From 12.5% to Nearly 40% – How Long Can the Good Times Last? – Part 3
Having promised renegotiation and abandoned it on taking office, President Ali offered the country a substitute. The 2016 Agreement would stand, but it would be properly administered. He argued that as leader of a country governed by the rule of law, he was bound by the legal axiom of sanctity of contract. What he offered instead was that the whole of the operations would be thoroughly scrutinised, the finances of the oil companies subject to strict audits, and the national interest protected by good management. That was the bargain put to Guyanese in place of the one they were promised. Parts I and II asked how much Guyana receives from Stabroek and how long the present position can hold. This part asks what becomes of the money once it arrives. Six years on that bargain can be tested, and the last fortnight has tested it.
On 18 August, at a press conference at the Office of the President, Ali announced that Guyana’s share of Stabroek Block oil had risen from 12.5% to 39.8% because the cost bank had been recovered two years early. He described the earlier position in these words: “In terms of barrels, 75% of every hundred barrels produced went to cost recovery.” Seven days later the Ministry of Natural Resources published in the pro-Government Guyana Times a letter headed “Guyana’s profit oil share has always been 50%”, which clarified that the 39.8% “is our share of every single barrel produced, before costs are taken out.”
The letter, which bore no signature, disingenuously sought to blame the politician Sharma Solomon for causing confusion. In fact, it was correcting the President, who was as careless as he was uninformed. But the Ministry was not much better. Take its statement that the 75% cap only “limits how fast [costs] can be repaid”. It does nothing of the sort. It is the ceiling on costs which may be claimed in any one year, or put another way, the floor beneath profit oil in that year. Whether the contractors reached that ceiling in any given year, and therefore whether 75 barrels in every hundred did go to cost recovery, is a question of fact which neither the President nor his Ministry has answered, because neither has ever published the figures.
What these show is a President who does not understand the Agreement and a Ministry which cannot state correctly what the cost recovery ceiling does or how the ministerial audit works. There has been neither renegotiation nor administration, and there is confusion besides. Better contract administration was less a policy than an excuse by an administration which knew its own limitations and chose to proceed regardless, asking no help of anyone. Whether either can be trusted with the Agreement is a separate question, and this column comes to it.
Let us look at another promise made and not kept, one that could have prevented or mitigated some of the dangers we are now facing. That is the Petroleum Commission. In April 2017 the APNU+AFC tabled a Bill in the National Assembly; it was referred to a Select Committee and died with the No Confidence Motion. The PPP/C came to office promising a Commission, and Mr Jagdeo committed to it explicitly and publicly at the consultation on the Local Content Bill on 13 December 2021. In 2026 there is no Bill, no draft and no timetable.
Cost audits, technical compliance and environmental monitoring are only the regulatory part of what such a body would do. Properly constituted, it would be reading the market and putting informed advice before the Minister. Recruiting outside the Public Service is what buys – engineers, cost auditors and lawyers the State cannot otherwise hold, testing production data against the operator’s own, examining cost claims as they are made rather than years later, and keeping the memory a Ministry loses at every change of government.
Instead, all of it rests with a Ministry answerable to the same Minister who deals with the companies obsequiously, and which has never troubled to master the mechanics of the Agreement or its own powers and duties under it.
Unlike its inability to honour commitments made, the Ali Administration is adept at borrowing and spending. Domestic public debt has climbed from G$264.6 billion in 2020 to a projected G$1,245.1 billion this year, and external debt from US$1.320 billion to a projected US$4.355 billion. One thing they understood – and acted on liberally – raising the borrowing ceilings. From G$150 billion prior to 2021 to G$1,500 billion in 2024, and the external ceiling from G$400 billion to G$1,500 billion. Ten times and nearly four, respectively.
Spending was a good companion. Capital expenditure was G$72 billion in 2020. The Public Sector Investment Programme for 2026 is G$779.6 billion, half the entire budget, and public spending between 2021 and 2025 came to some G$8.06 trillion. Savings moved in the opposition direction. The Natural Resource Fund Act 2021 allowed withdrawal of 100% of the first US$500 million of the previous year’s deposits, then 75%, 50%, 25% and 5% of each succeeding US$500 million, and 3% of anything above US$2.5 billion, so that the more the country earned the less of it could be spent. The Fiscal Enactments (Amendment) Act 2024 doubled the blocks to US$1 billion and raised the rates to 100%, 95%, 90%, 85% and 50%. On deposits of US$6 billion the old scale allowed US$1.38 billion out; the new one allows US$4.3 billion. Oh, and it has fixed the books in relation to the taxes paid for the oil companies.
Then there is the Contingencies Fund, which exists for genuinely urgent, unforeseen and unavoidable expenditure. The Constitution and the Fiscal Management and Accountability Act cap advances from it at two percent of the preceding year’s estimated expenditure. On a budget of G$1.558 trillion that two percent is now some G$30 billion. A ceiling written when the budget was a fraction of its present size has grown with it, and what was conceived as an emergency reserve is now a standing appropriation of thirty billion dollars a year, spent first and reported afterwards.
Receiving its largest revenue in history, the Ali Administration rewrote the rule requiring it to save and raised the limits on the amounts it can borrow – both in the same year! It is no longer a case of having money and spending it. It is having money, spending it, and borrowing besides.
Let me close this Part with a frightening thought. Many years ago, Distinguished Professor Clive Thomas put wastage and corruption at 20% of the Budget. I take that as a floor. Capital is now half the budget, and where infrastructure is paid for twice and lasts half as long, the loss on capital alone runs at a third or higher. On the basis of almost daily reports of corruption, the proliferation of discretionary expenditure, and Ali’s unwillingness to take it seriously, my own estimate is higher.
Now take the Professor’s figure and apply it to the G$8.06 trillion spent between 2021 and 2025. That is G$1.6 trillion lost – more than the whole of the 2026 Budget. Five years of waste and corruption would pay for a sixth year of government: every road, every hospital, every teacher and every pension. And nobody can tell us whether the true figure is higher or lower, because every institution that might have counted it is compromised, captive or non-functional.
To be continued