Thank you KN for your exposés on the oil sector. Reference is made to the Review of the Payara project (KN several dates). When I was asked for my opinion as someone who studied oil economics, I could not give a response other than to say I welcome “a review” as indeed every Guyanese and your paper.
However, from the outset, I stated to those who solicited my opinion that it was not clear what “the review” is all about. What exactly is being reviewed? Is it auditing or verifying the contract or something else? Every aspect of the production and the agreement needs to be reviewed and the financial and development benefits for Guyana. Do people understand the scale and magnitude of the process that needs reviewing? As a developmental economist, I am interested in the financial proceeds and safety. There are too many unanswered questions relating to this review. And I agree with Vice President Bharrat Jagdeo that it should be expedited so that production can commence earliest for financial returns.
The journalists did not ask the rights question. They have not acted like investigative or inquisitive or forensic reporters. The important end result about the ‘review’ is: “Would it change the one sided contract that was negotiated for Liza 1 and 2 or the Stabroek blocks or is that the precedent for all oil discoveries and recovery of oil? If the country won’t get several times the 2% royalty, then what is the review about? Money is the bottom line for a destitute country like Guyana. And off course safety (oil spill) or environmental impact. If we don’t get an increase in revenue then we would have wasted more money. Approval of Payara provides an opportunity to substantially increase royalty and profit percentages once a proper review is undertaken. Skill of Guyanese negotiators is key for increased benefits from any review of Payara and or all other contracts.
Legitimate questions are asked by some in the media on the competence and expertise of the (Canadian) team that is doing the review. The team may not have formal education in energy but some must have experience on legal matters pertaining to energy. It is a legal oriented as opposed to a technical oriented team as both reviewers are lawyers rather than energy experts. That is the team that is approved by Canada, the donor country as requested by the aid recipient, Guyana government. Government does not have much choice in the approval of the reviewer.
Those of us who study economics would know that the aid giver, Canadian government, has to give approval on the selection of the reviewer. Foreign aid has strings attached, one of which is to use the service of the donor country’s nationals or corporation. All donors have that condition.
Alison Redford, who was approved by the Canadian government, heads the review team. What is the connection between newly hired Alison Redford and the original Bayphase team hired by the coalition adminstration last December doing the review? Why are we only now learning about Bayphase? She is a former politician and a lawyer. She is not an economist who would have studied oil economics. She worked on constitutional and election reforms and on Canada’s foreign policy and has some background on drafting legislation on gas. There is no mention of her being an oil or gas or energy expert. Another member of the team Jay Park is also not an energy specialist or economist although he served briefly as a deputy minister of energy of a provincial (not national) government. But one does not have to be a specialist in energy to review the contract; hardly anyone in Guyana is an oil expert. It is expected both would act in the best interest of their client, the Guyana government.
A relevant question is what is the background of Bayphase that was initially hired by the coalition to do the review? What is its specialization? What work did it do? Its website is like that of an underdeveloped village organization. There is no oil expert in that team. They are lawyers and politicians, not even economists. Hiring that team smells fishy. Why wasn’t it announced before. Why was it secret?
It would be recalled that US $300 K was used to pay a UK firm IHS Markit for an audit of the $460M pre-contract cost. Chris Ram claimed it was overbilled by some US $92M. That audit has still not completed some eight months later.
I applaud the media’s focus on the oil contract. Morally, ethically and legally, according to international standards, Guyana should get some 12% in royalty and more than half the profits of the oil proceeds. Instead Guyana gets 2% royalty and 12.5% profit which is reduced because Guyana has to pay all of the oil companies’ expenses including for food, drinks, hotel, and taxes. Every percent increase in royalty or profit could see an increase of up to US$10 B for Guyana. The media should get a clarification on what is being reviewed and press the case for increase in royalty for Payara. The country is losing billions in American dollars annually from bad negotiations of the previous regime.
Yours truly,
Dr. Vishnu Bisram