Vice President responds to misinformation about O&G sector
– debunks claim that Guyana owes ExxonMobil
Vice President, Dr. Bharrat Jagdeo during a press conference, today addressed several inaccuracies and misinformation being peddled in sections of the media as it relates to the oil and gas sector.
Dr. Jagdeo debunked recent comments attributed to Tom Sanzillo, Director of Financial Analysis for the Institute for Energy Economics and Financial Analysis, where he claims that every citizen owes ExxonMobil $9 million.
VP Jagdeo made it clear that, “The only debts that this country has to repay, is debts contracted or guaranteed by the state, and I told you already that’s only 16 percent of GDP. No debt contracted by Exxon or any of these companies are guaranteed or we are party… so you don’t have to pay [the citizens of this country].”
The claim that these debts have to be repaid before Guyana can receive any funds was also dismissed by the Vice President.
“So that’s not true again, because if you look at even the original agreement that was signed since 1999, you will see that there is a cut off point for cost recovery from revenue of 75 percent. So, 75 percent of revenue goes to cost recovery, including servicing and everything else, and 25 percent from day one becomes available as profit oil, of which we will get 12 and a half percent and then a two-percentage point as royalty, which gives us about 14.5 percent from day one.”
The Vice President further explained that with the current Floating Production Storage and Offloading (FPSO) vessels in operation, Guyana’s share is an approximate $2 billion annually at US$50 per barrel.
“Let’s say it is $100 it’s about US$4 billion per annum the government share would be, now that is more than twice the size of our total debt now. One year’s revenue in the future will be about twice the size of our current debt level.”
The Vice President said the contribution of the oil and gas sector to the rest of the economy must also be examined.
“The gas that will come in, that would allow us to generate cheaper power which will have a major impact on our industries and consumers, the ability to produce the liquids, that will allow us to cut cost of living through the cooking gas, the business through the other linkages in the economy to the local content law, that will generate employment, maybe 5,000 people directly employed and a lot of business for locals that has an impact on the economy.”
Meanwhile, the Vice President took the opportunity to restate the administration’s vision of utilising the revenues accrued from the oil and gas industry to build national capacity.
“You have to have world class infrastructure. You have to be able to address people’s basic needs…in education, health care, community roads. Secure the country before you start saving for the future in any major way,” the Vice President told media operatives.
Dr. Jagdeo pointed to the International Monetary Fund (IMF’s) recommendation that the oil funds be used to close the fiscal deficit, reduce national debt and save for future generations.
However, Dr. Jagdeo said this is not a feasible option for Guyana, as it will not provide the best benefit to the people.
Using Norway as an example, the Vice President said that country is regarded as the global gold standard for the management of oil and gas funds. He pointed out that Norway waited 30 years after it started to produce oil and gas before saving for the future, because it recognised that national capability had to be built first.
“They are considered to have been the best model. They have the largest sovereign wealth fund in the world and everyone uses Norway as the model. So, Norway started producing oil in 1967. Now, Norway, established for the first time a sovereign wealth fund in 1996, 30 years after Norway started to produce oil and gas, Norway then established the sovereign wealth fund.
“Norway’s per capita GDP was $2,514 in 1967. In 1996, a year it first established a sovereign wealth fund like what we have, a natural resources fund. Its per capita GDP was in excess of $37,000. Now today, our per capita GDP it moved from the early 90s about $300 to $400. Today it’s $9,000,” VP Jagdeo highlighted.
He explained that government has established an asset saving fund and a sliding scale formula, where once revenue exceeds $500 million per year, which is considered the de minimis level, then a growing percentage of that amount would be saved.
“We adopted to save a bit for the future from the beginning. So, the IMF model here, what they said is pay down the deficit. If you reduce the deficit, now in this stage, that means we can’t build our highways. We can’t build the four lane roads necessary to take our traffic or we can’t build new power plants, we can’t build the ports necessary to catapult our economy to the next level. We can’t build world class hospitals and schools and universities that we need to grow our economy in the future,” VP Jagdeo noted.
The IMF’s core job, Dr. Jagdeo ascertained, has been balancing budgets and ensuring balance of payments sustainability, making reference to the organisation’s policy as “pro- recession”.
The Vice President noted that Guyana’s capacity to borrow is significantly greater than most countries, dubbing it one of the lowest in the world and in this hemisphere.