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Jagdeo changes his mind on interest rates charged on ExxonMobil investments
Before Jagdeo: “Whether you raise money in the form of a loan or equity, you have to get a rate of return. Capital has a cost, that’s just the fact.”
Jagdeo now: “Last week, I explained for the 100th time that Cost Bank does not charge any interest… Now, as of now, Cost Bank does not charge any interest, zero interest.”
…previously said “there is a cost of capital”, now claims no interest is charged
Kaieteur News – ExxonMobil’s return on investment has been hotly pursued by stakeholders for years because without a cap on costs, it would be easy for the oil company to abuse the provision and lose millions or even billions of dollars each year.
Dr. Bharat Jagdeo, Vice-President
The lopsided production sharing agreement (PSA) with ExxonMobil and its partners allows for the recovery of uncapped investment interest to cover expenses related to the Stabroek block without the need for prior approval by the Minister of Petroleum.
The production sharing agreement provides in Schedule “C” for the recovery of costs without prior approval of the Minister, “interest, fees and related expenses and other financing costs incurred on loans raised by the parties consisting of contractors for the petroleum operations, provided that such fees, expenses and costs are consistent with market prices.”
The issue has been raised several times in Vice President Bharrat Jagdeo’s press conferences, with different responses given over the years.
“Raising funds is difficult”
The public will recall that the oil sector’s chief policymaker had previously told reporters that the issue was complex and reflected the cost of raising funds. Raising capital for the oil and gas industry is a difficult taskBecause many banks around the world no longer support projects related to fossil fuels.
Despite concerns among Guyanese that the regulation will cost the country billions of dollars, Jagdeo said the government wants to keep the oil industry moving forward and attract investment.
“We don’t want to kill the momentum,” he said. “Once you start to kill the momentum of the industry by starting disputes, everything here will dry up temporarily. Then you also lose the investment money that is so scarce in the industry right now, which is what we want to flow in here so that our local people can start to live better.”
“Ask ExxonMobil”
When the matter was raised again at another press conference hosted by the Vice President, he instructed Kaieteur News Questioning the interest rates ExxonMobil charges the country.
In October 2023, Alistair Routledge, President of ExxonMobil Guyana, explained at a press conference Guyana is not charged interest rates Billions of dollars have been invested in the Stabroek block.
According to him, “ExxonMobil does not charge any interest on the money we recover for projects like the Liza project, and we do not charge Guyana for financing costs, so it was previously said that Guyana owed a debt to Stabroek investors, but that is not true.”
Later, Routledge asked Jagdeo to confirm the claims, to which Jagdeo said: “If he said so and there is an interest rate and there is an interest rate charged by the cost bank, then it is not permissible. So as far as I am concerned, it is a simple matter for me.”
“Doing business has costs”
Meanwhile, in a press conference in June 2023, the Vice President stated Guyana to pay ExxonMobil Because it is standard practice for companies to generate returns on their equity. “Whether you raise money in the form of loans or equity, you have to get a rate of return. Capital has a cost, that’s just the fact,” Jagdeo asserted.
Tune Change
The Vice President again addressed the issue on Thursday following a statement by the People’s National Congress Reform Party (PNC/R) and the Alliance for Change (AFC) regarding the company’s failure to disclose the rate of returns it collects.
He said: “Last week I explained for the 100th time that Cost Bank does not charge any interest… Now, as of now, Cost Bank does not charge any interest, zero interest.”
Jagdeo said auditors confirmed this when they reviewed the company’s expenses. The vice president further explained that ExxonMobil did not finance its operations in the Stabroek block through loans, but rather raised funds from the company’s profits there, which were not handed over to the parent company.
But it is important to note that the PSA also allows the operator to deduct interest on “other financing costs” from the company’s earnings, which includes the company’s equity contribution or investment. This means that interest payments are not limited to the loans ExxonMobil has taken out to develop the Stabroek block.
“I pointed out that the auditors have checked this… they raise funds through equity and earnings and that is not repatriated to the parent company. I pointed out that they lease a number of FPSOs so the people who lease the FPSOs may charge fees or borrow money so they incur interest costs but that is included in the cost of the lease so ExxonMobil leases the vessel but the interest costs of the people who lease the vessel may be included in the cost of the lease,” Jagdeo said.
To this end, he made it clear that “the interest charged on the cost bank is currently zero.”
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