Nov 29, 2015 News
By Abena Rockcliffe
Should the government of Guyana go through with its plan to take an advance payment from US oil giant Exxon Mobil, it will lose its good standing to negotiate in the best interest of the nation. The government will be in Exxon’s pocket and the company will get the upper hand in negotiations.
This is the view expressed by Opposition Leader Bharrat Jagdeo at a press conference, yesterday, at Freedom House.
Jagdeo shunned ideas expressed by Minister of Governance, Raphael Trotman, to the effect that taking the money and using it for infrastructural developments will prove highly beneficial for an underdeveloped country such as Guyana.
Trotman was quoted in sections of the media as saying that Exxon’s President will meet with the Guyana government in January and negotiations will be made then.
The former President said that while improved infrastructure is always commended, taking the money before oil production starts can prove disastrous.
Jagdeo also said that the government is making a big mistake in counting its egg before it is hatched by making plans for future oil wealth even before operations begin.
Further, Jagdeo said that the government is sending too many mixed signals with regards to its plans for oil wealth. On one hand government is saying that it will save the money in a Sovereign Wealth Fund (SWF) and on the other, it is saying that it wants to take an advance—money that has not even been secured—to carry out developmental works.
Jagdeo said that all the mix up probably stems from ignorance and confusion within the government’s ranks.
He added, “We hear Trotman saying he wants to create a SWF. I do not know if he has gone through this carefully but a SWF is created by income; basically if you have balance of payment surpluses, which we do not have. It is created for fiscal surpluses which we do not have and it is created to sterilize excesses from export receipts from mineral sectors.”
A SWF is used to invest abroad in financial assets so that it can maintain the value of the portfolio. Both Jagdeo and Trotman pointed out that such a fund can also come in handy if there is ever a budget shortfall. An SWF prevents the Dutch Disease.
The former president noted that the government indeed announced plans to enter revenues derived from minerals in the fund but said that the bulk of the money to be entered into the fund has to come from future oil proceeds.
Jagdeo said that while government is saying that it will save future oil proceeds it is ready to borrow from what is yet to be secured.
“But in one voice Trotman says we are trying to save the money for a rainy day and then he says we are going to ask Exxon Mobil to give us some money in advance. Now how more contradictory can you get….. we have not yet been even given the oil proceeds to save but he now wants to spend it today, money that we do not have?” asked Jagdeo.
The former president said that such philosophies land countries in serious debt. Of course in this regard Jagdeo had to make reference to the debt the PPP inherited in 1992.
“He wants to borrow against future income that we are not even sure will materialize,’ said Jagdeo.
He explained that Exxon Mobil still has to prove the reserve and drill more wells before the company can get into the actual production.
Jagdeo said, “We do not know when they prove the reserves what they will find. We do not know what it will cost them to extract the oil per barrel, the cost of production, whether it will be above the world market price which is currently so low. We do not know if they will proceed immediately or shelve the project indefinitely.”
The Opposition leader said that even in the absence, such confirmations “they are making it look like this money is on the table saying that we must prepare for this unprecedented wealth that will come our way. We are not sure what will happen in the future.”
He said that if the government “borrows” money and then things do not materialize the government will find itself in a pickle.
Jagdeo pointed out that, government, in looking to borrow from Exxon, has not even exhausted avenues to access funding from multilateral agencies. “You haven’t used the Norwegian Fund and you are going to go and borrow from Exxon Mobil.”
“That puts you in Exxon’s pocket. How can they then sit and negotiate with Exxon on an equal footing?”
He said, too, that if this materializes, “when the PPP resumes office in four years or so we will be forced to consider whether it is a transparent deal because this government is borrowing against future receivables when you do not know if they will materialize. It is not like we already have producing oil fields.”
The leader opined that the government is avoiding taking money from IDB because it wants to avoid processes like feasibility study and approval.
“From Exxon Mobil it comes into the treasury and skips transparency requirements necessary for using multilateral monies. It gets to handpick contractors like with the Specialty hospital.”
Jagdeo said that the Extractive Industry Transparency Initiative should be signed on to immediately and Exxon Mobil has to be forewarned that if it comes to Guyana and engages in underhand dealing “we are going to examine everything.”
Earlier this year, Exxon Mobil announced what is believed to be significant oil find offshore Guyana. This has raised the prospects of other wells being drilled.
However, the discovery was clouded by the collapse in international oil prices which makes it less attractive for immediate extraction.
Also, as a result of the announcement, Venezuela started an aggressive campaign to scare the company away. This has sunk the relationship between Guyana and Venezuela.
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