…but will not make changes
Kaieteur News – Vice President Bharrat Jagdeo has finally accepted that ring-fencing the oil projects will allow Guyana to benefit more from the wealth generated in the resource-rich Stabroek Block, immediately.
Despite his acceptance however, the VP is unwilling to effect any changes to the lopsided deal that United States (U.S) oil giant, ExxonMobil and its partners signed with this country.
The contract stipulates that a whopping 75 percent of the monthly revenues are to be deducted as costs to repay the companies’ shareholders, while the remaining proceeds are split as profits equally with Guyana. In the absence of a ring-fencing provision, the companies have authority to use the income from producing oil projects to pay for other projects that are yet to commence producing oil.
A ring-fencing provision would therefore prevent oil companies from using revenue generated from a production field to offset costs in another project. It would also mean that when that project cost is repaid, Guyana would enjoy 50 percent of the revenue generated there.
On Thursday, Jagdeo while clarifying his position on the subject said moving in this direction would entitle Guyana to a higher share of profits.
He said, “I spoke about what our position has been and what ring-fencing will do and how the timing that with money coming to the Treasury that is the whole issue that I was speaking about. Not that nothing will come in the future.”
At a press engagement on October 12, 2023, Jagdeo explained that the country could be left with nothing in the future should such a provision be implemented.
He reasoned, “We admitted that we are foregoing revenue now in exchange for massive future income because it’s going into new projects that will increase production, and so even with the same share of the 50/50, plus the two percent royalty that the future income, because of the bigger scale will be massive in Guyana’s case and we are deliberately foregoing that in this period for that purpose and then trying to grab this bone now could cause you to lose all the bones, the bigger bones too in the future.”
At his most recent press conference however, the former Head-of-State pointed out that he was referring to the real possibility of the country losing revenue by failing to invest early in future projects at this stage.
He admitted that while it is true that the country could benefit from more profits today by ring-fencing the projects in the Stabroek Block, this does not guarantee Guyana of future revenue from other oil projects there.
He said, “If you ring-fence this project now, it’s true that we could get more because you will pay off for the investments earlier, so you will start receiving a higher revenue flow earlier.”
Jagdeo continued, “If there is no ring-fencing, therefore it would take a bit longer to get revenue, so it comes in the back end, more revenue but it comes from a larger production so the revenue increases dramatically if the money that would have come in earlier gets re-invested…because if you end at one project and you ring-fence and you collect and there is no new investment well then you will not get any additional resources in the future.”
Guyana has been repeatedly advised by independent international experts to ring-fence its oil projects to ensure the country benefits from its resources early on, as this would help to improve the nation’s education, infrastructure and health services among others.
For instance, the Director of Financial Analysis for the Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo in a report estimated that Guyana should receive upward of $6 billion annually by 2028 or sooner, however, the organization believes that due to all of the new costs, Guyana will be shortchanged until the 2030’s, if not longer.
It would be poignant to note that last year, the Stabroek Block generated a whopping US$9.8 billion, but Guyana only received US$1.4 billion in profits and royalty, while Exxon took US$7.4 billion to recoup their investments across the Stabroek Block.
Consequently, Sanzillo noted, “The lack of contract protections means that every time Guyana announces it has received more revenue it is actually being shortchanged…the country may never see the promised annual revenues in the billions of dollars.”
In the meantime, Guyana as a newcomer to the industry faces a unique challenge as the world transitions to cleaner sources of energy, causing a decline in oil prices.
Government in its Half-Year Report has already indicated that the country is likely to earn lower revenue from the industry this year than earlier projected.
It said this is as a result of declining oil prices on the global market triggered by a slide in demand for supplies. The report noted that petroleum deposits for the year are now projected to total US$1,629.3 million, compared with US$1,631.7 million projected at the beginning of the year. This means that the country will receive US$2.4 million less than anticipated or approximately GYD$480M.
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