Latest update October 5th, 2024 12:59 AM
Aug 18, 2024 News
After four years of oil production…
…Minister Bharrat and Head of Petroleum Unit, Bobby Gossai claim no interest being charged to Guyana
Kaieteur News – Since oil production began in 2019, a constant concern has lingered in the minds of Guyanese – the rate of return on the company’s investments- since Guyana could possibly be cheated billions through an unfair interest charge.
Vice President, Bharrat Jagdeo who manages the petroleum sector has been questioned at numerous press conferences in the past on the “interest rate” that was being charged by the company. This cost is particularly important since the developer, ExxonMobil, is free to deduct these expenses without the prior consent of the Minister responsible for the sector, according to the lopsided oil contract.
During his August 8 press conference, Jagdeo told reporters there was no interest rate being charged to the cost bank. His comments were made following statements earlier in the week by the People’s National Congress Reform (PNC/R) and the Alliance For Change (AFC) calling for full disclosure by the government on the subject.
Jagdeo however described the company’s rate of return as “massive” a week later, during his August 15 press conference at Freedom House, Georgetown.
What changed?
It should be noted that since Exxon is not using loans to develop the resources discovered in the Stabroek Block, the subject of an “interest rate” does not apply to Guyana.
Instead, the company through its shareholders makes “equity contributions”- as outlined in Exxon’s financials- towards the development of the resources. The returns here are “massive” according to Jagdeo.
He explained, “If you supply financing, nobody does it and you’re an investor for free, if there is a cost to you then you recover the cost. So whether it comes in the form of a loan or an equity, you get a return. So in this case, Exxon has made it clear there is no interest cost. They are financing the operations from equity and from their own retained earnings. There is no interest cost so don’t you think they get a return on their equity? They’re getting a massive return on their equity and that is exactly what is happening here. They have chosen not to go down the interest route, but they are getting a return on their equity.”
No interest rates
Just a day before the VP’s media engagement, the Minister of Natural Resources, Vickram Bharrat hosted a half-year press conference where he made it clear that there was no interest being charged to Guyana by Exxon.
Kaieteur News had asked Bharrat to clarify whether there was a rate of return on the company’s investments, which he denied.
“There is no interest on equity. No interest is charged to the cost bank bottom line. No interest is charged to the cost bank as of today,” the Minister said.
Head of the Petroleum Unit at the Ministry of Natural Resources, Bobby Gossai also emphasized during his presentation that no interests were being charged to the cost bank.
He assured, “Currently, there is no interest that is charged on the operation of the Stabroek Block right now. Whether that is development or production activities.”
Rate of return
Although it has been revealed now that Exxon enjoys a “massive” return on its investments, policymakers have been careful not to divulge the specific rate of return on the company’s equity contributions.
In a previous statement, the PNC/R highlighted that tens of billions have been invested to develop the oil fields to date. As such, it noted that even an interest rate of 5% would result in a huge cost to the country. To this end, the political group flagged the possibility of Guyana losing billions in revenue leakage.
According to the PNC/R, “These monies could instead be used to alleviate the cost-of-living crisis, raise salaries, eradicate poverty and meet many other urgent needs.”
The International Monetary Fund (IMF), one of Guyana’s key development partners and advisors on the oil sector previously said it is an industry norm that the government of the day disallows interests from being recovered on loans. Even if this is allowed, the administration sets a cap or limit to prevent the full interest amount from being recovered.
In Guyana’s case, the country not only allows the recovery of financing costs but also sets no cap. This means that the company’s rate of return on its equity contributions could balloon as its investments into the Stabroek Block also increase; as a result Guyana’s share of profits from the sector could be increasingly shortened.
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