The gas-to-shore project is touted to transform the energy landscape and bring immense benefits to the country, both at the household level and for the business sector. The primary objective of this project is to significantly reduce the country’s energy cost by a minimum of 50 per cent. Of recent though, some observers and commentators alike have vehemently criticised and labelled the project a “white elephant” in the making. However, these commentators have not considered or care to consider whether the project will yield any positive impact on the overall economy and translate, ultimately, to tangible benefits for every Guyanese.
An assessment of one financial analyst who conducted a cost-benefit analysis of the project presents an alternative view though the cost used in the analysis did not consider several other cost elements such as the cost for the onshore infrastructure and the cost for piping the gas to shore. Of note, the cost for piping the gas to shore which will be a recurring cost after the project is operationalised will be part of the operating cost and not part of the development cost.
The analyst sought to quantify to some degree what the net benefits of this project could bring about for every Guyanese, for the business sector and the country at large. As such, a cost-benefit analysis is NOT to be confused with that of a cash flow projection of the project. Importantly, in order for the project to be considered feasible, it should be both financially and economically viable.
In the case of the gas-to-shore project, the following not exhaustive economic benefits can be obtained:
* Savings in fuel import bill,
* Contribution to tax,
* Payroll/income at the household level (microeconomic impact)
* Savings in household expense on electricity expense, thus more disposable income for other purposes
* Savings in operating and production cost for firms, thus freeing up more cash flow/liquidity for investment in other areas;
* Savings in energy cost, by at least 50 per cent, will drive and make more attractive investments across all sectors, especially in manufacturing, by virtue of they aiding greater national competitiveness, etc.
One computation based on some reasonable, realistic and pragmatic assumptions of the cost-benefit analysis considering the economic benefits of the project alone exclusive of the profit/loss to be generated could potentially result in the following outcomes:
1. Savings on fuel import bill which is currently US$630 million; conservatively, the country can save 25 per cent or more of this sum annually: 25% x US$630M = US$157M (per year) x 25 years = US$3935 million;
2. Savings in household electricity expense, assuming an average cost of $20K per household, 50% of this would work out to $10K x 300K households = $3 billion in annual savings for every household x 25 years = G$75 billion or US$349 million;
3. The savings that could be derived in public debt if Guyana had to borrow the required capital for the pipeline infrastructure and a quantification of the interest on that loan amounting to US$115M + capital of US$1.3 billion;
4. Savings in production and operating cost for the manufacturing and wider business sector, amounting to US$1.4 billion over five years; and
5. The level of increased domestic and foreign investment that a more competitive environment owing to cheaper energy, will promote: a reasonable assumption of US$2.3 billion over five years, which is in line with recent historic trends.
Net Benefit (Present Value) would amount to US$3.0B/G$656B.
This net benefit, based on these relatively conservative assumptions and calculations over the life of the project at 25 years, has a present value (PV) of US$3 billion/G$656 billion, representing 1.5 times the estimated development cost and 37.5 per cent of (2022 GDP).