Renegotiating Exxon contract would be a retrograde step

In the early seventies when I was in fourth grade in high school, nationalization was the rallying call of the nation. Booker McConnell controlled the sugar, shipping, printing insurance and stores and Demba and Reynolds Mines controlled the bauxite industry which in total

probably at that time accounted for more than 50% of the country’s economy. My high school principal invited Dr. Jagan to give us a talk on why it was important that Guyana nationalize these industries. He expounded how the capitalist imperialists were exploiting the people of Singapore, Hong Kong and Taiwan. He explained how the workers were toiling in sweat shops for little or no wages. After his talk, our principal organized a debate with the topic: “Is nationalization of industries good for Guyana”. Much to my disappointment I was chosen to lead the argument against nationalization. In those days there was no google and I could not find any books to help me with my argument against nationalization. I told my principal about my dilemma and he advised that I should speak with the leader of the United Force Party (UF) who was against nationalization. I made an appointment and met with Mr. Fielden Singh the leader of the UF. Mr. Singh said: son the only reason why we are nationalizing the industries is to say, “Abbie gat am Abbie own am”. I went into the debate and my team got a good thrashing.

As a postscript to this I did the audit for many of the companies that were nationalized. One day when I was walking through the bauxite plant in MacKenzie I saw two workers assigned to desilt a two feet wide concrete drain. One worker with the spade in his hand instead of using it to throw the silt in the loader bucket was directing the other with a front-end loader how the get the bucket into the drain to take out the silt. The concrete drain was being torn up, but what the heck - Abbie own am.

With that bit of history, I come to the rally call of today to renegotiate the Exxon contract to stop Exxon from exploiting the Guyanese people. This seems like the calls in the early seventies that I wrote about above. We all know that the wealth of Singapore, Taiwan and Hong Kong are way ahead of Guyana and would not have been so if they did not pay the price to get the capital, productive capacity, training and skills by accepting low wages and other unfavourable conditions initially. The days of slavery are over, and no worker would accept low wages when they could find a better job. I have personally been involved in the relocation of call centres from Quincy, Illinois in the US where the burden rate per hour for a call centre employee was US$15 to Costa Rica where it was US$5 and the Dominican Republic where it was US $3. Within two years the cost rose to US$7.50 in Costa Rica and US$5 in the Dominican Republic as competition for skilled workers grew.

It is easy for local oil experts to do Monday morning quarterbacking and declare that we should renegotiate the Stabroek Block contract without letting the Guyanese people know about the consequences of such action. Please consider the following:

1. The Stabroek block stretches from offshore Berbice, Demerara and most of it is in Essequibo. Since the sections offshore Essequibo were being claimed by Venezuela it was in our strategic interest to get an American Company to drill in this area. We do not have to spend hundreds of millions to create an effective navy to protect the floating production vessels compliments of the USA. Note the recent Joint Boarding Agreement signed between the USA and Guyana.

2. Getting the world largest oil company with proven capability in offshore drilling is desirable compared to the performance of CGX et al.

3. Exxon has the capability to invest the tens of billions compared to the other entities.

4. If the contract were open for renegotiation what message would be sent to all the investors we are asking to come and invest in Guyana. Guyana is a country that would not honour the contracts it signed especially with our history of nationalization.

5. Venezuela has one of the world largest oil reserves and it’s only a matter of time before Maduro and company are gone and Venezuela will be open for business. No doubt they will extend very lucrative contracts to bring back investment in their oil fields.

6. The Green revolution is coming at a fast rate and in a matter of 15 to 20 years or sooner the oil economy would be a fraction of what it is today. So, Drill Baby Drill.

7. The public is being misled by certain sections of the media that Exxon is handing Guyana a US 20 Billion dollars bill which is really their investment to search for the oil and get it to market. Any investor is expected to recover their investment and make a profit. Exxon have negotiated an aggressive amortization of their development and capital expenditures which are capped at 75% per year. However as these expenditures are amortized Guyana’s share of the profits increases with our 50% profit split plus the 2% royalty. Of course, these expenditures must be properly audited. In addition transfer pricing laws must be updated with penalties (eg. triple damage) for egregious cases of transfer pricing.

8. Because of the Billions being invested by Exxon, Guyana has become a credible investment destination and is able to leverage this to attract investors in other sectors of its economy.

9. Investors in the other blocks cannot expect to get the same deal as Exxon for taking the earlier risk of finding oil. If Exxon did not find oil, then they have borne the loss of the hundreds of millions they spent in searching for the oil with no recourse to Guyana.

10. A “cigarette box” calculation of Guyana’s share of the oil proceeds from only Liza-1, Liza-2 and Payara with certain assumptions of production costs, low oil price and amortization of development and capital expenditure cost over the next ten years is estimated to be at least US$15 billion.

Exxon must be fair to the Guyanese people with the gas to shore project and support the local content policy. A wise person is one who knows the relative value of things. I am happy to note that the Government of Guyana and our indomitable VP are not bowing to pressure from those who are incapable of strategic thinking.