There is no fire sale or looting of Guyana’s national resources

Dear Editor,

Allow me the opportunity to challenge some aspects of Dr Clive Thomas’ regular column in the Sunday Stabroek of January 18, 2015, specifically his contentions about “looting national resources”; “the PPP/C executive is particularly promoting a frantic scramble for minerals similar to other poor countries of Africa and Asia with the attendant looting of the country’s natural resources”; and “the fire sale of Guyana’s national resources.”

We, Guyanese, have grown up hearing of and believing, even though not really seeing evidence of, the existence of abundant, rich natural resources. It is unfortunate that Dr Thomas’ charges, presumably arising from that view, further reinforces an incorrect view that we have bonanzas on which many people want to get their hands, and which we, the PPP/C, have been giving away.

I will present pertinent facts, not to ‘dis’ our comforting, seductive view of our abundant, rich natural resources, but to help open our eyes to a more realistic view: there is much hard work and, often times, little or no success, in going after the development of our natural resources.

The Omai gold deposit would not have been economic in a developed country, yet who would say that Omai was not good for us? Its attractiveness lay in compensation (wages, salaries and benefits) payments being less than 10% of total costs. In a developed country, such payments would more likely have been 20-to-30% of total costs. Essentially, the Omai gold deposits provided an opportunity to utilize competent, competitive Guyanese workers.

It is with a sense of realism and balance that this administration has been pursuing the development of our natural resources, even as we look for our salvation in our people’s work, in our people working productively, individually and altogether, and in achieving high levels of productivity, quality, and timeliness, with the lowest quartile of costs for our products and services.

In responding to Dr Thomas’ charges about “a frantic scramble for minerals and other resources,” I would firstly submit that we live, today, in a world of global trading. We, Guyanese, want many, many things that other people, in other countries, produce, and we need to produce goods and services with which to trade. Further, with our small numbers, we need to develop strategic alliances and partnerships for mutual benefits, with whoever is willing to be so engaged.

Secondly, I would ask Dr Thomas to point to the instances of ‘’looting and frantic scramble’’ – would it be BOSAI and RUSAL, which rescued our bauxite operations? The sad truth is that when we nationalized bauxite in the early 1970s, bauxite in Guyana was in its declining, old age, to use the analysis of a 1980s Jamaica Bauxite Institute paper on a ‘Life Cycle Study of Bauxite Deposits around the world.’

For most of the time that the bauxite operations were owned by us, we were incurring costs of about 30% more than the prevailing prices, and since as much as 90% of costs were incurred on imported materials, we were at times losing money from our nation’s foreign exchange account. Eventually, our national treasury was freed of subsidizing the core bauxite operations, as this administration welcomed RUSAL and BOSAI. The addition of their significant internal needs, and their presence in the international markets, improved the prospects for our bauxite mines and communities.

And, to which companies may Dr Thomas be referring, in the gold sector? Not the development at Aurora, where the company has been persevering since the mid-1990s to arrive at where it is today. Not the ongoing feasibility studies at Toroparo, where the current owners have been working since about 2000. Not the mine under construction at Kaburi, where Guyanese geologist, Jerry Carter, is now happy that after more than forty years of believing in its success, and prospecting the property, he now has a partner who is bringing it into production.

Dr Thomas should set his mind at ease – no looting, but lots of hard work and lots of money spent, over many years, accumulating and studying information gained from prospecting. And do we have agreements in place that provide a fair share to our country, in addition to the jobs, the examples of organization and purpose, and other benefits, which they bring to our country? Yes, we do.

This PPP/C administration, admittedly after some questioning, has, nonetheless, been continuing much of the same standard mining, petroleum and timber agreements, as were introduced in the latter years of the PNC administration, under the guidance of UN and Commonwealth agencies. We, the PPP/C administration, commissioned a review of the Omai Mining Agreement by one of the top international accounting firms. And, what was the firm’s judgement? That in its international comparison, our offer to prospective investors was not competitive, not attractive enough, and that we should give more concessions and incentives.

But, we did not give in. Our mineral agreement was truly one of those that demanded the most of investors. We demanded 5% off the top, for royalty – many other countries accepted 3%, or less. And, what did this PPP/C administration do when, in 2010, we began negotiating mineral agreements for the development of the mines at Aurora, Toraparo, and, later, Kaburi? We raised royalty further to 8%, when gold prices are above $1000 an ounce. There has been no ‘’fire-sale’’, no give-away, to friend or foe, in the mining sector.

And let me remind us here that development agreements for large-scale operations do not ‘see’ nationality, whether local or foreign, but need only that the operations be of sufficiently large size. Further, though some say a challengeable situation under our various agreements, only Guyanese nationals now have ownership of small- and medium-scale properties and, therefore, protected opportunities to grow, and to develop partnerships.

And to which companies might Dr Thomas have been referring in the petroleum sector? Not CGX, which, with great faith, has been persevering in exploration since the early 1990s. Not Repsol, and other partners joining that company in the 2000s. Not Exxon, which has been here since 1999 and is persevering with its planned well in deep water, beginning by the end of this first quarter.

And, the story in the logging and timber sector has not been much different. Let me admit that I, too, have been in error about the not-so-bountiful nature of our forests. When, in 1993 or 1994, the Case-Unamco group applied for forest areas upon which to base a second plywood factory in Guyana, I thought that Mr Clayton Hall, then Commissioner (ag, perhaps) of the Guyana Forestry Commission (GFC), was being much too conservative with his position that Guyana’s forests could not well support, even one plywood factory!

I do not think that Clayton has found it consoling that time proved him to be correct. The Case-Unamco TSA areas languished for many years despite a bright start, with lots of money put into the Case-Unamco road from Kwakwani, past Parrish Peak, and as the plywood factory remained in containers for more than a decade. Someone observing Mabura (the centre for the Demerara Woods Ltd (DWL)/Demerara Timbers Ltd (DTL) operations) over the years, would recognize that it, too, has not done well.

Mr Cassells, a past Chief Executive Officer (CEO) of Iwokrama, put things on a more theoretical footing, arguing that natural, diverse tropical rainforests such as ours, rooted in highly-leached poor soils such as our sands and laterites, could hardly sustain commercial timber exploitation in competition with the planted temperate forests. Our forests attain average growth rates of wood of about 10 cubic metres per hectare per year, and in our diverse forests, each tree logged requires an average of about half-mile of trail. It is a real challenge to sustain commercial activity at an acceptable standard of prosperity for stakeholders.

In Africa, average growth rates are twice as good – 20 cubic metres per hectare per year. At the higher end, the planted pine forests in Chile, on the sides of the Andes Mountains, attain up to 80 cubic metres per hectare per year, and are ‘clear-felled’ and replanted (like harvesting of cane) every fifteen years. Think of the production and productivity, and lower costs, of such planted temperate forests, and you would understand why Guyanese are finding pine-doors and lumber attractive, typically 70% of the cost of the Guyanese equivalent. Our sawmills could soon start importing pine-logs from North America, like other countries do.

To succeed in competition, our tropical wood and wood products have to attract premium prices, based on either service properties or customer fashion preferences. Dr Thomas’ charges may be reflective of the slow move to value added, particularly by the foreign-owned timber companies. We must all be for value added, to get to more and better-paying jobs, but we must be adding value (as judged by the international market) faster than we are adding costs. Our woods, including the lesser-known species, have to be introduced to, and established in, the new markets. The export of logs to existing processing and manufacturing facilities, which are already supplying wood products to the potentially new markets, is probably the most prudent and practical approach, but it takes time – it could be a work of ten years.

It is not unreasonable that, in looking around for reasons why we are not ‘better off’, we pay attention to the judgements of others who have already gotten to where we hope to get; but we get different advice at different times.

In the petroleum sector, the same bilateral and multilateral agencies which were pushing, in the 1990s, for Guyana to give more concessions, when they returned in about 2010 when there were high expectations that we were about to strike oil, were telling me that I, in poor Guyana, might have given too much to the oil-exploration companies, earlier. They were offering to re-read the agreements. Perhaps, I had a look of some consternation on my face, for they then said that we should not be looking to break the agreements; agreements are sacrosanct, but in re-reading the agreements, we might find that we do not have to give as much as we first thought that we had to give! No doubt, they were offering to be helpful; we must learn of the advice that was given at different times, before we level charges at one another. A ‘fire-sale’ today, could yesterday have been a ‘winning bargain’!

Allow me some more of your valuable time and space, to address some charges about a spectrum give-away. Critics of this administration have been pointing to the big sums of money that some countries have made from auctioning the spectrum. Well, those sums are, at best, a pre-payment by the investor, of moneys that he will recover from the public over the 10-20 year period for which he/she has bought the spectrum. The price that any investor is willing to pay, is relatable to the GDP, the per capita GDP, the population, the population density, and other characteristics of the area that he/she would access – in effect, the money that he/she thinks that could be made. Put in the numbers for Guyana, and you might find that the auction values that might be attracted by Guyana, would be very small.

This PPP/C administration has consciously opted for the other model of granting spectrum: minimizing the initial payment, but pushing for maximum investment in facilities, and an annual payment of a fixed percentage of gross revenues over the period. We maintain that this option best fits the Guyana situation and, in the end, brings more growth and development, and more money all around.

Recall, also, that many who called for the ‘big money’ of auctions, on the one hand, complained that the minimum figure of G$2.5 million per annum for the spectrum, for a TV station, is too much! People not in office can take different positions at different times of the day, but a person in office is expected to hold to some consistent position.

I do hope that this letter would have reduced concerns about the charges of ‘’fire sale’’ and “‘looting of natural resources.” Far from it, as has been reported by the Commissioner of the GFC, only about half of the sustainable cutting of logs is being harvested. Indeed, a case could rather be made that we have been too cautious and tentative. It can be argued that in pursuing development of our natural resources potential, if we had been on a ‘’fire sale’’, we might have been having far more economic activities now, and our GDP might have been five times what it is today, and, no doubt, we might all have been much ‘better off’!

Making our people ‘better off’, is all that this PPP/C administration has been earnestly working at, in trying to bring about the sustainable, equitable exploitation of our natural resources so as to provide us with opportunities to work and make a better life.

To those who may say that I have ignored other charges of Dr Thomas’ presentation, I would concede that I have deliberately constrained my response to an area wherein we might be able to establish some objective facts, in addressing those charges of Dr Thomas that reveal his ‘felt’ frustration and a searching for answers. At times, it appears to me that we, in Guyana, are very much like the blind men who walked into an elephant, grasping different parts of it, and who each proclaimed that the elephant was, respectively, a snake, a rope, a wall, a tree, depending on the part that each came up against. People and societies (especially developing societies, such as ours) are complex and many-sided, and full of imperfections; one can see the picture that he/she is inclined to see in what is happening.

One can, indeed, see in Guyana, today, a ‘wild west’, with all that that entails, whilst flourishing in the USA and elsewhere, today, one can see good order, good governance, and the rule of law. But, one should also see, in yesteryear, the ‘wild west’ in the USA that was extolled in the cowboy movies, and see us, in Guyana, also attaining good governance and the rule of law, in the coming years.

There is good justification to keep the faith in the PPP/C administration.

Yours faithfully,
Samuel A A Hinds, MP
Prime Minister