Dear Editor,
Dr. Jerry Jailall, who seems to be a colleague and/or a friend of Dr. Ganga Ramdas, sought to respond to my letter to the press in which I countered Dr. Ramdas’s argument on oil companies and taxes in Guyana. Dr. Jailall hastened to defend his colleague but completely ignored the fundamental context of my counter analysis/argument to Dr. Ramdas’s missive. Dr. Jailall, in so doing, comported himself by labelling me as a spokesperson for the government and oil companies and he attempted to advocate for the poor and working class. As a distinguished professor, I am disappointed that Dr. Jailall opted to omit the usual flair of scholarship which characterizes the work of academics and instead diverted to an emotive – unscholarly opinion piece devoted to his colleague’s defense.
As a young professional Guyanese – living in Guyana, who have authored more than 300 articles on economic and finance issues over the last 3-4 years including extensive work covering a variety of thematic areas on the emerging oil and gas sector; these issues should not be treated with emotions. Particularly, these are extremely complex issues (nationally and globally) and are of great national importance, and therefore, professionals of Dr. Jailall’s and Dr. Ramdas’s caliber ought to devote much more energy to address these issues thoroughly and objectively – as professors or experts as they are so regarded, rather than opinion pieces akin to ordinary (top of the surface) commentaries. I will not rehash my full analysis that was published yesterday (June 3, 2021) widely in the local press – but I must correct Dr. Jailall that I am not a spokesman for the Government neither the oil companies – rather I am a mere analyst who thoroughly examines the facts within the context of the realities in which we exist and operate and I do not produce mal-analysis/mediocre analysis divorced from the pragmatic realities of the dynamic global, regional and local business environment. Also, I have noted another counter argument by Mr. Mike Singh in defense of Dr. Ganga Ramdas and who sought to rubbish the argument I made on the scale of investment. Again, both Mr. Singh and Dr. Jailall have ignored my full analysis and proper context. Mr. Singh further went on to draw comparison to Suriname’s fiscal framework where oil companies are subjected to pay a 6.5% royalty, 36% income tax plus profit share – and again another poor attempt at a comparative analysis without understanding the full contexts of both countries.
Editor, in the interest of space – hereunder mentioned are some key points in response to Dr. Jailall and Mr. Singh: –
i) Suriname’s fiscal framework for the oil and gas sector cannot be compared to Guyana for the following reasons:
– Suriname, unlike Guyana, had a fiscal framework in place long before Guyana found oil (in fact, more than half of a century ago). Here is the historic fact about oil exploration in both countries;
– Oil seeps were known from the 1800s into the 1900s in both countries. Onshore exploration in Suriname discovered oil at a 160m depth in 1968. First oil began in 1982. Currently, these fields are producing around 16,000 barrels per day.
– Suriname only recently discovered oil offshore and offshore production will commence in 2025.
– In the case of Guyana, oil was discovered in 2015 by ExxonMobil. There were a number of unsuccessful explorations which began since in the 1950s. Hence, the gap between Suriname and Guyana as oil producing countries is more than 50 years. The reality is such that these are two completely different eras – from half of a century ago to now. Moreover, the global economy is constantly evolving and with climate change and climate change policies, the dynamics of the global oil industry is changing rapidly. So, to compare Guyana and Suriname is like comparing apples and oranges because the context of both countries is not the same with respect to oil and gas.
ii) It is not a case where this author or the current government is glorifying the current PSA with the oil company. The records would show that this author, over the years when the PSA was made public, criticized the loopholes/weaknesses of the PSA. But at the same time, it is not the worst contract and it’s not a case where it is not a relatively decent contract given the hybrid model of royalty and profit share with the 75% cost recovery. As I have shown in my previous letter, during cost recovery, Guyana’s net take is 14.5% and post recovery Guyana’s net take could be as high as 37%, bearing in mind that recovery can be as short as 3-4 years in the given model.
iii) There are other ways and means to extract more value for Guyana under the current framework – which the government is actively pursuing such as strong local content, emphasis on capacity building, there is also the greater Guyana initiative for example, where Exxon has committed $20 billion to aid Guyana’s sustainable economic development over the next decade. Importantly to note is that the government clarified that all CSR expenditure will not be included in recovery cost.
iv) I asked the question, which investor today and within the current global economic and industry landscape in oil and gas would want to pay to a host country 2% royalty, 50% profit, plus 25% income tax. The issue that these proponents are ignoring is that they have failed to acknowledge that the oil and gas sector has a different fiscal framework outside of the normal fiscal framework. That is to say, ordinary companies in the other sectors are required to pay corporate taxes of 25 % or 35% but are not required to share 50% profit with the government neither are they subjected to paying royalties. This needs to be acknowledged and put into the correct context – rather than misleading an entire nation with flawed arguments.
v) The proponents also are treating Exxon and oil companies as though they are enemies to Guyana. This is a dangerous and unfair premise. Exxon is not an enemy to Guyana, rather, Exxon is Guyana’s development partner. If it wasn’t for Exxon, then the oil resource would have remained in the ground.
vi) The oil company is not the solution to all of Guyana’s problems.
vii) While the current PSA may not be renegotiated by the government, it can and should be leveraged to negotiate a better PSA for new contracts. In other words, the government now has greater bargaining power when it comes to securing new deals in the sector.
viii) On the point of poverty which Dr. Jailall alluded to – ExxonMobil is not the solution to poverty; education is. To this end, less than 5% of Guyana’s labour force are educated at a tertiary level. Therefore, it’s a grave mistake to think that the oil wealth will solve this; it is rather how the wealth will be utilized. The President has already outlined to the nation that the government will be investing heavily in education. (I will elaborate more on this aspect of the argument in a separate essay). For example, 20,000 scholarships and free education within the next five years or so at the university level.
ix) It should also be acknowledged that the indirect benefits may far outweigh the direct benefits to Guyana – as a result of Exxon’s operations in Guyana and the new emerging oil and gas sector altogether.
Editor, I will devote a separate piece to delve into deeper analysis on the indirect benefits next week. For now, I will stop short to say that we need to stop treating ExxonMobil as though they are the enemy. ExxonMobil is Guyana’s development partner and we all need to support the government and its development partners – and work together as a nation to advance the transformational and sustainable economic development of Guyana, for the benefit and prosperity of all its people.
Sincerely,
J.C Bhagwandin
Financial & Economic Analyst
Adjunct Professor, Texila American University,
Business College
