Dear Editor,

REFERENCE is made to Elson Lowe’s letter with the caption “since the government has stated an intention to own the pipeline it must approach parliament for funding” published in the Stabroek News edition of January 12th, 2023.

Lowe sought to offer a counter argument to my response to him on the subject matter in which I rejected his assertion that the financing of the gas-to-shore pipeline infrastructure is unconstitutional. Having explained that this is not the case in my previous letter, Lowe is now arguing that because the government will own the pipeline infrastructure that it must approach parliament for funding.

Again, I must say that Lowe’s argument is weak and unjustified because the simple counter argument to Lowe’s assertion is that the crude oil which ExxonMobil is developing is also not owned by ExxonMobil and its consortium partners. The oil and gas resources are owned by the State/the Government of Guyana and based on the terms and conditions of the Production Sharing Agreement (PSA), the oil companies are the contractors and not the owners. They have been contracted to explore, develop, and produce the oil and gas resource with their own capital (private capital): in this case it’s not just considered private capital but foreign capital as well. As such, they (the oil companies) are not required to present their exploration, development, and productions plans to Guyana’s National Assembly to have their source of funding approved because the source of funding is not from Guyana, not from Guyanese taxpayers and not from the national treasury.

Further to note, whatever amount of debt is employed in the financing structure to finance the oil and gas operations, it is also not subject to approval from Guyana’s National Assembly because it is not repaid from taxpayers’ funds or the national treasury; it is repaid from cost oil which is derived from the sale of crude oil developed and produced by the contractor, which is owned by the state, and by extension the Guyanese people.

That said, the debt financing that the government is seeking from the U.S Exim Bank to partially finance the onshore infrastructure for the gas plant, this part of the funding will have to be tabled in the National Assembly for prior approval because the repayment of this debt will be from the national treasury and not cost oil.

The economic adviser to the Opposition Leader does not seem to appreciate that strictly speaking, it is the source of funding that determines at what stage all of the details on the project including the financing would be tabled in the National Assembly, and whether prior parliamentary approval is required.

The source of financing for the oil and gas development is essentially private capital raised by the oil companies through a combination of equity and debt in terms of the initial capital when they started operations in Guyana. Future projects are financed through a combination of debt and equity raised by the oil companies outside of Guyana, and in part from cost oil, viz-a-viz, the 75 per cent cost recovery ceiling. Conversely, if the government had an equity stake in the project with public financing, then in this case, the funding will be subject to prior parliamentary approval.

Lowe’s argument would have been meritorious if the funding for the gas pipeline was from Guyana’s share of profit oil and not cost oil; simply because, as I have explained in my previous letter, Guyana’s share of profit oil must first be deposited in the Natural Resource Fund (NRF). Withdrawals from the NRF are subject to prior approval from the National Assembly through the national budget mechanism. Following the approval by the National Assembly, the approved sum from the NRF has to be transferred to the Consolidated Fund (CF) before the government can actually access the funds in accordance with the procedures stipulated in in the NRF Act.

In fact, to support the foregoing assertion, I should point Lowe to budget 2022 in which the sum of $20.8 billion or US$100 million was allocated towards the gas-to-energy project. This sum was to support the onshore infrastructure development which is consistent with the financing structure the government has already publicly signaled that the source of financing for the onshore infrastructure will be raised by the government from public finance sources such as the Consolidated Fund with a combination of borrowings to be repaid from the Consolidated Fund. It is the pipeline infrastructure only that is financed from cost oil and not subject to prior parliamentary approval.

Against all of the foregoing, one has to understand that in respect to the national development agenda, it is the source of financing that ultimately determines whether it is subject to parliamentary approval prior, or, at what stage and in what form, in this case the reports and agreements should be presented to the National Assembly – that is, in cases where the source of funding is not from the National Treasury or to be repaid from the National Treasury.

Editor, I hope this brings the much-needed clarity on this subject matter for the benefit of your readers.

Yours faithfully,

Joel Bhagwandin