Dear Editor,
IN what appears to be a desperate attempt to remain the number one selling newspaper in the industry, the publisher of Kaieteur News is overwhelmingly focused on exploiting every opportunity to find newsworthy headlines to boost the entity’s readership and sales–without any regard for accurate and factual reporting.

The newspaper’s front-page headline of Sunday, February 5, 2023, read “VP Jagdeo exposed.”

The news article quoted the Vice-President in a radio interview when he was the Opposition Leader back in 2019, when he said: “We are going [to] renegotiate those contracts because that’s not what we had in mind…”

The publisher inadvertently interpreted this to mean that the Vice-President had committed to renegotiating the Stabroek Block Production Sharing Agreement (PSA).

However, the Vice-President is nowhere on record at any point in time when he ever said that once in gov’t that the Stabroek Block PSA will be renegotiated.

The manner in which the news article was written, and the narrative derived therefrom by the newspaper’s publisher suggests the following:
a) The publisher exposed his deep ignorance of the industry, and /or,
b) The newspaper is deliberately misrepresenting facts to mislead.

When the Vice-President said (in 2019) that they will renegotiate “those contracts,” it is worth noting that there are nine other active exploration licences other than the Stabroek Block production licence that have the same fiscal terms as the Stabroek Block PSA (as shown in the table).

Important to note is that whenever the hereunder mentioned operators will be moving into the production phase following any successful discovery in commercial quantities in the Kaieteur, Canje, Orinduik, Roraima, and Kanuku blocks, the new fiscal terms and the new PSA altogether will be applied.

These are in addition to the new oil blocks that are currently being auctioned.

Consequently, the government is doing precisely what the Vice-President said as Opposition Leader in 2019–that is, “renegotiating those contracts.”

In so doing, by applying the new fiscal terms and new PSA to these existing exploration licences as they move to production, the new fiscal terms are effectively the “renegotiated terms” that will apply.

The Vice-President stated categorically on many occasions, even in opposition, that the Stabroek Block PSA will remain unchanged.

This notwithstanding, through better contract administration, the government will seek to maximize the in-country benefits from the oil-production activities.

This was done through implementation of the Local Content Act and the gas-to-energy project, among others.

The Stabroek Block PSA was the only block that moved into production at the end of 2019. As such, by the time the government assumed office in 2020, renegotiating those terms would not have bode well for the country for a number of reasons.

The government has acknowledged this and provided its reasons for doing so on several occasions.

The primary reasons for this surround the stability clause (investment security) for the investor (s) for an investment that is more than 10 times the size of Guyana’s pre-oil GDP and sanctity of contract.

Furthermore, any attempt at renegotiation would also disrupt the momentum in the economy – that is, disrupting the entire value chain which would have an adverse impact on the economy.

This is something that the government is keen to maintain — the “momentum.”

Apart from the foregoing, it was previously contended by this author that the sanctity of an investment contract and stability of investment goes hand in hand.

This is especially important when a country that is historically underdeveloped has been starved of investments, foreign direct investment (FDI) in particular, and is seeking to stimulate investors’ confidence and to attract investments in the economy.

Investment security and stability, especially in the context of the Stabroek Block PSA, are particularly important for Guyana to minimize the political and market risks of the country which in turn would lend to an attractive investment climate for global and domestic investments.

In so doing, it is crucial for the government to stimulate a broad framework of political, economic, social, and geopolitical stability, which are the prerequisite conditions that will enable the government to pursue its transformative economic and development agenda in a sustainable manner, while building a prosperous nation.

IMPROVED CONTRACT ADMINISTRATION
Noteworthily, the government has managed to obtain greater in-country value from the Stabroek Block PSA through improved contract administration.

In 2015, for example, local content-spend accounted for less than one per cent of cost oil, which is capped at 75 per cent, which has increased markedly to over 10 per cent of cost oil.

As the country continues to build capacity, the in-country value is expected to increase significantly and consistently.

Another major achievement in this regard is the gas-to-shore project (as previously stated), for which the government managed to secure an agreement from ExxonMobil to finance the gas pipeline infrastructure.

This is a major component of the development from cost oil with an estimated cost of around US$900 million – US$1.3 billion.

This is a transformational energy project aimed at reducing energy cost by at least 50 per cent which, in turn, will create a more competitive business environment, especially for the manufacturing sector and industrial activities, and translate to more disposable income at the household level.

To this end, a conservative cost-benefit analysis of this investment shows that the net positive benefits or impact of the project on the economy over the next two decades is about US$20 billion, representing 2.4 times (2021) GDP, and 10 times the total estimated cost of the project.

The government has effectively set the framework to renegotiate all of the other nine existing oil- and-gas exploration licences with the new fiscal terms and PSA following any successful discoveries before moving into production.

This is in keeping with the Vice-President’s commitment to do so as Opposition Leader in 2019.

Yours sincerely,
Joel Bhagwandin
Financial and Economic Analyst