Dear Editor,
The land purchase offer by the current administration is competitive and shows a significant improvement from the past if the land being purchased is land used for farming. Given the prevailing local market prices and pricing in other markets, the government’s offer should not be easily dismissed.
However, the recent concerns expressed in the news is with some merit. The value of the land should also be based on the net present value of the cash flows. The discounted cash flow model is not new and should be utilized in this case to help set the current market price. The additional improvements that have been mentioned should also be considered in the net present value of the unproductive base price of the land.
This appears to be what has been considered in the calculation. For example, the average cost of agricultural land in the US is around $13,000 US per acre at the upper end of the range. This land is not as productive and as versatile as land in the Caribbean, but the infrastructure and surrounding factors makes it an attractive price. The Caribbean, on the other hand, has a wide price range due to the favourable climate and location. I have seen prices listed from $5000 US per acre to $155,000 US per acre. This makes it difficult to nail down a number.
Another consideration is that there is a blast / incineration zone that also must be considered when determining the amount of land that must be secured for the pipeline. In the US, some land owners receive payment for each foot of pipe going through their land, and in one example, that range has been from $5 US to $50 US per foot. There are also health hazards and safety risks to consider, which will restrict the use of the land in the surrounding area. These risks increase over time due to the aging of the pipeline and the increasing need for maintenance. We must never lose sight of the fact that our land is valuable and we must protect it from environmental damage.
An alternative to the sale of the land may be a mix of purchase, replacement and lease. Some land owners have also pushed for a royalty payment based on the value of the product being moved via the pipeline. This is usually above the fair market value of the land and the argument for this also considers the resulting unattractiveness of the area due to environmental degradation that comes from having a pipeline. When considering all of these factors, the bottom line is that the gas pipeline project is a very expensive and risky undertaking.
A safer alternative would be to transport the gas via a sea vessel, which will also increase the flexibility of the gas project especially if more gas is discovered at another well not close to the current source. In addition, it will give us the capability to ship liquified natural gas (LNG) to high demand markets in Europe and Asia as is currently being done by top LNG export countries such as Qatar, Australia and the US.
The Ministry of Finance should include these considerations in the financial modeling of the project and select the approach that provides the best long term net earnings potential. The LNG export market is very attractive and the LNG market growth which is currently close to 5% was at 13% before the pandemic.
Sincerely,
Jamil Changlee
Chairman
The Cooperative Republicans of
Guyana
