Dear Editor,
Reference is made to an article carried under the caption “Oil sector plagued with gross mismanagement”. The article reported on the viewpoints of Ms Melinda Janki, who is described as an international lawyer and transparency advocate.
Since the outset of the oil discovery, Ms. Janki has been propagating several outlandish claims on the oil sector, to the extreme end where she has been advocating, for instance, for the cessation of oil production. She claims that the Government allows the oil companies to disrespect the laws, but failed to explain which laws were broken or disrespected.
In her more recent ramblings, cited by the Kaieteur News, she is contending that there is a lack of transparency in the rate of recovery of the oil companies’ capital investment. However, there is no lack of transparency, as Ms. Janki claims in this regard. The rate of recovery of capital investment is public knowledge; that is, all of the elements and variables one would require to calculate the rate of recovery are publicly available, and anyone with basic arithmetic skills can calculate it.
So, what are the elements one would require to so do? For ease of reference, these are:
First, the pre-exploration cost and capital investment for each project, which is publicly available. For example, the development cost for Liza Phase One is US$4.3 billion, Liza 2: US$6 billion, Payara: US$9 billion, and Yellowtail: US$10 billion.
Second, you need to know when each project will commence production, and the rate of production (daily rate and yearly rate).
Third, the prevailing market price of crude, and
The fiscal terms and the application thereto, where the cost recovery ceiling is 75%.
With these variables, one can calculate the rate of recovery for each project, because all of the above information is publicly available and accessible. The Bank of Guyana publishes monthly, quarterly, and yearly reports on the deposits and withdrawals to the Natural Resource Fund (NRF).
Then Ms. Janki went on to speak of governance of the oil sector. As a professional of her calibre, she ought to at least be objective, to acknowledge and include in her assessment the progress the Government has made on these fronts. For example, she has ignored the Local Content Act; the setting up of the Local Content Secretariat; the consortium that was formed by local firms with an international firm to conduct the audit of cost oil; capacity building which is ongoing at the Guyana Revenue Authority; she has also ignored the Natural Resource Fund Act (NRF) and the operationalisation of the Act.
All of the foregoing elements are part of the governance framework of the sector, which Ms. Janki has deliberately omitted from her assessment to suit her personal anti-development agenda and narrative.
Ms Janki and others alike often make references in a ranting fashion to other petroleum producing countries that have failed economically, such as Venezuela, Nigeria, Indonesia etc. But they have all failed to perform an objective comparative analysis of those countries to Guyana. The reality is such that the political, geopolitical, social, and economic contexts of those countries are different from Guyana. In most cases, those countries failed owing to economic mismanagement. In Guyana, the current Government is managing the fiscal framework in a prudent manner. All of the macroeconomic indicators are the strongest in the region, such as the lowest debt-to-GDP ratio, and the Government is also careful not to excessively increase the recurrent expenditure.
Finally, to her point on the breakneck speed at which Guyana is moving to approve projects, she has ignored the fact that if the Government were to slow down the rate of approval, these projects will take longer to start producing, considering the lifecycle of these projects: from exploration, which lasts about 10 to 15 years; development, another 5 years; and production of about 20 years. This would not be beneficial to Guyana if the objective is to sustain the momentum in the economy. Sustaining the momentum simply means that investments need to continue growing, which in turn creates employment for our people and translates ultimately into more tax revenues for the State.
Editor, Ms. Janki cannot be serious, and no one should take her seriously when she argues that the Government is acting in the best interests of the oil companies, and not the people. Contrary to this view, the Government is in fact acting in the best interest of the people, while safeguarding the mutual interests of the investors in the sector.
Yours faithfully,
Joel Bhagwandin
