In the early seventies, when I was in fourth grade in high school, nationalisation was the rallying call of the nation. Booker Mc Connell controlled the sugar, shipping, printing, insurance and stores, and Demba and Reynolds Mines controlled the bauxite industry, which in total at that time probably accounted for more than 50% of the country’s economy.
My high school principal invited Dr Jagan to give us a talk on why it was important that Guyana nationalise these industries.
Jagan expounded on how the capitalist imperialists were exploiting the people of Singapore, Hong Kong and Taiwan. He explained how the workers were toiling in sweat shops for little or no wages.
After his talk, our principal organised a debate with the topic “Is nationalisation of industries good for Guyana?” Much to my disappointment, I was chosen to lead the argument against nationalisation. In those days there was no Google, and I could not find any books to help me with my argument against nationalisation. I told my principal about my dilemma, and he advised that I should speak with the Leader of the United Force Party (UF) who was against nationalisation.
I made an appointment and met with Mr Fielden Singh, the Leader of the UF. Mr. Singh said, “Son, the only reason why we are nationalising the industries is to say, ‘Abbie gat am abbie own am’.” I went into the debate, and my team got a good thrashing.
A year later, when I was doing my history lesson in fifth grade, I read about Oliver Cromwell and how his leadership built the English Shipping Industry. Oliver Cromwell had the English Parliament pass a law that stated that ships fetching English goods must be MANNED by English sailors. The result was the Dutch, who at that time controlled European shipping, began hiring and training English sailors. Five years later, another law was passed stating that English ships fetching English goods must be MANNED by English sailors and be OWNED by English citizens.
Local Content Policy in action 400 years ago!
As a postscript to this, I did the audit for many of the companies that were nationalised. One day, when I was walking through the bauxite plant in Mackenzie, I saw two workers assigned to desilt a two-foot-wide concrete drain. One worker, with the spade in his hand, instead of using it to throw the silt in the loader bucket, was directing the other, with a front-end loader, how to get the bucket into the drain to take out the silt. The concrete drain was being torn up, but what the heck, ‘abbie own am’.
With that bit of history, I come to the rallying call of today, to renegotiate the Exon Contract to stop Exon from exploiting the Guyanese people. This seems like the calls in the early seventies that I wrote about above. We all know that the wealth of Singapore, Taiwan and Hong Kong are way ahead of Guyana, and would not have been so if they did not pay the price to get the capital, productive capacity, training and skills by accepting low wages and other unfavourable conditions initially.
The days of slavery are over, and no worker would accept low wages when they could find a better job. I have personally been involved in the relocation of call centers from Quincy, Illinois in the US, where the burden rate per hour for a call center employee was US$15.00, to Costa Rica, where it was US$5, and the Dominican Republic, where it was US$3.
Within two years, the cost rose to US$7.50 in Costa Rica and US$5.00 in the Dominican Republic as competition for skilled workers grew.
It is easy for local oil experts to do Monday morning quarterback and declare that we should renegotiate the Stabroek Block Contract without letting the Guyanese people know about the consequences of such action. Please consider the following:
1. The Stabroek bloc stretches from offshore Berbice, Demerara and most of it in Essequibo. Since the sections offshore Essequibo were being claimed by Venezuela, it was in our strategic intertest to get an American company to drill in that area. We do not have to spend hundreds of millions to create an effective navy to protect the floating production vessels, complements of the USA. Note the recent Joint Boarding Agreement signed between the USA and Guyana.
2. Getting the world’s largest oil company, with proven capability in offshore drilling, is desirable compared to the performance of CGX et al.
3. Exxon has the capability to invest the tens of billions compared to the other entities.
4. If the contract were open for renegotiation, what message would be sent to all the investors we are asking to come and invest in Guyana? Guyana is a country that would not honour the contracts it signed, especially with our history of nationalisation.
5. Venezuela has one of the world’s largest oil reserves and it’s only a matter of time before Maduro and company are gone and Venezuela would again be open for business. No doubt, they will extend very lucrative contracts to bring back investment in their oil fields.
6. The Green Revolution is coming at a fast rate, and in a matter of 15 to 20 years or sooner, the oil economy would be a fraction of what it is today. So, drill baby drill.
7. The public is being misled by certain sections of the media that Exxon is handing Guyana a 20-billion-dollar bill, which is really their investment to search for the oil and get it to market. Any investor is expected to recover their investment and make a profit. Exon have negotiated an aggressive amortisation of their development and capital expenditures, which are cap at 75% per year. However, as these expenditures are amortised, Guyana’s share of the profits increases with our 50% profit split, plus the 2% royalty. Of course, these expenditures must be properly audited. In addition, transfer pricing laws must be updated with penalties (eg. triple damage) for egregious cases of transfer pricing.
8. Because of the billions being invested by Exxon, Guyana has become a credible investment destination, and is able to leverage this to attract investors in other sectors of its economy.
9. Investors in the other blocks cannot expect to get the same deal as Exxon got for taking the earlier risk of finding oil. If Exxon did not find oil, then they would have borne the loss of the hundreds of millions they spent in searching for the oil, with no recourse to Guyana.
10. A “cigarette box” calculation of Guyana’s share of the oil proceeds from only Liza 1, Liza 2 and Payara with certain assumptions of production costs, low oil price and amortisation of development and capital expenditure cost over the next ten years is estimated to be at least US$15 billion.
Most Guyanese know the story of the dog with the bone in his mouth crossing over the bridge. He saw a dog with a bigger bone in the water. He dropped his bone and jumped into the water at his shadow with a bigger bone. Exxon also knows that famous Wall Street investment rule. They feed pigs but slaughter hogs. Exxon must be fair to the Guyanese people with the gas to shore project, and support the local content policy.
A wise person is one who knows the relative value of things. I happy to note that the Government of Guyana and our indomitable VP are not bowing to pressure from those who are incapable of strategic thinking.
Allan Baksh, CPA,