Dear Editor,
Another more modern and more instructive way of saying of Guyana “plus ça change, plus c’est la même chose” is to say that Guyana is not a learning society. As far as our economy goes, we continue with production targets and output maximisation (in rice, sugar, gold, and now oil); and whenever we believe that we need to reassure producers in these ventures, we resort to some form of “rate of return” guarantees – the small rice farmer and the porknocker apart, of course.
With production targets and output maximization, we can be assured that costs are not being minimised in the fantastic, world-record, break-neck pace of exploration, discoveries and developments in the Stabroek Block. And this pace would seem reasonable in our world’s space-time of energy insecurity and eventual energy transition that keep oil prices buoyant in world markets. The 1951 Commonwealth Sugar Agreement (CSA) negotiated by Sir Jock, who’s 1963 Chairman’s Statement to the Booker Group reads a lot like the current day emanations from GuySuCo about production targets and re-opening of factories, also guaranteed buoyant prices, albeit as a price support above world market prices. As with our (our?) oil field developments, the Booker Group had little reason to think about cost minimisation, despite the proviso that the CSA would guarantee above-market prices by offering ‘reasonable’ remuneration to [only] efficient producers.
But it’s not just about production targets and output maximisation, though it’s still about not minimising costs. I refer to the other issue mentioned earlier, i.e., the effective guaranteed rate of return implicit in the fiscal regime of the PSA. A particularly good audit will no doubt confirm my intuition that the implicit guaranteed rate of return exceeds the ‘true’ cost of capital, but even without such an audit, confirmation comes from the world-record, break-neck pace itself. In a word, what we have is an Averch-Johnson or A-J effect, or over-investment in capital to support exploration and oil developments in the Stabroek Block, over and beyond what “cost-minimisation” would dictate.
There are two possibilities, depending on the state of nature that prevails: The oil revenues accruing to Guyana from the Stabroek Block developments continue to rise in ‘dollar terms’ until the wells run dry; or if oil prices fall and fall far enough, Guyana’s oil revenues may even become negative before the wells run dry, as with the current state of affairs in the sugar industry. The policymaker should know that the financial risks for the investor and for the country are not the same. Guyana’s private sector might consider that it faces even greater financial risks, and in particular that our GDP growth rate will begin to come down from its dizzying heights. And our average citizen, someone like me who can only look on at the insufferable disregard for risks, must ask silly little questions like “What will happen to all the trucks, the excavators, the drag-lines, the wash bays, the food trucks … and the local content?”
Optimist that I am, I’ll answer that they will all come into service of a modern economy, a Caribbean Singapore, with music, art, fancy financial products and innovations in AI and who knows, space exploration – all to satisfy the freedom and the agency of our bright young people who choose time and again to live long healthy lives in the country of their birth. Yeah, right. Plus ça change, plus c’est la même chose!
Sincerely,
Thomas B. Singh
Director
