Today’s theme on the subject of oil focuses on the likely economic impacts the emerging oil sector may have on the economy. But with limited information, unclear policies and lack of transparency thus far on the developments of this new sector, without doubt, warrants this aspect a difficult one at this stage. With this in mind, however, I have attempted to create a hypothetical scenario forming the framework within which I shall conduct this analysis in somewhat of a scholastic manner; taking into consideration realism and pragmatism.
Firstly, in doing so, it is crucial at this point I weigh in on the much debated feasibility of an oil refinery in Guyana. A feasibility study was done in this regard by international experts and based on their report, it will cost some US.8 billion (equivalent to about G.2 trillion). The consultant concluded it is therefore not feasible for Guyana which led to the Private Sector actors stepping in to reassess the study. I observed that some commentators even advocated for the Private Sector to build the refinery. This column’s professional assessment is in sharp contrast to those, rather, I concur with the advice given by the consultants for the reasons outlined hereunder.
So Let us make sense of this oil refinery idea using Trinidad and Tobago as a benchmark. The first thing I did before arriving at the findings I am about to present, was to cross check the feasibility study presented for any inherent biases that might have compromised its objectivity. What I actually did was, I cross checked the cost of building oil refineries in other oil producing countries around the world and I found that in 2013 Nigeria, one of the largest oil producing countries in Africa, signed a deal to build an oil refinery costing approximately US billion. Some time ago, Trinidad and Tobago announced plans to build a second refinery which was projected to cost some US.3 billion. Hence, it is safe to say that the US.8 billion projection for a refinery in Guyana is quite realistic and therefore the feasibility study was found to be very objective in this context.
The estimated cost of US.8 billion is more than twice the size of Guyana’s economy in monetary terms. The size of the economy measured in aggregate monetary terms is about G9 billion or US.5 billion. This means, even if the Government of Guyana and the entire Private Sector form a Public-Private Partnership to fund this project – they would still not be able to afford it. Further breaking this down for the ordinary citizens to understand; this simply means if you take all of the money – the total stock of money which includes sum total in the banking system and reserve money both locally and abroad, it would not be enough to build the refinery.
On the other hand, the size of Trinidad and Tobago’s economy in aggregate monetary terms is about US.5 billion (possibly greater) – a vast difference between that of Guyana. More importantly, if one were to study the history of Trinidad’s oil and gas sector, one would realise that they did not spend a cent to build their oil refineries. It is recorded that the influx of foreign companies built their refineries in the earlier years from the origin of the industry. Might I mention the oil industry of Trinidad and Tobago is about 100 years old and in 1985, the Trinidad and Tobago Government reluctantly bought a money-losing Texico Inc refinery, mainly to save 3000 jobs and avoid expensive imports of oil products at that time.
Against this background, Guyana – both the Government and the Private Sector should not waste time dwelling on the idea of a refinery. Clearly this concept needs abandoning forthwith and start to deepen their focus on the other critical elements that has to do with managing the sector and development of the broader economy. More so, this should be the revamped approach amidst cautioning by outgoing Canadian High Commissioner who asserted that; transformation to an oil producing country in less than five years is unprecedented. I cannot agree more with this statement.
Based on what has been revealed in the public domain so far, we could assume that Guyana should earn about US.5 million annually from royalty and in the best interest of Guyana, this column would like to assume that Guyana may also earn 12.5 per cent of revenues from day one in addition to royalty, which should work out to be anywhere around US2.5 million giving rise to a rough total of US7 million or G.6 billion. While it is unfortunate that the Government has not yet decided how they will utilise the earnings from oil, it is strongly suggested that the oil earnings be put to use for the development of the Guyanese economy. Things like state-of-the-art hospitals, new roads, a new bridge over the Demerara River, the hydro power project etc; with concentration on the physical infrastructural landscape of the economy in particular, are what should be given top priorities.
A carefully thought out, well-crafted national strategic development plan should be high on the Government’s agenda at this time. These of course would translate into a rippling effect on the economy which would be a good thing. Conversely, one of the downsides of the oil spin offs on the economy that policymakers would have to guard against is the rate of inflation may grow uncontrollably. Another one of my fears is that, if come 2020 the other productive sectors continue to underperform while the country’s foreign reserve is depleting – owing to reduced export earnings, and the oil price falls further by then – I am afraid that Guyana would not see these anticipated economic transformations, as the oil money would come in at a time to fill these voids. Thus overall, there could be a negative net effect.