Securing advances on oil revenues should be considered

-US-based business professor

Floyd Haynes

Seeking advances on future revenue from ExxonMobil should be under discussion, according to United States-based Guyanese business professor and accountant Floyd Haynes, who says the benefits for a developing nation like ours are incalculable and can outweigh the disadvantages

“I think it should be considered. You are borrowing against future revenues. There are …benefits to it in that you get the money up front and you can use it to do any number of good things—infrastructure, healthcare, education…,” Haynes told Sunday Stabroek during an interview on the sidelines of the recent oil and gas conference.

The founder and President of Haynes Incorporated, a Washington-based accounting and management consulting firm that provides high level financial and accounting support to clients such as the United States Department of State and the United States Agency for International Development, Haynes says the time is ideal to make a proposal to ExxonMobil and its partners working here.

“Don’t get me wrong: I don’t want to make a policy recommendation because policy decisions require a lot more research and information than I have available. But should it be on the table? Definitely,” he explained.

“Guyana needs that money now because we don’t have a lot of things. We can use that money for infrastructure development, we can use that money to develop our human capital. In fact, our ability to take advantage of the oil find requires emphasis. If we don’t have that human capital to take advantage of those opportunities then it won’t mean anything to us.  So, we can use it for infrastructure, education, healthcare and any number of things that Guyana can use now. And if we can do it now, why not? Do so now than wait until tomorrow,” he added.

In 2015, before Guyana inked a new Production Sharing Agreement (PSA) with ExxonMobil’s local affiliate and its partners, Minister of Natural Resources Raphael Trotman had refuted claims that government planned then to ask Exxon for an advance payment. He said that it was a decision that President David Granger would have had to make when he met officials of the company in 2016.

Trotman said that he was approached by a journalist who questioned whether the government would consider asking the oil company for funds ahead of production and, if it were afforded the opportunity to receive early payments, the area of development into which they would be channelled. According to the minister, it was in response to this “hypothetical” question that he explained that government would focus on infrastructural development if given the resources.

“I also said that if those matters were to be raised, it would have to be by our President when he meets ExxonMobil’s president in January. I distinctly remember saying that I had no knowledge of government seeking any such money upfront,” he said.

Trotman further said that while government had not received any offers to date then, it would consider all possibilities in the best interests of the country.

In 2016, the new PSA was signed, two years ahead of the expiration of the first, and it was then that government received a controversial US$18 million signing bonus and kept the information secret until faced with mounting pressure over its existence.

Risks

Haynes, who has over 30 years working in Africa and the Middle East assisting in the development of small businesses and implementing transparency and accountability in business and government, made it clear that there are also risks involved in borrowing against future revenue.

“There are some downsides or risks to the borrowing. One of the downsides is that the prices for oil fluctuates, so you can have a situation where you borrow at a high rate and then you have to pay back when oil is at a lower rate. It is a major risk. That has happened before. It has happened in Venezuela, [and] it happened in Mexico in the 80s. So, that is something that you have to consider when borrowing,” he explained.

“There is another risk and that is the mismanagement of the monies. The money comes in and then don’t go to the things that they are intending to go to. That kind of risk I don’t know how you guard against that. You can put systems in place but at the end of the day systems are made up of people and the individuals in those systems would have to be responsible and spend the monies responsibly. But there will always be that risk that the monies can be misspent, misused, [and] misallocated,” he added.

But Haynes pointed out that there are ways to mitigate those risks and the government and the populace should not allow any trepidations to hinder discussion of the option. “However, it doesn’t mean that you don’t borrow because you can hedge against those risks, you can take out insurance against those fluctuations in prices and in that way you prepare for if there is a downside. It is in the same way that you take out mortgage default insurance. It is a similar concept. I say in spite of those risks, we should absolutely consider it and it has to be done responsibly and by people who understand what those risks are and how to hedge against those risks,” he added.

Priorities

Haynes pointed out that some persons would agree with borrowing now to meet direct social and economic needs but not from ExxonMobil or any other company but from multilateral institutions, such as the Inter-American Development Bank (IDB).

He, however, argues against such a move. “You can borrow from the multilateral institutions but those come with interest, they come with conditions, they come with a lot of things. So, it is not like you can just take the money. There are conditions to borrowing that money,” he said.

“If you can secure ties and borrow against your monies, then you have a little more freedom to spend that money based on the government’s priorities and not priorities [set] by anywhere else,” he added.

Asked if he thinks that ExxonMobil would be open for a securitisation proposal, he answered in the affirmative.

“I am sure that everything is negotiable… The golden rule is, ‘He who has the goose makes the rule,’ and we have the goose. The goose is the oil,” he said.

“I want to be very clear that I am not flying in from the States and proposing these are things that the government ought to do but I think these are things that should be considered. Everything at this point should be on the table. It is not a one-way or a one-sided thing where Exxon gets to decide what is in our best interest. I think we are capable and that there are Guyanese here and as well as those all over the world that are capable of discussing those kinds of things and putting forward those ideas,” he added.

Haynes does not believe the decision on borrowing should be made solely by government as he thinks the people should get a say in how their future revenues should be spent, since they know their direct needs.

“I think there should be stakeholder meetings anyway, but just as a matter of getting the word out to the people. I am talking beyond the rank and file. I am talking Guyanese, who you don’t see them at these stakeholder meetings because I think they don’t understand how much these decisions affects them,” he noted.

The discussions, Haynes said, should be organised in a manner to reach citizens from across the socio-economic strata. And while those talks can start out technical, he noted that it must be broken down so that the average citizen can comprehend what is at stake. “The focus has always been on the technical aspect of the industry, engineering, etcetera. But you have to be able to talk to the taxi driver, the vendor selling fruits in the market, the caterer… because all of those people will be affected by the oil find,” he added.

 

Around the Web

Comments