Dear Editor,
In the Kaieteur News edition of August 11, 2024, a story was carried under the caption “Jagdeo changes tune on interest rates charged on ExxonMobil’s investments”.
If there is one thing that is true, it is that Vice President Jagdeo has been consistent since 2015, when he assumed the General Secretary (GS) role of his party and became former Leader of the Opposition and now Vice President.
There is a cost of capital, the cost of equity is the return on equity, which is the profit generated (ROE). The cost of debt financing is the interest expense. The implicit interest rate on the debt financing, which is in the form of a lease instrument, works out to 5.18%, which is below the weighted average cost of capital (WACC) of ExxonMobil’s global WACC.
More importantly, confirmation that the interest expense is not cost recoverable doesn’t mean that there is no interest on the debt finance. In the haste to distort, the most important point gets lost, i.e., the interest expense is NOT cost recoverable. Thus, in the context in which the question of the interest rate is framed by KN, the fact that the interest expense is confirmed to be not cost recoverable renders such line of questioning irrelevant.
Indeed, KN has been asking this question on the interest rate for a long time, but this is one of the most miniscule questions for any media house to dwell on and propagandize for so long.
It should be noted that when KN had initially put the interest rate question to ExxonMobil Guyana (EMGL) directly, EMGL’s Vice President had promptly referred that entity to an article I had written on the very question of the interest rate, wherein I had calculated the implicit interest rate. His referral to my article suggests that it was correct.
Further, I had made the point that any independent accountant, finance professional or economist can do so, especially since the financial statements for the oil companies are publicly available and accessible. Therefore, the question of “interest rate” charged should never be a question for the policymakers or the oil companies directly; rather, the independent media should have their own subject matter experts to conduct these types of analyses and inform the general public.
In market economies like ours, there is a role for all and sundry, even as there is a role for the media, often referred to as the “fourth estate”. There also is a role for analysts and independent professionals.
Do you think the Financial Times, The Economist Magazine, Wall Street Journal, and the New York Times ask ExxonMobil’s CEO what is their interest rates or cost of capital? They absolutely don’t, because those questions are for their dedicated subject matter analysts, who derive the answer from analyzing the company’s annual financial reports that are publicly available.
Yours faithfully,
Joel Bhagwandin
