement in  CARICOM for implementing the  Caribbean Energy Policy, which includes an MOU with Trinidad and Tobago for technical assistance.
• Recognition that the Caribbean is being heralded as the next oil and gas province attracting the attention of the world's largest oil companies, with possibilities for capital and technical transfers to the region as a whole. 

These contending tendencies could  have wider and long lasting implications. CARICOM member states may yet find themselves with a fragmented rather than a cohesive foreign policy.  And this will not augur well, neither for Guyana nor CARICOM.


Eddie Greene

---