The Inter-American Development Bank’s rejection of the Guyana Shore Base Inc’s (GYSBI) expansion loan on the ground that new oil and gas operations won’t be funded has serious implications for this country, according to industry officials.
However, some also believe that it should be an opening for regional banks to discuss partnering to provide syndicated loans while others feel that sanctions against Russia for the war started against Ukraine and skyrocketing oil and gas prices, could be the impetus for a rethink of western countries’ position on new oil and gas investment.
As a number of business persons have signaled interest while some have started to develop shore bases, Stabroek News spoke to potential investors, banking analysts and a government official on the issue.
“We have made very good progress but it hasn’t been an easy road…I can understand what happened to Robin (GYSBI CEO Robin Muneshwer) and the IDB because it is consistent with what we would have experienced. It isn’t that they don’t want to fund GYSBI, it is they don’t want to fund projects associated with hydrocarbons and here it is oil and gas,” Nicholas Boyer, Partner in the proposed US$600m Vreed-en-Hoop shore base, told Stabroek News.
He said that it is no secret that the US administrations of Republican Donald Trump and Democrat Joe Biden have different views and policies on climate change and oil and gas.
In December last year, Bloomberg had reported that the Biden administration had issued directives barring US government backing for future oil and gas ventures and this extended to multilateral financial institutions where Washington had a presence. It is this directive that GYSBI believes was responsible for the collapse of the loan and not a design issue as was told to this newspaper on Monday by Inter-American Development (IDB) President Mauricio Claver-Carone.
Boyer said that his consortium had approached the IDB also and was told that the oil and gas aspect of its programme would not be approved but maybe the transport and infrastructural part could be if it met the criteria.
For another Shore base Developer, Stanley Ming, who was forging ahead with plans for a shore base at his ISIKA facility at Parika, the decision shows the heavy influence the US has on the geopolitical sphere and that small countries like Guyana could be seen as insignificant.
“One of the problems we have in the world today, as we are seeing with Russia and Ukraine, it is the United States trying the best they can to be the bully in everything. The United States is pumping oil and doing everything unabated because it is their interest. And countries like us new in the industry trying to make some money for ourselves, they are going to try to stymie us as much as possible. That is the way they operate,” Ming said, as he noted that he had much more to say at another time.
Aligned
The implications for Guyana, according to Financial Analyst and Chief Executive Officer of the proposed Versailles Shore base Tristar, Joel Bhagwandin, is such that access to financing for large scale development within the oil and gas value chain is now further restricted.
“This is against the backdrop of an already underdeveloped capital market locally coupled with other factors thus necessitating additional restrictions when it comes to access to financing for Guyanese companies especially,” he said.
He further posited, “The reason for the disapproval of this loan to facilitate the expansion of a local shore base facility to service the upstream oil and gas sector is cited as a policy stance by the US with respect to energy transition policies. My understanding, as such, is that the multilateral lending institutions have aligned their lending policies to that of the US where they are restricting financing for new oil and gas projects.”
In response to questions from this newspaper on Monday, the IDB President said that GYSBI’s US$130m loan proposal was rejected by the Board of the IDB because of design concerns but that the bank was still working with the company and the Guyana Government as it revisits the project.
His comments drew a sharp denial from GYSBI. The company also wanted it to be made clear that the redesign specified to them by the bank was to have a project objective not in support of the oil and gas sector, advice that it could not take since it already has an active contract with ExxonMobil’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) for logistics support services.
Emails seen by Stabroek News underlined that the last-minute rejection of the loan application had been due to the purpose of the expansion loan which was to provide oil and gas shore-based services.
In email correspondence from October 19, 2021, an IDB official told GYSBI “This is not about the financial capacity of GYSBI. It’s 100% about GYSBI’s support to Exxon. For example, if GYSBI committed to dedicating two berths to cargo that we could argue would create a bigger impact for Guyana (beyond Exxon), we might be able to make an argument. But obviously you are not going to be doing that”.
Another correspondence from the IDB on November 4, 2021 in response to questions from GYSBI’s Chief Financial Officer Robert Albiez stated “Yes, that’s exactly right Robert. The policy of the Bank in this case (alignment in 2023) is not totally aligned with the new policies/guidelines of certain members of our Board, which are countries and which can’t approve financing of projects with oil and gas connections via multilateral development banks like IDB Invest (starting about a month ago).
“We had a number of meetings this week with members of the Board. We will meet with our senior Management early next week when they return from Glasgow (COP26 Climate Meeting) to decide whether we will submit the project again for consideration by the Board, and if so, what changes we would need to make, if any…”
Void
GYSBI said that it was not currently working along with the IDB to get the financing it requested as it was made clear to it that the project, which the company worked on arduously for two years alongside the IDB and which met all the requirements then set out, could not be approved.
But Boyer said that he would advise Muneshwer to “test the waters again” as he feels that Russia’s war against Ukraine has shown the world that while the goal is to work towards being fully renewable, there is currently a void to be filled by hydrocarbons and the commodity will be in demand for maybe the next 30 to 40 years.
He pointed to the reasoning by German Chancellor Olaf Scholz of how heavily dependent Germany and many other western countries still are on fossil fuel and that there is an immediate demand for the commodity.
Reasoning that his country is heavily dependent on Russia for its energy needs, Scholz last week pushed back against calls to ban Russian energy imports saying that his country would suffer terribly as its essential needs would be cut. He pointed too to Europe saying that such a move puts that region’s energy security at risk.
Massive losses
Bhagwandin also reasoned that in light of Guyana recently passing its Local Content Act, of which the main aim is to encourage investment by local companies to build up capacity and to invest in the infrastructure needed to service the upstream sector, “this latest restriction in access to financing from institutions such as the IDB is even more concerning in this regard.”
“The thrust of the local content act is essentially to maximize the benefits from the oil and gas sector for Guyanese businesses and employees. Importantly to note, if Guyana does not invest in these onshore infrastructure to service the upstream sector now, then Guyana will be losing these businesses to other countries such as Trinidad & Tobago, and Mexico, where these infrastructures already exist. This would translate to massive losses for Guyana,” he said.
“Interestingly, when one considers that ExxonMobil is a U.S multinational company with an ambitious investment agenda for Guyana where production is expected to be ramped up to one million barrels or more per day before the end of the decade, and the fact that the US is one of the largest global consumers of oil and gas products, and the world economy will still demand oil and gas for at least another 30 – 50 years, it is ironic that these institutions are already restricting financing for oil and gas-related investment. The fact that oil and gas operations is already taking place in Guyana, then the related service to support the upstream sector are imperative,” he added.
Bhagwandin stated that if Guyana invests in such infrastructure, it would be good for the oil companies, as this would naturally reduce the operating costs, and a reduced operating cost means greater profit to be shared with the upstream oil companies and the Government of Guyana.
“In view of these circumstances, I believe that an exception should be made where Guyana is concerned in terms of the application of this policy. The life of the oil and gas sector for Guyana is a 30 years span and therefore all of these investments will be recovered with lucrative return on investments well before 30 years. These infrastructure, therefore in the future, as the industry evolve, can be repositioned for different types of services – and therefore, I see no harm in making financing available to Guyana to develop our oil and gas value chain and the requisite infrastructure needed,” he asserted.
Further, he added, “It is of critical importance that these international financial institutions work with Guyana on financing these major infrastructure development as our local banking sector does not have the financial wherewithal to finance these large scale projects.”
Alternative sources of financing
Local banking industry players and government officials agree that alternative sources would have to be found but said that it would put a strain on the local banking sector.
“No bank in Guyana, none can give that kind of loan. It shows the need to have healthier balance sheets and institutions to build capacity to lend. In the meantime, banks can use the syndicated mechanism with others in the region,” one banking expert said.
“Going forward, it seems that the support for funding oil and gas projects will have to come through this mechanism,” he added.
For a government official, the IDB’s decision is “truly sad” and will put pressure on local business persons who “want to invest and see a sound way of generating profits that can help to develop this country”.
The official said that persons now will “definitely have to seek alternative sources of financing” and was sure that there might be possible criticisms if those investors turn to China or Arab banks for funding.
Bhagwandin agrees that in the interim, local players would have no choice but to seek financing from other sources outside of the US and like one government official, said that turning to China may face push back from the US.
“It is worthwhile to state as well that one of the alternative sources to seek financing might not sit well with the US either, and that is, turning to China. The US’ major competitor for dominance in this region is China and this development is good news for Chinese lenders. There is no doubt that the Chinese banks would hasten to position themselves to finance some of Guyana’s private sector infrastructure development,” he said.
He thinks that “Henceforth, the IDB and other potential …lenders would need to relook at the application of this policy with exception for Guyana.”
