Introduction
Today’s column closes off my re-visit of the Buxton Proposal, which I started in Q3 2023. Initially, it was my aim for this wrap-up column to highlight several contingent considerations, not readily amenable to prediction or planning that are like trade-offs, inherent to a truly sweeping recommendation like a Universal Basic Income, UBI, social protection mechanism, along with an updating of the targeted UBI annual sum of US $5000 per household.
At this juncture however, the local social and print media are taken-up with the scandals, betrayals and sell-outs linked to the surprise sale to US oil major, Chevron, of Hess holdings in the Exxon Mobil and partners grouping, the Lead Contractor for the Stabroek Block. Not surprisingly therefore, the local social and print media are absorbed with behind the scenes intrigues and maneuvers involving Guyana’s oil and gas. Indeed, this is what drives the noise and nonsense, mis- and dis-information, as well as animates its thriving.
Beyond this noise and nonsense though, I believe the spate of incidents signals important market information related to what has been the exponentially growing emergence of Guyana, as a truly world class petroleum asset and further justifies its recent recognition as the Americas fastest rising Petrostate.
Pertinent Details
The pertinent details are, in Q3 last year [early October] it was reported Chevron had announced it entered into a definitive agreement with Hess Corporation to acquire its shares in an all-stock transaction. The value was estimated at US$ 53 billion, based on the closing stock value at October 20 2023. Hess gets 1.0250 Chevron shares in exchange for one of its own.
Much was expected by both parties from this transaction, including; the upgrading of Chevron and Hess, diversification and synergies, improved product quality [attractive carbon intensive oil], improved cash margins and stronger balance sheets. And, because the relevant corporate bodies had worked with each other on petroleum projects before it was widely assumed that by Q2 2024 the transaction would be consummated by the pertinent regulatory Authorities, including Guyana,
Alas that was not to be, Exxon Mobil and CNOOC, Hess partners in the Stabroek deal objected in Q1 2024, before regulatory approval. They took the Stabroek Block proposed transaction to arbitration and claimed the right of first refusal, ROFR, for Hess’ shares in the grouping. An outcome is expected for the two groups [Exxon Mobil, CNOOC and Hess] and [Chevron, Exxon Mobil, and Hess]; as well as interactions among the two groupings.
My interest is however, quite specific and limited to drawing attention beyond the noises, to the market signaling that Guyana’s petroleum assets are likely to continue on a trajectory of sustained product quality, expanding volumes and accessibility, declining risks, improved cash margins and solid balance sheets.
In the next section I continue with this concluding wrap-up of the Buxton Proposal by highlighting a few tradeoffs. And, I end by briefly updating the current targeted proposal of 5000 US dollars annually per Guyana household
Conclusion – Contingent Considerations and Trade-offs
The first of the concluding tradeoffs I direct attention to is whether the UBI mechanism recommended for Guyana [Buxton Proposal] constitutes a base platform or floor, on which is constructed all other social protection measures. I had identified six such socioeconomic interventions at work in Petrostates. These are reproduced below; [for the first five see, World Bank, Guyana SCD 2020, and my column of November 19 2023 where these are discussed]
1. Universal direct cash transfers [universal basic income, UBI]
2 Cash transfers targeted at poor and vulnerable groups;
3 Transfers targeted at mitigating adverse effects of oil expansion
4 Subsidies and taxes
5 Public sector jobs/employment
6 Third Sector optimization [volunteerism, charities, social enterprises, cooperatives along with community involvement and social work]
Second, UBI mechanisms routinely generate crucial synergies and highly compounding multiplier effects. Thus, in Guyana a large share of the poor is employed in low-paying occupations in the private sector [retail, clerical, guarding, portaging, and cleaning services] along with the similar categories in the public sector. Based on such realities, it can be anticipated there will be upward pressure on wage rates as the reserve or minimum selling price for working rises
As a consequence, low wages are discouraged and the pool of the employed poor shrinks
Third, success with a UBI mechanism is entirely contingent on the climate transition not occurring before the 2050s as accepted in this series. Presently, this is most unlikely, as there is a wide gap between hyperbole and facts on the ground. For example, recent EIA reports reveal that in the world’s leading climate transition advocate, the Biden Administration, USA, crude oil and condensate production has averaged record levels over each of the previous six years!
Finally, an effective UBI mechanism is always subject to two binding constraints. One is that, to be effective it must be substantial enough so as to make a real dent on prevailing levels of income poverty. At the same time the fiscal cost must be afforded and sustained over a period long enough for the challenges to be met -Target
Conclusion UBI
The target UBI sum of US dollars 5,000 has been set by me after a rudimentary assessment based on very informal Qs and As. Applicable since First Oil, December 2019 it is due for updating. I recommend a formal study to arrive at an agreed sum but would adjust the present target sum to account for US inflation of 21 percent since First Oil. That is, around Guyana dollars 1.2 million annually per household. This sum continues to be applicable at full ramp-up production levels of 1.2 to 1.3 million barrels of crude per day. It can be pro-rated as advised before if introduced before full ramp-up if there is public acceptance.
