Introduction
Today’s column wraps-up my interrogation cum discussion of the mis-representations, deceptions, and fake news hurled at Guyana’s emerging oil and gas sector. I have previously categorized these activities as “noise and nonsense’. This labeling is not intended to trivialize the impact of such actions. Indeed, to the contrary, as argued earlier these activities lead to six negative outcomes in Guyana: distorting the economic outlook; dis-incentivizing economic agents; dampening investment spending; undermining self-confidence; eroding trust; and, distracting from growing inequality and poverty.
Last week’s column, sought to reinforce the critical importance of two features of the fiscal regime, which is embedded in Guyana’s 2016 Production Sharing Agreement (PSA) with ExxonMobil and partners. One is the synergistic relation of the fiscal regime’s individual components (that is, deductions, taxes, allowances, credits, as well as other terms & conditions). The second is that the fiscal regime embodies both written (tangible) and unwritten (intangible) components. The latter include items such as trust and goodwill amongst Parties to the Agreement; the avoidance of zero-sum pursuits. These two features of the fiscal regime also apply more stringently to the PSA as a whole.
Theory of incomplete contracts
There is a third complementary feature, which is however not readily perceived. That is, the Guyana PSA represents what economists term an “incomplete contract”. (Parenthetically, this is an area of rapid theoretical development in economics and significantly was the subject area for the winners of the 2016 Nobel Prize in Economics.) Put simply, incomplete contract theorists argue that all oil contracts are incapable of specifying what is to be done for every possible contingent development during their legal lives. Indeed, “at the time of contracting, future contingencies may not even be describable” (my emphasis). Therefore, if Parties to a contract are rational and have independent interests to serve, they would never truly “commit themselves never to engage in mutually beneficial renegotiation later on in their relationship.”
Such notions relate to my earlier introduction of the concepts of “known- unknown risks” and “unknown-unknown risks”. Incomplete contract theory posits that, irrespective of public declarations on contracts by whichever Party to the Guyana 2016 PSA indicating “no re-negotiation”, such re-negotiation can never be ruled out as a future rational option!
Given this dynamic, the strident noise and nonsense calls for re-negotiation of Guyana’s PSA are little more than ill-disguised pretext for the conniving pursuit of political, personal, and self-promotional agendas. As I had earlier suggested, the formation of a National Oil Company, NOC, for the gas to shore project that is to be constructed by ExxonMobil and to be financed by the cost oil provisions of the PSA offers the ideal entry point for this.
Past as Prelude
The observations made above were prelude to my advancing several years ago, the proposition that, in its most fundamental sense, the PSA effectively neutralizes a existentialist threat facing Guyana’s petroleum sector; namely the Venezuelan territorial claim. Two global powerhouses, the USA and China, are invested in Guyana’s petroleum sector. Therefore, despite the disproportionate size, economic, military, along with global reach of Venezuela when compared to Guyana, it would be doubtful that Venezuela can readily exploit these advantages by provoking “energy conflicts”, or worse. In this sense therefore, the present ownership and operating structure of the PSA gives Guyana considerable geo-strategic leverage”.
In light of the above, I stick to my earlier conclusion: after considering the fake news, mis-representations and considering its actual “warts and all”, the PSA nevertheless, remains a win for Guyana. Additionally, I recall for readers’ benefit that, back in 2018 when I had dwelt on this topic, it was being reported about 5-7 percent of oil contracts had been re-negotiated in the 2000s
Concluding Observations; Epistemic crisis
This current series of Sunday columns started on June 4 and ends today. The series has been singularly directed at the interrogation, cum assessment of what I have labelled as a rather relentless onslaught of “noise and nonsense” dis-informants on Guyana’s emerging oil and gas sector. I had begun the series by drawing an analogy to the now infamous fake news onslaught on the United States media and body politic; with the latter broadly conceived as encompassing its political system, political institutions, laws, political behaviour, practices, norms and inter-personal relations. Following these occurrences analysts have promulgated the thesis that an epistemic crisis has arisen in the US today.
How do I characterize an epistemic crisis? Simply put, by epistemic crisis, I refer to a situation whereby dis-information and fake news promote, as factual beliefs, falsities that are contradicted by economic knowledge in the public domain. Patently false and implausible interpretations and representations of Guyana’s emerging oil and gas industry are widely circulated as fact in asymmetrically endowed echo chambers. To recall, such echo chambers circulate falsities and dis-information at an exponentially faster rate than the truth.
By parity of reasoning, I have therefore advanced the proposition that given the comparative as well as competitive advantages of fake news, an epistemic crisis, located at the intersection of Guyana’s politics and economics -the political economy of its oil and gas-has emerged.
In previous columns I have illustrated fake news mis-representations and dis-information in several metrics, including the following: namely; allotting responsibility for the damage to planet earth, from greenhouse gas emissions in crude oil production, almost exclusively to big oil; describing pejoratively as mere crumbs a projected government take of between 50 and 60 percent; ignoring the average effective tax rate in the PSA and making dis-ingenuous and invidious comparisons with every lower or non-existing individual item of taxation in Guyana’s fiscal package as “proof” of its poor quality; without either analytic or empirical evidence apportioning runaway costs in every area of the industry operations.
Above all fantastical attributes are endowed to the share-holders of ExxonMobil and its partners. Unlike any known shareholders in the world, fake news attribute zero risks to their funds invested in the grouping. By their fiat, each and every risk is carried in full by Guyana. Imagine, no limited liability!
After five weeks, next week I introduce a new topic going forward.
