–Natural Resources Ministry says IEEFA analyst’s analysis of country’s petroleum sector ‘inaccurate, misleading’
THE Ministry of Natural Resources has said that Guyana has a fully integrated fiscal and economic model that allows for the government to analyse all the producing oil fields, as well as options for the future production of oil and gas.
This model allows the government to have a good understanding of the forecasted costs, revenues, and Net Cash Flow (NCF) from the sector for both the government take and contractors’ take.
Considering the country’s ability in this regard, the ministry said that an analysis of Guyana’s petroleum sector done by Director of Financial Analysis of the Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo, is “inaccurate” and “misleading.”
“… with a growing population, and increasing public, private and social investments, it is extremely pellucid that the author of the article is not familiar with effective petroleum revenue management,” the Natural Resources Ministry said.
The ministry contended that the Vice-President of Guyana, Dr. Bharrat Jagdeo, was “truly clear at” his recent press conference when he spoke about the expected revenues that this country will be receiving from around 2026.
The Vice-President said that by that time, Guyana will be producing over 800,000 barrels of oil per day, from four producing oil fields.
“With that amount of oil being produced daily, then with a conservative price of US$50 per barrel, Guyana will see around US$2 billion in annual inflows to the state,” the Ministry of Natural Resources said.
This information, which was presented by the Vice-President, is an analysis for the future and not a review of previous years as Sanzillo wrote in sections the media.
“Further, it can be seen that the director does not have a full understanding of Guyana’s oil and gas sector, nor does he know the fiscal regime of the Stabroek Block,” the Natural Resources Ministry said.
Adding context, the ministry said oil production in Guyana started in December 2019 from the Liza Destiny Floating Production Storage Offloading (FPSO) facility with peak oil set at 120,000 barrels per day.
The second production platform started in February of this year on the Liza Unity FPSO which will have peak oil at 220,000 barrels per day. The third production FPSO will be called Prosperity and will have a capacity of 220,000 barrels per day, while the fourth vessel called the One Guyana will have a capacity of 250,000 barrels per day.
“Guyana’s fiscal regime for the Stabroek Block is set with a cost recovery of 75 per cent, not 100 per cent, as has been inaccurately stated by IEEFA. The royalty is fixed at two per cent and the profit share ratio is 50:50, thereafter,” the Natural Resources Ministry said.
Those, the ministry related, are the facts on which the Vice-President presented his analysis and the basis for the projected fiscal outlook for Guyana.
In Sanzillo’s “verdict” on Guyana’s fiscal deficit and repayment, the Natural Resources Ministry said he fails to show any real analysis.
“The Vice-President stated in a comprehensive manner that Guyana now has one of the lowest debts in the world and that the country’s capacity to repay has now been improved with the revenues being received from the oil and gas sector,” the ministry said.
EFFECTIVE DEBT SUSTAINABILITY
It said too that Guyana has been doing debt restructuring and repayment under the People’s Progressive Party/Civic (PPP/C) government, with effective debt sustainability analysis.
This, the ministry said, proves that Sanzillo has not done any proper study on Guyana’s debt repayment programme.
“The director asserted that the budget imbalance should be closed based on an IMF assessment, noting that it is a negative macroeconomic situation for Guyana. However, he failed to analyse the country’s budgetary deficit. In an emerging country like Guyana, a low budget deficit is a positive indication and important to finance infrastructure development to support future growth,” the Ministry of Natural Resources said.
The International Monetary Fund (IMF) defines a modest fiscal deficit as three-10 per cent of Gross Domestic Product (GDP). Guyana’s budget deficit for 2012-2022 is within this range.
The 2022 budget deficit is projected as 3.7 per cent of GDP. The COVID-19 epidemic caused the biggest budget deficits of 6.04 per cent and 6.74 per cent in 2020 and 2021 respectively, albeit below the 10 per cent criterion.
Budgets 2020 and 2021 earmarked large resources to mitigate the damage and boost the economy. In this context, the budget deficit was essential and well-justified, while remaining below 10 per cent of GDP.
Further, even before the crisis, the average budget deficit for Latin America and the Caribbean in 2020 was nine per cent of GDP, according to an Inter-American Development Bank (IDB) analysis.
Latin America and the Caribbean’s median budget deficit for 2022 is 4.6 per cent of GDP. Guyana’s budget deficit projected for 2022 is below the regional average and below the minimal sustainable standard.
“Tom Sanzillo does not understand the necessity for evidence-based analysis to influence his judgment. Tom Sanzillo’s analysis is erroneous. Guyana’s national debt and budget deficit are solid and regarded macroeconomically stable,” the Natural Resources Ministry said.