Kaieteur News – Guyanese are getting carried away. They have not done the math about the oil revenues and therefore are imagining that the country is awash with oil revenues.
In this regard, something needs to be mentioned. Much of the work done in the first 18 months of the new PPP/C administration was achieved without the use of the oil revenues. It is only a few months now that the government has been able to draw down on its oil revenues.
The Natural Resources Fund Act of Guyana, commonly referred to as the Sovereign Wealth Fund, sets a formula as to what can be withdrawn from the Fund in any fiscal year. It also lays out procedures for withdrawals.
The Natural Resources Fund Act dictates on what the oil revenues can be spent. So a call for a discussion on spending the oil revenues have to take account of the fact that the law prescribes how withdrawals from the Fund are to be utilised.
The more immediate concern should not be about how the government should spend the oil revenues. The more immediate concern is how the country can claw back greater revenues than it is presently earning.
While the country is expected to earn close to a billion US dollars this year, this is still less than half the size of the National Budget. The National Budget cannot satisfy the needs of the people. Also, there is only so much revenue that the economy can absorb and there is only so much money which can be pumped into an economy without fuelling inflation.
Guyanese should, for now, be more concerned with getting more money into the Fund. It is as if you have a house worth $100M which was left to you by your parents. And you are now receiving a rent of $10,000 per month when before you were not receiving anything. But the market rent for the property you have is about $100,000. Sure you will be receiving more money than you ever did. But should you be happy when you are being robbed of a fair entitlement?
This is the same scenario that is taking place with the country’s oil revenues. The country is receiving a pitiful two percent as royalties. And now we are learning that while it is not cost recoverable, it may be tax deductible. No sound argument however has yet been provided as to how a royalty payment becomes tax deductible.
Guyana is further shortchanged by the fact that once the oil companies discovered oil, they bear no risk: the entire Basin, in so far as they are concerned, has been de-risked. They are now able to recover all exploration, drilling and production expenses. They can claim up to 75 percent of production expenses in any one year and they can claim for wells which are dry since there are no ring-fencing provisions in the agreement.
On top of this, the oil companies do not pay any corporation taxes. And boy, are they making some huge profits as recent reports in this newspaper indicated. In fact, one financial analyst has said even the smallest partner in the Stabroek Block has received more monies than Guyana. The oil companies bear no risk but are creaming off the profits.
Guyana got a paltry US$18M as a signing bonus. Even Lionel Messi got a much higher signing bonus when he renewed his contract with Barcelona. He received US$135M. One government official said that he thought the US$18M signing bonus, which the oil companies paid was a gift. At the time, an economist estimated that the signing bonus should have been US$238M. Since then, there have been numerous more discoveries in the Stabroek Block. So by now, the signing bonus should have been around US$500M.
The government has an unwritten Depletion Policy. That policy is aimed at maximising oil production as fast as possible. It is based on the notion that fossil fuels are being phased out in favour of renewables.
Well, a recent Supreme Court decision has placed a major dent on President Biden’s climate change policy and it is now likely that on the basis of that decision alone, America will not be able to reach its targeted cuts in emissions. But the Guyana government probably does not even know about that US Supreme Court decision.
Guyana is on a pumping spree. And the oil will run out by the 2040 after which the Guyanese people will be left high and dry and wondering where all the oil went.
Before therefore any discourse begins on how the oil revenues should be spent, the people of Guyana needs to address the one-sided deal which the country got and the fact that we are producing petroleum in an unsustainable manner with little regard for the well-being of future generations.
(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)
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