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VP Jagdeo finally reveals ExxonMobil gets ‘huge’ return on equity
Vice President Dr. Bharrat Jagdeo, Natural Resources Minister Vickram Bharrat and Petroleum Department Head Bobby Gossai
After four years of oil production…
…Minister Bharrat and Petroleum Department chief Bobby Gossai claim Guyana is not charging any interest
Kaieteur News – Since oil production began in 2019, Guyanese have been concerned about the return on the company’s investments as Guyana could be defrauded of billions of dollars through unfair interest charges.
Vice President Bharrat Jagdeo, who is in charge of the petroleum sector, has been asked at several press conferences in the past about the “interest rate” charged by the company. This fee is particularly important under unfair oil contracts because the developer ExxonMobil can deduct it at will without the prior consent of the minister in charge of the sector.
Jagdeo told reporters at a press conference on August 8 that Cost Bank did not charge any interest. Jagdeo made the remarks following a statement issued earlier this week by the People’s National Congress for Reform (PNC/R) and the Alliance for Change (AFC) calling on the government to make a full disclosure on the matter.
Yet a week later, Jagdeo described the company’s returns as “tremendous” at a press conference held at Freedom House in Georgetown on August 15.
What has changed?
It is important to note that the “interest rate” issue does not apply to Guyana because ExxonMobil did not use the loan to develop the resources discovered in the Stabroek Block.
Instead, the company makes “equity contributions” to resource development through its shareholders – as described in ExxonMobil’s financial statements. Jagdeo said the rewards here are “huge.”
He explained: “If you provide financing, and nobody else does, you’re a free investor, and if you have costs then you recover them. So you get a return whether it’s in the form of a loan or equity. So in this case, Exxon has made it clear that there are no interest costs. They’re funding the operations with equity and their own retained earnings. There are no interest costs, so don’t you think they’re getting a return on equity? They’re getting a huge return on equity, and that’s exactly what’s happening here. They chose not to go the interest route, but they’re getting a return on equity.”
No interest rate
The Vice President’s engagement with the media came just a day after Natural Resources Minister Vickram Bharrat hosted a semi-annual press conference where he made it clear that ExxonMobil was not charging Guyana any interest.
Kaieteur News had asked Barat to clarify whether the company had seen a return on its investment, but Barat denied the claim.
“There is no interest on equity. No interest is charged on the cost bank bottom line. From today, no interest is charged on the cost bank,” the minister said.
Bobby Gossai, head of the petroleum department of the Ministry of Natural Resources, also stressed in his speech that no interest would be charged to the cost bank.
“At present, no interest is charged for the operation of the Stabroek block. Neither development nor production activities,” he assured.
Rate of Return
Although it has now been revealed that ExxonMobil received a “substantial” return on its investment, policymakers have been careful not to reveal the specific rate of return on the company’s equity contribution.
In a previous statement, the PNC/R stressed that tens of billions of dollars have been invested to date to develop the oil fields. Therefore, it noted that even an interest rate of 5% would impose huge costs on the country. To this end, the political group pointed out that Guyana could lose billions of dollars in lost revenue.
“These funds could be used to alleviate the cost of living crisis, increase wages, fight poverty and meet many other urgent needs,” the PNC/R said.
The International Monetary Fund (IMF), one of Guyana’s main development partners and an adviser to the oil industry, previously said the government currently does not allow the recovery of interest on loans, as is industry practice, and even if it were allowed to do so, the government would set caps or limits to prevent the full amount of interest from being recovered.
In Guyana’s case, the country not only allows the recovery of financing costs, but also sets no cap, which means that as the company’s investment in the Stabroek Block increases, its return on equity investment may rise significantly; therefore, Guyana’s share of profits from the industry may become smaller and smaller.
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