Dear Editor,
In his article SN 2021/08/01, ‘Working for the poor in the face of relentless fake news’, Dr. C. Y. Thomas identified six negative outcomes in Guyana as ‘noise and nonsense’ without stating authorship or personal disclaimer. I wish to comment following Dr. CYT, variously: The big six negatives:
1. – distorting the economic outlook; no one is distorting any economic outlook. Everyone is awaiting production and exports data. Such data are expected to be consistent with national spendable reserves and the domestic loanable funds for local businesses; not the direct foreign inflows that foreign contractors and partners are required to bring into the domestic economy to pay for their local tax-free imported goods.
2. – dis-incentivizing economic agents; CYT is yet to identify these anti-national agents and whether they arise from the ownership or non-owners classes, Guyanese poor or rich people.
3. – dampening investment spending; CYT is yet to specify if this phenomenon is a part of the ‘incompleteness’ of the 2016 contract or contrived fake news, or the lack of project implementation skills in Guyana.
4. – undermining self-confidence; CYT has a lot of explaining to do here. Is it individual or systemic?
5. – eroding trust; CYT again has to explain this historic societal artifact by looking also at Guyana’s population exit and entry data. The USA is clear who to trust.
6. – and, distracting from growing inequality and poverty. CYT – This would be a relatively easy one, since the Americas are replete with ex-slavery laws in form and in substance. Low wages and low cost goods made abroad help the local poor as their jobs are outsourced. The wages of poor can hardly catch up with the ownership classes that are now redefining the status-quo, Guyana’s new frontiers, and its corporate welfare function. There is no consistent discussion of these six negatives. They are just dangling over-head.
I will comment on CYT’s other accusations or lamentations as follows:
1A. The Incompleteness Of the 2016 Petroleum Agreement’ QUOTE CYT: There is a third complementary feature, which is however not readily perceived. That is, the Guyana PSA represents what economists term an “incomplete contract”. The contractor has complete and incomplete terms: ‘Complete’ terms – zero import duties, except petroleum used for domestic fuel.
‘Incomplete’ terms – Environmental risks and catastrophic losses will fall on Guyana’s poor. They are no contingent contracts. So too are the secondary input-output requirements on an old big-sisters economy saddled with a brand new and growing oil economy.
QUOTE CYT ON RE-NEGOTIATION: Position 1
‘such re-negotiation can never be ruled out as a future rational option’! Incomplete contract theory posits that, irrespective of public declarations on contracts by whichever party to the Guyana 2016 PSA indicating “no re-negotiation”,
QUOTE CYT: Position 2
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. The poor cannot be served by ignoring the present lopsided contract. CYT should know that there is no link between Guyana’s Current and Capital Budget. All of the residual cash owned are being sterilized at the Federal Reserve, NY. A direct sourcing of transfer payments to Guyana’s poor is yet to be mapped out. Lack of Parliamentary approved enabling laws will hurt the poor; that is not serving the poor.
2A. On Synergy, Guyana Is Reveling In The Combined Association With Big Oil.
However, there nothing ‘synergistic’ in the 2016 contract; just a pound of flesh. Terms are well defined to appropriate all external benefits from early cash flows into Guyana’s capital budget so that Guyana can minimize its debt structure and optimize its cost of debt portfolio. This sub-optimal debt is no different from the Guysuco debt structure that CYT is familiar with.
3A. Fiscal Regime
QUOTE 1 CYT: ‘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;
QUOTE 2 CYT:
‘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’. Guyana relinquished its fiscal policy levers, assessed profit taxes paid by Guyana, gentleman, non-business agreement, lots of goodwill that results in the contractor stock price appreciation and nothing for Guyana’s poor from Guyana’s profit share (not an inch or blade of payment from future contractor profits). Guyana paying contractor taxes, gets no quid pro quo, just no goodwill value on Guyana’s balance sheet or budget.
4A Very Strong Incentives To Cheat In A Zero-Sum Game, Guyana Vs Contractor Plus Partners, Measurements, Cost-Estimation, And Auditing:
QUOTE CYT: ‘the avoidance of zero-sum pursuits’. All of the oil recoveries are from Guyana’s oil wealth. The total is fixed. Any slip from Guyana’s plate falls right into EXM’s lap. That is the true moral hazard incentive to cheat Guyana in zero sum contract. The max 75% capital recoveries and un-audited reports, stating exactly where royalties are accounted from or whether Guyana is also paying royalties from its share or the multinational share or a recoverable head office charge is part of CYT’s undefined zero-sum pursuits. That zero tax regime could be challenged and found unconstitutional. I abstract from all those 60/600 blocks fiasco.
5A. CYT’s Proposal Quote – ‘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’. Who Will Bell the Cat and foot the Bill? CYT’s proposal is incomplete.
Sincerely,
Ganga Persad Ramdas