— finance professional and business analyst, Joel Bhagwandin

WHEN factors such as savings on fuel import, reduction in energy cost, and savings for the manufacturing sector are considered, Guyana could save as much as US$3 billion (GUY$653 billion) through the gas-to-shore energy project within the first five years of it coming on stream.

This is according to well-known finance professional and business analyst, Joel Bhagwandin of JB Associates, who did a presentation on a cost benefit analysis of the project during a social media podcast last Tuesday on the JB & Salim Page.

Explaining his analysis, Bhagwandin considered factors such as the benefit of saving on the fuel import bill of 25 per cent, calculated from the most recent bill of $600 million, which amounts to $750 million in five years. He also included the expected 50 per cent reduction in energy cost, which works out to US$65 million in five years, as well as savings in operations cost of the manufacturing sector that works out to US$1.4 billion in five years.

Bhagwandin further noted that the country will incur savings, given that the pipeline will be funded locally through Exxon Mobil, as a costing under the oil and gas operations, which also reduces national debt burden and enable more fiscal space.

“And this is not all the benefits. This is just a few that I quickly quantified with some reasonable, realistic and pragmatic assumptions. The result is that the net economic benefit is US$3.4 billion. That’s equivalent to 37.5 per cent of Guyana’s GDP. That’s 2.3 times the initial investment and this is just five years,” said Bhagwandin.

According to Bhagwandin, his calculations are conservative and adjusted for inflation rate of two per cent per year for the five years.

According to the calculations, the US$1.3 billion cost that will go into the pipeline will be outweighed by the benefits of the project, even if the project runs for just 20 years; hence, the creation of the project is not only feasible but highly beneficial.

“What guides investment decision is the return. Because this is a national project not just a private sector project it has applications for the overall economy. We have to look at not just the financial returns and financial viability but the economic viability, the economic impact for the people. What could we do in 20 years if we save $10 million dollars, $20 million dollars, how you could transform lives,” Bhagwandin noted.

Once operational, the heavily-touted gas-to-shore project will have a duration of approximately 25 years, according to ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL). The gas-to-shore project will be established at Wales, West Bank Demerara,

MAKING THE MOST
Bhagwandin described the project and it’s financing as one more way that the government is working to ensure that benefit to the Guyanese people from the oil and gas sector is maximised, notwithstanding the lopsided Production Sharing Agreement that was signed on to by the previous administration.

“I want to make the point that the US$1.3 billion to finance the pipeline infrastructure, while it is being deducted from the cost oil for the Liza One and Liza Two, it is for the direct and indirect benefits of the people of Guyana, for the country at large and that is fantastic. That is a remarkable example of getting more value nonetheless from using the existing lopsided contract terms and conditions. We’re being able to get more out of it,” Bhagwandin noted

Bhagwandin noted that from the standpoint of wanting to attract foreign investment into Guyana, it was not prudent for the government to renegotiate the PSA as it would have sent a bad message to foreign investors about the political security of agreements signed on to. As such, the government must find ways to properly administer the contract so that Guyanese reap maximum benefits.

“What they promised in the manifesto there were two options: contract renegotiations or better contract administration. What the government has opted for is better contract administration. It means the objective of being able to have better administration of the contract is to get more value, notwithstanding, with the same terms and conditions of the existing framework,” Bhagwandin said.

He added: “From an investor standpoint to not renegotiate the contract because of the signal they’re sending the investors. One of the most important risks investors are concerned about with respect to investing in a country like Guyana is political risk. The political cycle is every five years; the companies investing hundreds of millions of dollars, billions of dollars, will be outside the five- year cycle.”