Dear Editor,
I read, with interest, the rather substantive article, “IDB loan refusal seen as key setback to oil & gas here,” Stabroek News, March 14, 2022. It dealt with IDB’s decline of a large loan request (US$180 million) from Guyana Shorebase Inc. (GYSBI) to finance the expansion of its existing facilities to better service its clients. It seems that GYSBI has become the latest victim of the Biden Administration’s expressed policy of vetoing financing for oil and gas related projects. Even without this policy being in place, the western-influenced and dominated multilateral financial institutions were already frowning on projects, especially in the oil and gas sector, that contributed to depletion of the ozone layer. Overwhelmingly, the preference is for funding to target clean and renewable energy projects that involve low to no carbon emissions and are easy on the environment.
I can recall the pushback that the Coalition government received when it sought to get the World Bank to approve the US$20 million, Guyana Petroleum Resources Governance and Management Project – a project that sought to strengthen the governance and institutional framework of the country to manage the nascent oil and gas sector. It was ‘touch and go’ right to the end. Eventually, the loan was approved and signed in March 2019. The article captured the views of several persons who were interviewed. All of them were concerned about the implications the disapproval of the loan meant for future financing of oil and gas projects in Guyana. A few of them identified, perhaps correctly, that approaches to alternative sources of financing in China and the Arab world could face “push back” and bring a backlash from the USA.
I believe that all is not lost; for every challenge, there must be an opportunity waiting to be explored and/or exploited. The policy of the USA is unlikely to change substantially, if at all, in the near term, in spite of the current spike in oil prices, occasioned by Russia’s invasion of Ukraine and the ensuing sanctions imposed by the Western Allies. Thus, in analysing GYSBI’s predicament, I offer the following financing options for continuing the project. These options are not mutually exclusive. In fact, a combination of some or all of them would need to be employed to achieve a target financing of US$180 million.
The first option is for GYSBI to broaden its ownership structure by offering shares to the public. This under-used source of funding has apparently been frowned upon by the private sector. Many firms are family-owned businesses that rely heavily on financing from family members and the local banking sector. How-ever, successful businesses, such as Banks DIH and DDL, have proven that raising funds through public offerings is an invaluable source of financing. The second option is to explore the possibility of listing on the regional stock exchange. I recognize that this option may neither be expedient nor viable, currently, but it is a reminder that funding sources exist within the CARICOM that could be tapped for development of all sectors of the fastest growing country in the region.
The third option is the bond market. It will be recalled that under the Coalition government, NICIL was able to raise US$150 million to finance Guysuco’s restructuring. The bond was the largest ever facility raised in Guyana and was over-subscribed. I believe that GYSBI should test the bond market, as this will contribute to a viable alternative source of financing and the deepening of the capital market in Guyana. I strongly believe, too, that they would be able to raise the US$180 million on terms and conditions not dissimilar to those offered by IDB Invest. The fourth option is to seek to raise the needed financing from a consortium of banks and financing houses in the Carib-bean and, possibly, Latin America. I recall, around 2018, that well-known banks in Jamaica and Trinidad and Tobago were seeking investment opportunities in Guyana. I am sure that others in other countries have been aggressive in their enquiries.
The fifth option is for resources from the Natural Resource Fund (NRF) to be invested in the project. Currently, all of the NRF’s funds are parked in a US$ account earning negligible interest. Even when the Investment Committee of the NRF is activated, the weighted average interest rate on the investible funds is unlikely to exceed 3%, given the very conservative approach to investment implied in the Act. However, in the interest of promoting local content and utilizing some of the resources to invest in viable private sector projects, a portion of the funds, say US$50 million, can be tapped from the NRF and lent on terms and conditions at least as those that would have been offered by IDB Invest. I am sure that the earnings on the money would exceed, by far, what is being received currently, and what is expected in the future. The ball is in GYSBI’s court. This not the time to lament.
Sincerely,
Winston Jordan
Former Minister of Finance