If Guyana were to amend the Stabroek Block Production Sharing Agreement (PSA) to include ringfencing provisions, it would find itself in violation of the sanctity of that contract says Vice President, Bharrat Jagdeo. In fact, the former Finance Minister has argued that such provisions would kill the growth of the oil sector and the industry’s momentum.
In light of those three compelling factors, Jagdeo said government will make such corrections in its imminent model PSA.
The former Head of the United Nations High Level Advisory Group on Climate Financing said, “If we start ringfencing now we would run afoul of the contract but you can achieve the same objective by not approving any new projects and cap oilproduction at 800,000 barrels a day, so essentially you kill the investment pipeline for the future.”
He continued, “Now is this the best decision for this country ?
I don’t believe so for the following reasons. If you do that now at this stage you not only cap the future growth of the oil and gas industry which in the long run could be more lucrative for the country but you also kill the momentum in the industry that will service the sector.”
Even if Guyana gets more money upfront by implementing ringfencing provisions, Dr Jagdeo reasoned that the government would still spend the majority of it on developing a world class health, education and infrastructure sector.
“So we have discussed this and don’t we believe forcing ringfencing in the Stabroek PSA is in the interest of the nation’s future,” the Vice President concluded.
Several international stakeholders such as the United Nations Development Programme and the International Monetary Fund have stressed since 2015, the importance of having ringfencing provisions in the Stabroek PSA as it would prevent ExxonMobil from deducting expenses associated with other projects against one producing field.
This was and continues to take place with the Liza Phase One Project. In the absence of a ring-fencing provision ExxonMobil and its partners are deducting costs associated with the Liza Phase Two and Payara Projects against the Liza Phase One Project. In doing so, the already small profit to be split with the Guyana gets even smaller.