Dear Editor,
Reference is made to a letter authored by the Economic Advisor to the Leader of the Opposition that was published in the Kaieteur News edition of April 10, 2023, with the caption “Elson Low responds to Jagdeo.”

From the tone of the letter, it would appear that the author was offended by some of the remarks about him by the Vice President. And in reacting to this, he felt the need to highlight his notable academic accomplishments. Congratulations!

Suffice it to state, however, qualifications and competence do not always correlate. The Vice President did not question his academic credentials, per se, instead he highlighted the poor quality of economic advice he’s been providing to the Leader of the Opposition.

For the sake of argument, let’s examine the merits and demerits?and the technical robustness of a few proposals put forward by the learned economic advisor to the Leader of the Opposition over the last two years.

WINDFALL TAX PROPOSED BY ELSON LOW
Following the introduction of a “windfall” tax on oil and gas companies in the United Kingdom (UK) on the back of soaring oil prices earlier this year, the political opposition and others have been advocating for similar to be implemented in Guyana.

JB’S COMMENTARY
It is critical that one seeks an understanding and appreciation for the current situation in the United Kingdom, the precedence and justification for the measure and more importantly the fiscal regime for the oil and gas sector in the United Kingdom.

While it is always good to examine comparatively these issues across other countries in the world with a view to apply similar policies in the home country, context is particularly important. Within this framework, the situational contexts are often times fundamentally different, hence, not pragmatically applicable.

The fiscal regime applied to the oil and gas sector in the United Kingdom prior to the introduction of the windfall tax (energy profits levy) in May 2022, comprised of three elements, namely (1) ring fence corporation tax (RFCT), (2) petroleum revenue tax (PRT), and (3) supplementary charge (SC). It is worthwhile to highlight that the UK’s fiscal regime is designed with a number of ‘built-in’ incentives.

For example, the 25 per cent tax levy or windfall tax includes an additional investment allowance of 80 per cent that can be claimed at the point of investment. Overall, the tax relief companies receive from qualifying expenditure in the UK has nearly doubled from 46p for every £1 to 91p for every £1. Put differently; for every US$1 billion invested in the UK oil and gas industry, the oil companies receive US$912.5 million in tax relief under the new (current) scheme.

In a comparative analysis conducted by this author, it was clearly shown that the economic situation and the fiscal regime for the oil and gas industry in the UK are completely different when compared to Guyana altogether.

In fact, the comparative assessment revealed that Guyana’s fiscal regime allows for a relatively higher government take even when the 25 per cent windfall tax is applied to the fiscal regime as in the UK?that is to say, should the UK’s fiscal regime be applied to Guyana. The oil and gas revenue contributes just about 2.5 per cent of government’s total revenue in the UK while in Guyana the (NRF withdrawal) accounts for 40 per cent total revenue based projections for FY 2023.

Notably, the windfall tax was introduced in the UK because the fiscal regime over the years would have undergone several changes aimed at making the industry more competitive and to attract new investments in the industry. For example, the PRT was reduced from 50 per cent in 1993 to 0 per cent in 2016.

Moreover, the windfall tax was implemented in the UK, in particular, to help restore fiscal stability which was weakened following the devastating impacts of the COVID-19 pandemic in 2020.

OPPOSITION’S PROPOSAL TO SUBSIDIZE FUEL IMPORTS
The Economic Advisor to the Opposition Leader had proposed to the Government to subsidise fuel importers to ease the high-cost burdens owing to rising fuel prices. He also proposed that the Government should subsidise the electricity bills for the vulnerable.

JB’S COMMENTARY
The opposition’s economic advisor failed to perform any analysis to justify and/or inform the aforesaid recommendations as stated above and demonstrate the feasibility of both options. In the case of the second option, to subsidize electricity for the vulnerable, the government has already subsidised electricity for the entire country and not just the vulnerable.

In this regard, though the fuel cost for power generation has increased substantially, the Government did not increase the electricity rates which mean that this increased cost has been absorbed by the power company, which is effectively a subsidy from the Government.

To further understand this level of increase, about 20 per cent of the country’s total fuel import bill accounts for electricity generation. Prior to the rising fuel prices, with no substantial increase in demand, the country’s total fuel import bill stood at about US$500 million of which approximately US$100 million accounts for electricity generation for the country.

Following the rising fuel price, the total import bill increased to a whopping US$823 million, representing a 65 per cent increase. As such, fuel import for electricity generation would have amounted to US$165 million, representing an increase of 65 per cent or US$65 million. Of note, this additional cost burden was not passed onto the consumers which mean that the Government has already subsidised electricity for the entire country.

The same argument/analysis would be applicable to another of opposition’s proposal where their economic advisor suggested that the Government should take the increase earnings from the higher price on Guyana’s share of crude oil and provide subsidies to the vulnerable.

Again, while Guyana benefited from the higher price on its share of crude oil, this increase was more than offset with the increased cost for the fuel import bill of the country by over US$300 million or 65 per cent – from US$500 million to US$823 million.

With respect to subsiding fuel importers, the reduction of the excise tax on fuel imports from 50 per cent to 0 per cent, resulted in an annual foregone revenue to the treasury of nearly $20 billion.

OTHER COMMENTARY
Incidentally, at the time of writing this letter, I had already written another article (two days ago) which was sent to the media in which the undersigned dealt specifically with a more recent proposal by the opposition economic advisor. This is in relation to his assertion to “intellectually space out” future oil and gas developments.

CONCLUDING REMARKS
Editor, the foregoing is just a few demonstrations of the unsound advice that the economic advisor provides to the Leader of the Opposition.

For an important portfolio of this nature, the economic advisor needs to delve beyond the usual surface level analysis to perform much more in-depth and rigorous analysis to inform his economic policy advice to the Leader of the Opposition.

Nevertheless, I have no doubt that he is a brilliant, young, and upcoming economist and public policy expert within his political party.

Yours sincerely,
Joel Bhagwandin
Financial and Public Policy Analyst