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Jagdeo refuses to discuss ExxonMobil investment rates
Dr. Bharat Jagdeo, Vice President
– Citizens have been kept in the dark since oil extraction began
Kaieteur News – As the Guyanese government approves an increasing number of oil projects, the issue of interest rates charged by ExxonMobil Guyana Limited (EMGL), the operator of the Stabroek Block, continues to cause concern among Guyanese. However, Vice President and chief decision-maker for the sector, Bharrat Jagdeo, has dismissed these concerns.
It must be noted that several countries, including neighboring Suriname, do not allow oil companies to charge interest on their investments.
Earlier, Vice President Jagdeo said Guyana paid a percentage of interest to ExxonMobil because it was standard practice to generate a return on a company’s equity. “Whether you are raising money in the form of a loan or equity, you have to get a percentage of return. Capital has a cost, that’s just the fact,” Jagdeo insisted. Despite repeated attempts by this newspaper to clarify the issue, the government has refused to tell the nation how much interest the companies were charging on their investments.
ExxonMobil and its partners Hess and CNOOC contribute annually to support operations in the Stabroek block. As a result, each of these companies receives interest on their financial investments. While Jagdeo confirmed that the rate of return is reasonable, the country’s resources are being used to pay these companies, so the rate of return remains a mystery.
He recently told our reporter at his weekly press conference at the Freedom House on Rob Street that the rate cap is an “old issue” that he has “dealt with countless times.” Our reporter asked the Vice President: “Sir, when are you going to join other oil-producing countries in capping the interest rates of oil companies?”
He said: “I’m not going to deal with this. This has been dealt with a million times before. This is an old issue that has been dealt with a million times before.” Despite his claim to have dealt with the issue a million times, the interest rate appears to be kept strictly confidential as the public does not yet know the financial burden they will bear in the coming years. ExxonMobil is free to recover the interest, expenses and fees incurred on the loan to develop the resources in the Stabroek block without the consent of the Minister of Petroleum.
This is outlined in the 2016 Production Sharing Agreement (PSA) signed between Guyana and ExxonMobil and its joint ventures Hess and CNOOC. Annex C to the agreement, specifically Section 3.1, sets out the fees that can be approved without ministerial approval, which states: “…interest, fees, related charges and other financing costs incurred on loans raised by the parties consisting of contractors for petroleum operations, provided that such fees, charges and costs are consistent with market prices.” Despite repeated requests, the government is reluctant to disclose the interest rates charged by developers.
Asked to clarify the issue during his weekly media session last October, Jagdeo said He won’t “confirm anything”. In the same month, Alistair Routledge, Country Manager of ExxonMobil, said in response to questions from this publication that Guyana has not charged interest on its multi-billion dollar investment in the Stabroek block. According to him, “ExxonMobil has not charged any interest on projects such as the Liza project that we have recovered, and we have not charged Guyana any financing costs, so some people have said before that Guyana owes a debt to the investors in Stabroek, but this is not true.”
Routledge continued: “The country will never be in debt; that’s the beauty of a production-sharing agreement, the investor bears all the investment risk. We invest the capital and the cost recovery mechanism only pays back the dollars we invest,[so]there is no financing component.”
To clarify the statement made by the President of ExxonMobil Guyana Limited (EMGL), Kaieteur News The Vice President was asked to confirm whether the information was true during a press conference on Thursday. The policymaker made it clear that he would not confirm the situation but ultimately failed to shed light on this critical issue for the country’s oil industry. “I will not confirm any such thing. I will not confirm anything. If he says so and there is an interest rate and there is an interest rate that the cost bank charges, then it is not allowed. So as far as I am concerned, it is a straightforward matter for me,” the Vice President said.
Jagdeo has been dodging questions about the interest rates charged by oil companies.
Last November, during a press conference hosted by Natural Resources Minister Vickram Bharrat, Kaieteur News specifically asked the minister to confirm the rate of return on ExxonMobil’s multi-billion dollar investment in the Stabroek Block.
The minister went on to give an unrelated answer, explaining that Guyana is not investing in the oil and gas industry. “The government is not investing directly in the oil and gas industry,” he said. “I think that is the misinformation that is being spread, that our people have this perception that the government is taking money and investing it in oil and gas, but if I ask you as the media how much money is Guyana investing in offshore oil and gas exploration, we are not investing anything. We are not investing anything, not a penny in exploration, not a penny in upstream activities offshore Guyana.”
IMF recommendations
Meanwhile, several international organizations, such as the International Monetary Fund (IMF), have warned Guyana of the potential for abuse if companies are allowed to recover 100% of their investments in interest. In fact, the IMF warned in an independent report that Guyana should, as a safeguard, limit the amount of interest it is allowed to recover. In a 2018 report, the IMF stated that “The treatment of interest charges in the Stabroek Production Sharing Contract is very generous and constitutes a significant source of potential revenue leakage.” In fact, the IMF said it looked at several scenarios that suggest there could be “excessive or abusive” use of loans by oil companies to finance oil projects. The IMF said it looked at three scenarios, including one in which 75% to 100% of the development costs of the Liza One and Liza Two projects in the Stabroek block were financed by loans with a repayment period of 10 years and an interest rate of 10%. The IMF said the revenue loss could be as much as $2.6 billion. The organization said the practice could have an “adverse impact” on government revenues.
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