Dear Editor,
Robin Singh’s letter titled, “I extend congratulations to Jagdeo for embracing a failed Marxist philosophy” (SN Nov 16th), contained several false arguments. Singh writes: “. . . others are spending much time and effort to disparage and discourage new investors in our economy”. Robin is referring to a group of oil activists and two daily newspapers (SN, KN) – all of whom daily make the case for renegotiation of a very lopsided oil contract. Robin accuses us of “disparaging and discouraging new investors”. How so? If GoG were to demand renegotiation, Robin thinks that that is the equivalent of disparaging and discouraging new investors? That’s quite a stretch.
Suppose the contract had provided for 1% royalty, 90% cost recovery and zero % profits’ tax, would Robin still argue against renegotiation? I hope he will be bold enough to answer this question. [I will say there is not much difference between the existing contract and my hypothetical comparison: (2% vs 1% royalty; 75% vs 90% CR)]. My argument is simple: If the Robin Singhs’ of Guyana will agree to renegotiate a 1% royalty contract, they should also reasonably agree to renegotiate the 2% royalty contract. All Guyanese should know that a 2% royalty contract does not exist anywhere in the world. Guyana’s is the only one that provides for such a low royalty. You have to wonder whether the Robin Singhs’ are writing to please some unnamed master.
Mainstream business press (WSJ, NYT, Bloomberg news, Economist) are full of stories of “Guyana’s good deal”, “prized lucrative oil deal”; oil companies liquidating their assets around the world to go to Guyana; Chevron recently bought out Hess’s shares for a whopping $53 billion – all these stories suggest foreign investors are attracted to Guyana not because of its 11-billion-barrel reserve – but because something funny is going on there. Maybe these investors see opportunities for big and quick profits in VP Jagdeo’s set-in-stone No Renegotiation policy. BTW, Robin should ask himself: Why not a nuanced policy that leaves the door open for renegotiation at some point? Is this really the work of a smart leader, smart policy?
Robin writes, “Guyana is reaping a windfall with no investment risk”. Exploring and drilling for oil has been going on for over a hundred years – and in almost all cases the host country puts up no capital outlays (CAPEX). Oil companies put up the CAPEX and pay the host country a royalty and a cut of the profits. So, this thing about the host country putting up no CAPEX is another false argument. That is the BM, Business Model of oil exploration and oil drilling. I had never understood this argument bandied around over the last 4-years, until very recently, these writers (Joel Bhagwandin, Robin Singh and several anonymous bloggers) spelled it out: they say ‘Guyanese should show gratitude for Exxon to come to Guyana to drill for oil; in return we should gratefully accept whatever little they give us’. 14.5/100 barrels is not a “windfall”.
Robin Singh should know that host countries “take” normally works out to an average of 50/100 barrels over the life of the contract. Because of the absence of Ring Fencing, Prof Kenrick Hunte reported that Guyana’s share will not rise above 14.5/100 – and all the reserves will be depleted. Prof Hunte has crunched the numbers: Although billions of CAPEX has been paid back over the last 4-years, Guyana’s share has not risen above 14.5/100 barrels. Robin Singh’s claim of “windfall” profits are flatly false.
Robin Singh’s letter ostensibly seeks to discuss Marxist ideology (dictatorship of the proletariat, Central Planning) vs free market economy – but he veers off to defend Jagdeo’s firm ‘No Renegotiation’ policy and ends up with, “Viva Irfaan Ali, Viva Jagdeo, Viva Capitalism”. One wonders whether he betrays something the readers should know. This man Robin Singh might be a paid propagandist – paid to defend the lopsided oil contract. For Robin Singh’s benefit, I will remind him that Guyana is a sovereign, independent country – and that means the folks who run the government should feel confident and empowered to negotiate/renegotiate for a Fair Value contract with any oil giant. Without having to worry that the Gov’t of the United States will collude with Exxon to oust the Ali gov’t if it were to demand renegotiation.
There was a time – colonial rule – when GoG was run by a British Governor and sometime in the 1920’s, signed a contract with bauxite companies to exploit another mineral resource, bauxite ore. Cheddi Jagan railed all his life that our ‘bauxite ore was given away at pennies a ton’. Today, we live in a brave new world, confident and independent – and we should be able to negotiate/renegotiate for Fair fiscal terms in any mineral resource contract. Be reminded also that the 2016 oil contract does contain a clause that provides for renegotiation. If, in Mr. Jagdeo’s mind, that clause is meaningless (Mr. Jagdeo says he is bound by the “sanctity principle”), he should have it expunged from the contract.
Sincerely,
Mike Persaud
