Dear Editor,
PROFESSOR Hunte appears to be having great challenges defending his magicnomics on the Production Sharing Agreement (PSA), and by extension great difficulty debunking my counter arguments on his nonsensical and flawed analysis. Failing to rise to the challenge on the back of his own academic wherewithal, he brought out an army of professors and self-anointed experts to his rescue, despite their failed attempts to comprehensively rebuff the counterarguments and analyses by the undersigned.

Editor, I must say that I am humbled, given this recent development in which there is now an army of four including Chris Ram, against me. The army of four include Professor Hunte who ran for cover under Professor Andre Brandli to help defend him (Hunte), and Nigel Hinds who also ran for cover under his long-standing partner in crime, self-anointed expert, Chris Ram to his (Hinds’s) defence. It is quite telling when an army of four heavyweights team up to take on a one-man army who is deemed their junior, and a newcomer operating in their space that they once monopolised through intimidatory tactics for years if not decades.

Nonetheless, for clarity though, let me state categorically that I never attacked the academic credentials and personal integrity of Professor Hunte, this is not my style. I respect Professor Hunte’s credentials. I have been critical, however, of Professor Hunte’s arguments which are quite normal in academia. So, when I said that his analysis bewilders the intellectual faculties of the intellectuals and confounds the mind of the layman, these are not just my opinion. These are in fact feedbacks I have received from readers who have been following the ongoing debate between the undersigned and Professor Hunte. People are confused with the stuff he writes on the PSA. Not just the layperson, highly educated professionals are also confused with his ramblings.

Before I get into the substance of my rebuttal to Hunte et.al, I would like to point out that Professor Hunte still doesn’t seem to understand the difference between CAPEX and the recovery of the CAPEX, he has conflated the issue and the argument altogether. He has in fact contradicted his colleague, Professor Andre Brandli, whom he ran to for help with his own defence. Professor Brandli has a better understanding of the 75 per cent cost-recovery cap and how it works. Professor Brandli explained in his letter that the 75 per cent includes both the recovery of CAPEX and OPEX and that the operators are allowed to recover the CAPEX continuously from the revenue. Professor Brandli is correct. Professor Hunte on the other hand, still doesn’t get it. He can’t understand why the recovery of CAPEX is included in the 75 per cent, which I explained umpteen times before, that it is the recovery of the CAPEX / or the invested capital.

Professor Hunte also conflates what is fixed cost and variable cost by arguing that the CAPEX is a fixed cost. CAPEX is not a fixed cost in this case.

CAPEX or the invested capital is all of the cost invested for exploration and developing the oil fields. This is an investment. The estimated investment and actual investment are usually not the same. For example, the estimated total investment or CAPEX for Liza 1 was just over US$5 billion, but the actual cost came in lower at US$4.3 billion. Further, in my response, I said that OPEX includes both fixed and variable costs. A variable cost is one that varies with the level of production.
Companies have control over their variable costs because they can cut down or increase production to change them. Examples of variable costs include the cost of materials that go into the company’s product, or the cost of hourly labour needed for production.

However, workers who have long-term salary contracts might not count as variable cost if their salaries are fixed in the contract. Fixed cost in the oil and gas business, on the other hand, would include the costs of regulatory compliance which will not vary much with the level of production. The oil company may have workers with long-term contracts, such as company officers or consulting geologists who help them find oil. Rental of buildings, and other facilities, insurance, the lease for the FPSOs would also be fixed costs–that are all part of the operations.

Professor Hunte posed the question, why is it that the oil companies have to recover their capital first before Guyana gets a higher share of profit? The answer is very simple. Let me put it this way: if Professor Hunte invested US$100,000 of his own money in a venture, will he wait for 20 years later to recover his investment plus return on his investment? Taking into consideration the time-value factor of money as well as opportunity cost? And if he decides to so do, wouldn’t he want to recover his invested capital upfront, as quickly as possible plus the return that comes with it? Considering also that he could lose his money if there is no commercial find in the case of the oil business or for any other venture, if it fails, he loses all of his money. That is the risk this type of investment comes with on top of a 20-year waiting period to recoup both of the invested capital and return on investment. Professor Hunte should reflect on this and answer this question honestly, and not with any ulterior motives. Just be honest.

Editor, in a separate [forthcoming] letter, I will respond to the contentions of Professor Andre Brandli, who is trying to bat for his colleague, Professor Hunte. I must acknowledge, though, that Professor Brandli seems to have a much better understanding of the fiscal terms and its application in the PSA than his colleague Hunte.

However, Professor Brandli weighed in on a different dimension of the debate, thus, warranting a separate response from the undersigned.

Yours faithfully,
Financial Analyst Joel Bhagwandin