The decision, guided by the Biden administration, to veto a US$180M Inter-American Development Bank (IDB) loan for the expansion of the Guyana Shore Base Inc was dubious back in October. After the events of the past month it might be seen as positively foolhardy.
First a recap: GYSBI, the primary shore base in Guyana servicing ExxonMobil operations here, applied to IDB Invest for the loan in April 2021 as part of a vital expansion project including the construction of two additional berths, and additional warehouse capacity. Notably the project included 10 MW of solar power that would have made the base almost self-sufficient in renewable energy and obviated the use of fossil fuels. The base currently employs some 550 workers and with the expansion would have supported a further 100 direct jobs.
The company submitted an Environmental Assessment and Environment Management Plan and had received approval from Guyana’s Environmental Protection Agency. From what officials at GYSBI say everything was set for approval but when the application went to the board in “what was meant to be nothing more than a formality” the US member voted it down. This veto flowed directly from directives contained in the U.S. Treasury Department’s Fossil Fuel Energy Guidance for Multilateral Development Banks (MDBs) (August 16 2021) that according to Secretary Janet Yellen looks “to establish a clear path to end Multilateral Development Banks’ support for fossil fuels except in exceptional circumstances while helping developing countries build a strong and sustainable future.” The document itself is quite blunt and unequivocal: “We will oppose oil-based energy projects. There may be limited exceptions, such as oil-based power generation in crisis circumstances or as backup for off-grid clean energy, if no cleaner options are feasible.”
So the loan was denied despite seeming assurances that the policy would not come into effect until mid-2022, and what Executive Director Robin Muneshwer said was “good support from the local embassy here…and the IDB.” Company officials are understandably frustrated over what “was a very blunt instrument they used against us” but also acknowledge that the politics of the IDB board made this an American decision.
For his part IDB President Mauricio Claver-Carone still held out hope for the loan saying “we are working very closely with that company in Guyana and with the Guyana Government to be able to redesign the project so that it meets some of the concerns that some of the members of our Board of Directors had…” However the question needs to be asked if oil already makes up over half of Guyana’s GDP and its activity ripples down into so many other areas that have nothing to do with oil and gas, how does a bank with “development” in its name assess that and acknowledge Guyana’s unique situation?
The US veto of the GYSBI loan also needs to be seen in the light of the cataclysmic events of the past three weeks and the beginnings of what is a new world order – actually two new world orders – which will have massive consequences for all countries. It is clear now that the West is looking for a complete political, financial and economic divorce from Putin’s Russia. Even were he to capitulate (which is very unlikely), complex trading and finance relationships cannot be easily put together again. Does anyone think Russian banks would ever return to the international global payments system known as SWIFT now it has been deployed as an economic weapon? And as the West talks about weaning itself off of Russian oil and gas, Russia must also be calculating that Europe and elsewhere are no longer reliable customers. They will inevitably look to Asia and China for new markets. In recent days there has also been talk of China investing in Russia’s oil assets now that several Western oil companies have pulled out. One must also recognise that even with oil north of $100 per barrel, the oil producing group OPEC does not at this point seem accommodating (or able) to increase production significantly. It might well be that it is determined to gain maximum revenues as the world heads into the energy transition even if that means benefiting Russia and hurting Western economies with high prices.
In reaction to these events, the United States is already scouring around for supplies as part of rapidly achieving national energy security. If we need any more evidence of how urgent this is, senior U.S. officials travelled to Venezuela on Saturday to hold meetings with the administration of President Nicolás Maduro. Since then the US is reported to have told their Venezuelan counterparts that any relaxation in US sanctions would be conditional on Venezuela shipping oil directly to the United States. This is a 100% U turn of American foreign policy after years of an oil embargo, and three weeks ago would have been unthinkable.
As for Guyana, the United States must have long ago seen our 10 billion barrel plus reserves as ideal: Plentiful, low cost, low carbon, high quality oil close to American refineries in a quiet neighbourhood. Politically Guyana may seem to have various risks but not on par with many other oil producing states. These are deemed as “manageable” and the country has shown itself to respond positively to pressure to maintain a relatively democratic and stable environment conducive to reliable oil production.
There has also been much talk in recent years about American investment and financing here including a visit from a high level team from the U.S. International Development Finance Corporation (DFC) in October 2020, the message being very clear that this was preferable to Chinese financing, investments and influence here and in Latin America. Indeed, there are many Chinese banks lining up to finance projects such as a shore base.
So even before the events of the past month, the decision by the USA to disallow a project that helps develop an indigenous oil services sector in America’s backyard was ill advised and undermines the perception of US support for Guyana’s development. Now in the context of the current massive uncertainty today, it also looks like self sabotage.
Finally what signal does this send about the rights of developing countries to develop their energy sectors? As Robin Muneshwer noted acerbically western countries had “developed their world at the world’s expense. They’ve developed their empire and wealth and they’re imposing their standards on very small countries like us.”
This echoes remarks by Barbados PM Mia Mottley who recently stated that it should not be the West to decide which countries provide the fossil fuels as part of the energy transition.
It is not clear what will now occur with the specific GYSBI loan because while the IDB has said it would revisit the project, the company has said it is now looking to further partner with local banks to secure the financing.
But with the Ukraine invasion and the decoupling of Russia, the world has changed perhaps irrevocably and energy security will be a priority at least in the short term as we brace for the fallout. Nimble and flexible policy making is not a forte of many governments, let alone the United States, but if ever there was a time it is now.
