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Reply to "BADAL ‘BAGS’ BILLIONS- and the poor gets poorer."

Pre-contract costs are no chicken feed

Guyanese are excited about first oil happening for Christmas. But they should remind themselves about the pre-contracts costs which have to be paid – that is, the costs of Exxon’s exploration prior to the signing of the contract on October 7, 2017.
Pre-contract costs for the period 1999 to 2015 have been tagged at US$460M. And from January 2016 to October 2017, it is estimated that the oil companies would have ratcheted up another US$400M in pre-contract costs. This means that even before oil production begins, Guyana has to repay to Exxon and its partners close to US$900M.
Most Guyanese have dismissed these costs as incidental and insignificant relative to the oil revenues that Guyana will earn. They claim that the country will earn enough to pay off easily the pre-contract costs. And therefore they are not paying much attention to verifying these costs to ensure that Guyana is not overbilled.
US$900M is about three times what Guyana is expected to earn in 2020 from oil production. US$900M is a great deal of money, anyway you look at it.
It is not the sort of money which should be easily dismissed. With US$900M Guyana can construct three international airports, one for each of our three counties – Berbice, Demerara and Essequibo. In addition to that, it can build two more bridges each across the Demerara and Berbice Rivers, and create a bridge link between Parika and Leguan. The country can also develop another highway from Crabwood Creek to Georgetown and then to Timehri. All of these things can be done, with money left over, for less than US$900M.
Kaieteur News has been like a voice crying out in the wilderness. It has been pointing out how the country has been shortchanged during the oil negotiations. The population is not saying anything. People are so divided politically that many do not wish to admit what they know in their hearts: that the country’s got a 6 for a 9 in the negotiations.
People are more excited about how the oil revenues are going to be spent rather than addressing how much more the country could have been receiving. People are proposing things for the government to do without calculating how much the country will receive. This is called counting your eggs before they are hatched.
With 2% royalty and 75% cost recovery per annum without ring fencing, Guyana will not be overflowing with riches anytime soon. Some persons have said that the oil riches will come after the first five years – that is from 2025, when oil production is expected to increase. But no one has asked what is likely to happen to oil prices within the next five years. There is no guarantee that with fracking and improvements in renewable energy the price of oil will stay as high as it is projected to do.
Oil don’t spoil is what Eric Williams once told Forbes Burnham. But oil runs out. And Guyana’s oil is going to be exhausted within the next 40 years. This is not as long as people think, considering that Guyana gained independence 50 years ago, which seems like only yesterday.
So what is going to happen to our children and grandchildren when the oil is exhausted? The argument is that they will be well taken care of, because oil revenues are going to be placed in a sovereign wealth fund.
What this means in practice is that all of oil revenues cannot be spent during the next forty years. The government has to make provisions for the next 100 years, and therefore only a percentage of that which is going into the sovereign wealth fund is going to be available for spending locally. This is all the more reason why instead of staying silent, Guyanese should have been demanding a better deal from Exxon.
Guyanese will continue to live in hope and die in despair because they are divided, even on an issue which should have united them: ensuring a better deal for our children and their children. They are so divided that our journalists are not even prepared to ask simple questions.
The President of Guyana was live on Kaieteur Radio last Friday and the one question which was not posed to him was whether the oil deal was signed behind his back. Jan Mangal, a former adviser to the government, has publicly said that the President seemed surprised when he told him that an agreement had been signed. No journalist has had the courage to ask the President whether he approved of the deal before it was signed.
And if the media is divided that it cannot pose such a simple question, then what hope is there that the government would be scrupulous in auditing pre-contract costs. Just consider how much could have been done with US$900M and you will appreciate how important it is to ensure these costs are verified

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