By Ron Cheong
ONE of the dailies recently ran an article titled: Seven years on…Guyana still to protect self from being cheated on oil revenues. In that article, former Minister of Finance, Winston Jordan is quoted as saying:

“You have to ensure that you are not cheated even within what you have signed up to get and I think in that regard, we are not doing a very good job because seven years after oil has been found, we don’t have in place, I believe, not even maybe 10 per cent of the legal, regulatory, human and other factors in place to ensure that in terms of what is in the contract, we get every ounce of it, even as we move or attempt to get renegotiation…”

The daily runs this type of article day in and day out. Does the paper and Mr Jordan have to be reminded that for five of those seven years, his party was the government and he was the Finance Minister? He actually said that for five critical years that APNU+AFC sat on their hands and did not do anything to ensure that mechanisms would be in place to regulate the oil business. Of course, that was not the former minister’s intention. But that sometimes happens when you sling mud with the expectation that some of it will stick.

The former minister’s lament ends with the cry that there should be an attempt to get renegotiation. Bear in mind that what he is going on about is the contract that was signed on his own watch as the Minister of Finance — the details then kept hidden along with the $18 million signing bonus for some 18 months. Then even after they were forced to disclose the details in the aftermath of strong criticism, they did not lift a finger to renegotiate the contract – not the former minister or anyone in his government.

This is the type of disingenuousness that gets promulgated day in and day out.

In the same issue of the paper, they ran another story with the obvious follow-through implications, titled: Jagdeo determined to accelerate exploration even if Guyana gets less. In the first paragraph they quote Vice-President Bharrat Jagdeo as saying that the Government of Guyana wants to accelerate oil exploration to develop the economy speedily – even if it means Guyana “gains less.” It’s a good article in total, but that is not the top-line take away I would come away with.

STRATEGIC ECONOMIC DECISION
I read the Reuters report on which the article is based. And what I came away with was that the government weighed the optimum alternatives for the development of the country’s oil resources in order to fund the country’s rapid development and get benefits to the people as quickly as possible.

They explored starting the country’s own oil firm to do our own surveys of unexplored blocks with the view of attracting the highest bids for our oil. Their findings were that, at this stage, Guyana has neither the skills, technology nor money to do the deep-sea surveys and conduct auctions at the level required, and these would all take time and resources to develop.

The country therefore is better positioned to explore taking a stake in partnership with another country or conglomerate with the track record, the depth of experience, and the type of facilities required. This would allow the new properties to be brought to market sooner. And this in turn would promote faster development of the country.

Guyana’s production cost is estimated at $25 to $35 per barrel. With the Russia/Ukraine war Brent crude is trading around $100.

The country has to plan with fluctuating prices and demand in mind as well as the 2050 Net Zero Target, which has the aim of completely negating the amount of greenhouse gases produced by human activity. If Guyana is to get the most from its oil potential, exploration and discovery have to be expedited, unexplored blocks developed, and the cash from new discoveries used to accelerate development and diversify non-oil sectors of the economy.

TIME VALUE OF MONEY
The time value of money is another consideration for accelerating exploration. Simply put, money in the hand now is worth more than the same amount of money in the future. Or stated more directly, a smaller amount of money now could be worth more than a larger amount in the future.

For example, $0.61 now is equivalent to $1 10 years in the future, using a modest discount rate of five per cent.

Guyana’s economy is projected to grow an astounding 47.5 per cent this year, the fastest growth rate in the world. So $0.61 invested in development now will have a vastly larger payback than the above example.

Under this scenario, returns from investing accelerated cash streams in immediate development would make moot any reasonable alternative scenario of higher nominal bids through do-it-yourself surveying and auctioning at a future point when Guyana would have acquired the expertise, technology, funding and organisational structures required for the undertaking.

An example of one such productive investment is the $100 million gas-fired power plant scheduled to come on stream in 2025. This will slash electricity costs in the country and spur industrial development.

As will using the funds for new roads, which will also feed economic development, in areas such as agriculture, hotels, tourism etc. These all create a multiplier effect, culminating in a higher standard of living for Guyanese, new schools, hospitals etc., sooner. And these keep paying forward snowballing dividends.

Far from “gaining less” as the newspaper chooses to trumpet, it’s a win for Guyana, and a well-thought- out strategic economic decision.