Vice President, Dr. Bharrat Jagdeo on Monday afternoon shot down what he believes to be yet another mediocre and repugnant line of argument by overseas spectators. In the line of fire was the argument that Guyana does not stand to gain, but rather, drown in debt due to the fiscal arrangements of the 2016 Production Sharing Agreement (PSA) with ExxonMobil.
During a press conference at Office of the President, Dr Jagdeo contended that the oil could bring more than enough earnings in one year to wipe out the nation’s total debt stock, with extras to spare.
His comments were made to specifically obliterate the arguments being proffered as of recent by Director at the US-based Institute of Energy Economics and Financial Analysis, Tom Sanzillo.
Sanzillo, in one of his recent analytical pieces, estimated that by 2027, Guyana will carry a hidden liability of more than G$6.27 trillion (USD$34 billion) owed to the oil companies. He said this assumes all development costs related to Liza 1, Liza 2, Payara and Yellowtail as well as decommissioning costs and tax giveaways. He said it does not include undisclosed pre-contract costs and undisclosed development costs for additional oil discoveries. The Director of Financial Analysis at IEEFA estimates these costs mean that Guyana’s per capita cost for the oil development is G$9.4 million (USD$44,000).
The Director also reasoned that Guyana will have to increase borrowing over the next five years while adding that a trend of significant borrowing has already begun. In this regard, he noted that since December 2019 which marks the commencement of commercial oil operations, Guyana’s total public debt has increased. In its first year of using its G$127 billion (USD$607 million) in revenues, he said the country borrowed G$87.8 billion ($420 million). Sanzillo argued that this is a troubling trend as he believes Guyana will have to wait decades to actually collect real gains from the exploitation of its resources.
Dr. Jagdeo was keen to note however that the foregoing conclusions are tantamount to baseless representations that only serve to confuse the nation. The economist explained that the country has since granted four licences for Liza Phase One, Liza Phase Two, Payara and Yellowtail projects. Together, they will take the nation’s production capacity beyond 800,000 barrels of per day.
The Vice President said, “Once the four projects go ahead at about US$50 per barrel, our share will be worth about US$2B annually and if it is a US$100 a barrel then it moves to about US$4B per annum. Now that is more than twice the size of our total stock of debt now; just half of it can be used to pay off all of the debt. So those who are saying we aren’t getting anything or we will be unable to close our fiscal deficient, it is just lunacy. This is lunacy that passes off as analysis…”
Apart from that, he said, “We are forgetting there will be a revenue flow to the treasury and a significant contribution to the economy from the gas project; that will have major impact on industries by bringing cheaper energy and natural gas liquids such cooking gas to the people. Then there is going to be massive impacts from the Local Content Law in generating approximately 5000 jobs.”
In light of the foregoing facts, the Vice President concluded that the oil sector will therefore provide a transformative scale of economic opportunities for prosperity.
