Dear Editor,
A recent interview on Al Jazeera with the IMF Managing Director Kristalina Georgieva was spot on in how the strategy of the IMF is structured. The Managing Director of the IMF clearly outlined that the funds provided to countries are to enable them to create and attract additional financial capital. She also spoke of the importance of a progressive tax structure that ensures that those at the lower income brackets do not pay at the same level as those at the upper income brackets, while also allowing space in the funding provided for social improvement programs in education and health care.
Focusing on the first key objective mentioned, which is to enable countries receiving funds to be able to create and attract additional financial capital, we can consider the momentum being gained in the oil and gas sector. The sector is booming, and as mentioned by the government, there is a relatively short window of opportunity to benefit from the resource on the world market as the transition to renewable energy sources accelerates. This transition in the energy sector has made it necessary to aggressively pursue the extraction of the resource. With this in mind, we must also accept that the sector’s assets for which we are paying will also be less valuable at the end of the extraction process, not to mention the depreciation process which also has an impact on the value of the assets.
Given these considerations, we must adjust our strategy and rescind the option to purchase the assets, thus refusing the associated cost in our profit and loss statement. The resulting refund obtained should be used to help finance the required insurance for the sector. In addition, the funds for the decommissioning of the wells continue to be in the hands of the supplier, which prevents the nation from earning interest on the funds. Instead, we are borrowing from Exxon to complete the pipeline and will be paying interest on those funds borrowed. As the government moves towards negotiating the implementation of unlimited liability insurance in the sector, these key points must be included in the discussion as must haves to ensure an equitable agreement.
With the IMF’s strategy in mind, which is geared towards lending to countries to enable them to create and attract additional financial capital, we must adjust our strategy for the use of the gas being generated in sector. The current strategy of a gas to energy pipeline is not a project that makes the best use of the financial capital assigned to the project. The funds would be better used in the establishment of a solar farm which will generate a significantly larger amount of affordable energy. A multi-regional or a centralized solar farm project is better structured to produce a positive cash flow for the country and we will avoid unnecessary borrowing from our supplier Exxon.
Good financial management is a must for the nation as we navigate the many opportunities that are now viable as a result of the current enhanced financial capabilities that the oil and gas sector has provided. Traditional financial management must be embraced, with positive cash flows and the ranking of opportunities based upon estimated return and the associated risk. Investing along the efficient frontier is not an optional pursuit, but one required to ensure that the risk/return considerations are considered in order to correctly prioritize our investment options.
Non-revenue generating investment options should be considered based upon social needs and the must haves required for our citizens to indirectly strengthen the country and its pursuit for health, peace and prosperity. Sea defense and improved drainage systems are areas that have yet to be given the adequate levels of funding and the required high priority. We must resist placing the cart before the horse. Unfortunately, a gas to energy pipeline with a financial structure befitting of a social program, is of less importance when compared to the nation’s need for improved sea defense and drainage.
Sincerely,
Jamil Changlee
Chairman
The Cooperative
Republicans of
Guyana
