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Business and Economic Commentary by Christopher Ram Part 15

October 20, 2024

Uncertainty and confusion over Cash Grant

Introduction

The announcement of an immediate $200,000 per household among a Santa’s list of gifts, was met one day later by the removal of the word “immediate” followed by announcements, revisions, and clarifications regarding the cash grant initiative which had received widespread acclaim. Perhaps the most full-throated accolade came from prominent attorney and columnist Ralph Ramkarran who effusively described the announcement and address as a”masterstroke” that has “transformed the political discourse leading up to Christmas and the elections next year.”

Yet, what began as a bold proclamation by President Irfaan Ali has evolved into a case study of policy implementation challenges the country is facing under a Party that has governed Guyana for 28 of the last 32 two years.

The Revision and Lingering Questions

The latest position is that instead of $200,000 per household, the government would now provide $100,000 to every resident adult citizen 18 years and older. While this change addresses some implementation concerns, it has also given rise to a host of new questions and uncertainties.

“Resident” usually and in tax laws, is defined by physical presence in the country for more than 183 days. It would be interesting to learn whether the Government would apply this stringent measure in a circumstance that could operate in a manner that is adverse to its political interests.  

Despite the government’s stated intention to begin distribution “as soon as possible,” no specific start date has been announced, . This lack of clarity leaves citizens in limbo and raises questions about the government’s readiness to implement the program.

The Vice President announced some five months’ timeline but gave no indication of the order in which payouts will be made. Will it be based on geographic location, ease of accessibility, possession of qualifying papers, or whatever other criteria? So from total but unrealistic uncertainty of immediately, to some vague within five months. This also will reduce the political goodwill and support engendered by the original announcement.

Just as misleading, if not unacceptable, is the cost of the measure. Originally it was announced as $60 Bn, suggesting 300,000 households at $200,000 each. With the new proposal of $100,000 per adult, we are told that the revised grant would “substantially increase the $60 billion previously allocated for this measure.” However, this figure seems inflated given that Guyana’s adult population (18 years and older) is significantly less than 600,000. All the financial wizards have to do is look at the voting of the last elections and adjust for persons who would have become 18 on the arbitrary cut-off date of 1st. January 2024, deaths and migration. That number is certainly less than 500,000 so on the outside the amount to be paid out is $50 Bn. While it  is frightening to think that the government could not do that simple exercise, it is even more troubling to think otherwise.

One of the concerns raised about the proposal was that since there was no parliamentary approval for the payout, the Government was banking on the popularity of the measure as justification for violating the Fiscal Management and Accountability Act and indeed the Constitution. It is now left to be seen whether it will seek Parliamentary approval, as it should have from the outset.

Another tweaking was by the Vice President who suggested, without details, that there might be more such handouts. If this is now policy, it raises concerns whether the Government has reduced economic, social and financial management to receiving profit oil and royalties and paying these out as cash handouts to citizens, a clear abdication of the duties and functions of government. In narrowly defined circumstances, universal cash grants have their value but it is dangerous to think that they are a substitute for proper management.

NIS update

Commentary last week called for the official release of the outstanding reports of the National Insurance Scheme. The 2022 Report has now been published on the website of the NIS and confirms that the Scheme has turned a substantial surplus in 2022 which is more than likely to be repeated in 2023. Since the stated purpose of the injection was to assist contributors who are just short of the 750 contributions to qualify for a pension, it might just be a case of too much too late.

But that is only one of the multitude of problems facing the NIS, some of which are rooted in the past, and some due to past and present administrations.

Let us stop playing slow walk. The Government must be proactive in solving the myriad of problems which go well beyond just money – even $10 Bn.

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Every Man, Woman and Child in Guyana Must Become Oil-Minded – Column 140 – October 18, 2024

Exxon and Partners – Relinquishment Time

Introduction

President Irfaan Ali enjoys his encounters with international journalists, including BBC’s Steve Sackur and more recently New York Times’ International Climate Correspondent, Somini Sengupta. While the President has ably navigated the questions posed to him, he has benefitted from some important questions which Sackur and Sengupta failed to ask – like how he moved from “renegotiation” to “sanctity of contract.” Or the reason(s) for his country’s refusal to join more than 90% of the open countries of the world in signing the global Framework imposing a minimum corporation tax rate of 15% on companies like Exxon, Hess and CNOOC. Whether intended or otherwise, the beneficiaries are the oil companies, the sufferer being Guyana, It now begs the question whether a local journalist would raise these vital topics.

As if the 2016 Agreement is not sweet enough – no taxes, low royalty and a 40-year stability –  there is the relinquishment provision which gives Exxon almost exclusive control of the country’s most important sector for decades to come. While Exxon headlines the Stabroek Block, it controls the equivalent of 21% of Guyana’s total area of 83,000 square miles, through its involvement in the Stabroek Block, the Canje Block and the Kaieteur Block. With the exception of the East India Company up to 1857, there are no comparable statistics anywhere in the world, where a company enjoyed such dominant control over any country.

Contract Administration  

Having resiled from its renegotiation commitment, the Administration, ignoring the signal failures identified below, boasts about its contract administration, meaning how the Ministry of Natural Resources oversee the operation of the various Petroleum Agreements entered into by the Government of Guyana. Each and every failure comes at a cost and while the focus has understandably been about the Stabroek Block, it has detracted from Exxon’s role in two other blocks – the Kaieteur Block and the Canje Block, with significantly smaller areas than Stabroek.

Contract administration is a critical aspect of resource management, where the State must ensure that contractors fully meet their legal, fiscal, environmental and other obligations under their Agreements. Equally important is avoiding situations where, through poor oversight, negligence, or incompetence, companies receive greater benefits and more latitude than are legally permissible. Unfortunately, from the very inception of the 2016 Agreement, there have been concerning lapses in administration.

Contract failures and relinquishment

Raphael Trotman allowed Exxon to claim US$460 million in pre-contract costs, significantly more than their own financial statements revealed. Eight years after the Agreement was signed, not a single Ministerial audit has been completed, with only two audits combining several years instead of the required seven annual audits. Then there is the case of a staggering sum of US$211 million of unsupported expenditure being cleared at an administrative level rather than by the Minister of Natural Resources. These issues are facilitated by inadequate accounting and reporting, weak and permissive environmental oversight, and a lack of disclosure and accountability.

Another critical failure is in the handling of relinquishment provisions under the various Petroleum Agreements. “Relinquishment” refers to the obligation of oil companies to give up, within no more than ten years, the area over which they are granted a prospecting licence. This provision is crucial for ensuring that areas not explored, or which are proven unproductive are returned to the State, allowing for potential reassignment or conservation.

To understand the scale of this issue, let us examine the three Blocks where Esso is the Operator. According to the Guyana Geology and Mines Commission, these Blocks are as follows:

First, two quick asides. Exxon was permitted extraordinary latitude under the relinquishment clause of the 1999 Agreement, and now, under the legally questionable 2016 Agreement, it is allowed seven years instead of the usual four before it relinquishes any of the vast blocks it was awarded. Utilising an exception permitted in the then law, all that is required of Exxon after four years is to request a renewal, without any obligation to relinquish.

At the end of this renewal period, which lasts for three years, Exxon must request a further three-year renewal but must relinquish at least 20% of the original Contract Area, excluding Discovery and Production Areas. The retained area should comprise no more than two discrete areas, no piece by piece. At the end of that second renewal period, i.e., after 10 years, Exxon shall relinquish the entire Contract Area, with the exception of Production and Discovery Areas and Areas under Appraisal Programmes.

The Agreement was signed, dated and executed on 27th June 2016 but notarised on 7/10/2016 – which can be interpreted as 7th October 2016, or 10th July 2016. Even if we accept the word of Exxon’s former clandestine public official doing secret PR work for the company, Exxon should have given up 20% of the Stabroek Block no later than 7th October of this month. The big question is whether any such relinquishment has been effected.

For the Canje Block, 20% of the contract area should have been handed back by 4th March 2019, and another 20% by 4th March 2022, with the remainder to be handed back by March 2025. For the Kaieteur Block, 20% of the contract area should have been handed back by 28th April 2019 and another 20% by April 2022, with the remainder to be handed back by April 2025.

Question of Administration

All companies awarded petroleum agreements must apply for renewal of their licenses before the current period ends. This is crucial because each renewal comes with the obligation to give back (relinquish) part of the area they control. In this regard, I do not recall any public disclosure of timely applications for renewals, the extent of the relinquishments and whether the applications were granted.

The administration of the petroleum agreements covering vast areas of Guyana’s territory is about the country’s sovereignty as well as our national patrimony. The public has a right to know how these areas are being managed. Any carelessness in administration comes at a huge cost to Guyana, and by not enforcing relinquishments as stipulated, the country can lose opportunities to re-auction areas bringing in substantial revenues since the country is de-risked.

Conclusion

The administration of Guyana’s oil blocks reveals a complex picture of rapid development coupled with significant challenges. While the success of the Stabroek Block has brought benefits, the apparent lack of enforcement of relinquishment provisions in other blocks raises serious concerns about the overall management of our oil resources.

Next week, we will look at the Prime Minister Samuel Hind’s defence of Exxon.

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Business and Economic Commentary by Christopher Ram Part 14

October 13, 2024

Focus on Budget 2025?

Introduction

In what was probably his most consequential address to Parliament, President Ali, this past Thursday, gave us more than a glimpse of what will be announced in Budget 2025 – an election year. It was a comprehensive and ambitious presentation, embodying responses to calls by various stakeholders for several years. The President also reflected on his Government’s achievements since retaking power in 2020, outlining them in detail before turning to the future – 2030 and beyond. With oil revenues driving the economy and the agenda, the President committed vast sums to reshape Guyana’s future, improve living standards, and build a modern, resilient nation.

At times, the address felt personal, with the President using the word “I” more than fifty times as he laid out his vision for harnessing oil revenues to fund large-scale cash transfers, subsidies, and public investments.

The headline-grabbing measures included a one-off $200,000 cash grant per household, the abolition of bridge tolls (primarily benefiting those crossing the Berbice River), a 50% reduction in electricity costs, free university tuition, and a child allowance for tax purposes. Additionally, the President committed to raising the public service minimum wage to $100,000 and transferring $10 billion to the National Insurance Scheme (NIS) to help contributors who did not make the 750 contributions required to earn a pension. These policies aim to provide immediate financial relief to citizens, while other cost reduction measures seek to further ease economic burdens.

Economic Risks and Sustainability

From all the vibes, the initiatives are popular and have the potential to improve living standards, but they do come with risks that demand serious attention. The pace and scale of spending raise concerns about fiscal sustainability, particularly given the reliance on the Natural Resource Fund. If the economy overheats, as it certainly will, there would be significant inflation, pressure on the exchange rate, and the exacerbation of challenges related to Dutch Disease and the Resource Curse. Delay or failure to engage in robust and meaningful planning only heightens these risks. Seizing this unique opportunity without falling victim to the maladies of other resource-rich nations will require prudent fiscal management.

Inflationary Pressures and Economic Imbalance

It is likely that even the private sector might have been caught off guard by the influx of billions of dollars into the economy, with little time to adjust internal supply capacity and imports at this short notice. If available goods and services do not meet the increased demand, inflation is inevitable. There is also the risk of price gouging, particularly in sectors controlled by a small number of players and groups which dominate the distribution sector. The economy, already growing at breakneck speed – averaging a 40% annual GDP increase over the past three years – may face inflationary pressures that could diminish the value of the very cash grants intended to assist citizens.

The Government has yet to clarify how it plans to mitigate these problems. Even if inflation is partially managed, the impact will still erode the purchasing power of citizens, creating the risk of a cycle of handouts followed by price increases and further economic instability. It will be crucial for the Government to find ways to ensure this does not happen.

Exchange Rate Management and Dutch Disease

Despite the talk of food security, many consumables –  including an increasing range of food products, and water – are imported and paid for in foreign currency. The economy is already experiencing tight foreign currency liquidity, which could worsen unless the Government, through the Bank of Guyana, takes proactive measures to address this strain. The paradox of a highly successful economy that exports vast quantities of oil, yet experiences foreign currency shortages, is glaring, especially with much of the Natural Resource Fund already spent. Labour, too, is increasingly being redirected to the petroleum sector, with implications for Dutch Disease.

Even as the Government finances large-scale social and physical infrastructure projects, these investments may undermine the competitiveness of sectors such as agriculture and manufacturing. Diversifying the economy beyond oil is not just a goal but a necessity for long-term stability. The Government has to pay more attention to this reality.

University of Guyana and the Guyana Power and Light Inc.

While free tuition to the tertiary level is a long-overdue constitutional goal and is welcomed without reservation, this is a recurring cost of billions of dollars. The same goes for the electricity subsidy, which offers short-term relief but does not address the underlying inefficiencies of Guyana Power and Light Inc. (GPL). Some might view the electricity subsidy as merely a way to prop up an outdated model of generation and transmission, rather than modernising the system to meet the needs of a growing economy.

Both these subsidies will likely continue indefinitely, as no future government would dare reverse them – making it all the more important to ensure that these liabilities are managed wisely. GPL’s issues cannot be solved by subsidies alone; they require substantial reform to create a stable, reliable, and modern electricity grid.

Labour Market and Incentives

President Ali referred to Guyana’s tight labour market as a “good problem,” indicating economic vitality. Yet, unemployment remains high in certain parts of the country, with many people either unwilling or unable to join the workforce. There is a risk that the combination of cash transfers and subsidies may inadvertently disincentivise employment unless measures to improve labour force participation and productivity in a timely manner.

The decision to raise the minimum wage in the public sector to $100,000 is commendable, but it should have been accompanied by an adjustment to the national minimum wage to avoid disparities between the public and private sectors. Failure to address these differences, runs the risk of public sector employment crowding out the private sector, further exacerbating the labour shortage in non-government sectors, which already face competition from the petroleum industry. To build a balanced and sustainable economy, private sector development must be a priority, with policies aimed at fostering entrepreneurship and job creation.

The National Insurance Scheme

The announcement by the President of a $10 Bn. injection is an acknowledgment and welcome attempt to resolve a recurring and longstanding problem in the NIS. That deals with the demand side. We anxiously await the details and the enabling legislation to address the myriad challenges facing the NIS, including inadequate physical and human resources, outdated legislation, and enforcement against non-compliant employers. An urgent, more holistic approach to NIS reform is needed, including updating laws, improving enforcement mechanisms, modernizing systems, and ensuring long-term actuarial sustainability.

One simple step the NIS needs to take is publish its outstanding financial reports.

Taxation

The two references to taxation were on tax holidays in which the President reinforced expanding the number of regions which can qualify on the basis of new employment generation and the introduction of the child tax credit, allowing parents to claim an additional deduction of $10,000 per month per child. This is another case of itemised deductions, from which Guyana had previously moved away from in favour of a simpler tax system.

This may be well received but it will increase the workload of the Guyana Revenue Authority and test its capacity to prevent fictitious claims by taxpayers. It would be much simpler to raise the threshold and make the personal tax system more progressive.

Targeted Social Programmes and Efficiency

While the universal cash transfer of $200,000 per household may seem straightforward to administer, it raises concerns about the efficiency of resource allocation. A one-size-fits-all approach dilutes the impact of these programmes in addressing inequality. A more targeted system – such as means-tested grants – would ensure that resources are directed toward those who need them most, maximising the effectiveness of government spending.

Funding and Long-term Considerations

President Ali is acutely aware that current high oil prices are driven by global conflicts in Europe, the Middle East, and Africa. However, these prices will inevitably fall, and production in the Stabroek Block could decline post-2030. If diversification efforts are not successful, the country could face significant fiscal challenges when oil revenues decrease. Without other sources of revenue, Guyana’s ambitious commitments could become unsustainable, leading to budget shortfalls and austerity measures.

The President’s address did not devote enough attention to how these programmes will be funded in the long term, particularly in the event of declining oil prices. Diversification is the only solution, but meaningful progress in this area seems to be absent from the current agenda.

Conclusion

The President’s vision for Guyana is bold and imaginative, centred on using the country’s newfound oil wealth to improve living standards, investing in infrastructure, and creating opportunities for all Guyanese. For this vision to succeed, however, it will require competent management, a diversified economy, and strong adherence to the principles of good governance –  transparency, accountability and a commitment to reducing corruption.

The address did not explore potential “what-if” scenarios or some of the costly risks involved. While it is forward-looking, there are major concerns—inflationary pressures, exchange rate volatility, and the long-term sustainability of public spending—that must be addressed. Additionally and undesirably, the Natural Resource Fund may increasingly be used to support recurrent expenditure, raising further concerns.

Hopefully, Dr. Ashni Singh, the Minister responsible for finance, will address these in the 2025 Budget.

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A Call for Better Road Management and Traffic Solutions

Dear Editor,

The Government often touts its extensive and expensive infrastructure projects as one of its key achievements. Yet despite billions of dollars being spent each year, the quality of road management remains deplorable and dangerous, contributing significantly to the high level of accidents and deaths on our roads.

Every month, about a thousand new vehicles are added to our roads, a large number of them converging daily on the capital city. This influx, compounded by poorly maintained infrastructure, is causing unbearable traffic jams costing countless man-hours, waste fuel, and further harm the environment. Many of the commercial vehicles, too large for the narrow, deteriorating roads, contribute to the worsening road and traffic situation. The absence of proper planning and management to accommodate this growing traffic volume is glaring.

Just after 6 PM this past Sunday (a non-working, non-school day), I experienced firsthand the unacceptable state of road conditions between Waterloo Street in Georgetown, where I work, and Ogle on the lower East Coast Demerara, where I live. Along Carifesta Avenue, only a couple of streetlights were functioning, leaving much of the road in darkness. On the East Coast Highway, the medians are poorly marked, forcing drivers to navigate treacherous conditions, compounded by oncoming vehicles blinding them with high beams. I even had to turn on my hazard lights due to the poor visibility and dangers on the road!

The situation on the Railway Embankment Road from Turkeyen to Ogle is even worse. Potholes and unevenness are common, large unlit vehicles are parked  on both sides, encroaching on the roads, while the traffic lights at the junction of Embankment Road and Ogle Airstrip Road have been non-functional for several days. To make matters worse, the Airstrip Road itself is in a terrible state of disrepair.

Meanwhile, our political leaders, who are quick to celebrate multi-billion-dollar road projects, are chauffeured around, some with sirens, and seem uncaring of the everyday frustrations faced by the average road user. They remain detached from the reality of those who navigate these poorly managed roads daily. Despite all the funds spent, it is clear that the core issues — maintenance, proper planning, and traffic management — are being neglected, by all state agencies involved.

New roads alone, without proper management, will not solve the growing crisis. The Office of the President, where much of the planning resides, along with the Ministry of Public Works, the Ministry of Housing, and the police, must bear responsibility for the consequences of their poor planning, coordination, and execution. The State, through its incompetence, failures, and inattention, is directly responsible for the hazards that road users face daily. I urge the relevant authorities to not only focus on building new roads but to ensure the effective management, maintenance, and long-term planning of our existing infrastructure. Immediate action is critical to prevent further loss of life, productivity, and resources. It is time the authorities address these issues so that the citizens of this country no longer have to suffer in silence.

Finally, I take this opportunity to appeal to my fellow citizens, who daily endure similar challenges in other parts of the country, to speak out and let our politicians hear their voices. If we fail to act, we will have no one but ourselves to blame when this crisis turns into a permanent nightmare.

This letter is being sent to the Office of the President, the Ministry of Public Works, the Ministry of Housing, and the police to ensure that those in positions of responsibility are directly informed of the concerns raised, and more importantly, will act on them.

Sincerely,
Christopher Ram

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Business and Economic Commentary by Christopher Ram Part 13

October 6, 2024

The long overdue Census

Introduction

The Census is not only a core function of the Statistics Act of Guyana but is the very first function listed under the Act which was passed one year before the progression from a colony to a country. Prior to the Act, responsibility for statistics largely rested with the ministries and departments of government, outside of any central coordination. The Act brought a more centralised structure into being, its timing providing the government with the power to collect, analyse and disseminate information to foster informed planning and decision-making both by the government and the people. Indeed, as the Minister responsible for Finance stated in his 2022 Budget Speech, Census 2022 would “establish baseline data sets that will guide policies at all levels”.

It is very unfortunate however that policies by the current administration are formulated when key political figures visit regions in the country, speak at ceremonial functions, or at press conferences, without any reference to data compiled by the Bureau of Statistics. Because the Bureau has largely operated under the thumb of the Ministry of Finance, it has operated outside of the public purview, a necessary ingredient for enhancement in efficiency and utility. Indeed, the public, unfairly, associates the Bureau entirely with the ten-yearly census which is has never performed with distinction, almost always late. Indeed, increasingly so as the following table shows:

  1. The 1970 census; Report published in 1972.
  2. The 1980 census: Report published in 1982.
  3. The 1991 census: Report published in 1994.
  4. The 2002 census: Report published in 2005.
  5. The 2012 census: Report published in 2016

The census which should usually coincide with the commencement of each decade was announced in September 2022 – two years after the PPP/C resumed the reins of power and two years and nine months after the preferred international census date. Of course, even this was turned into political theatre with the Bureau announcing that “the first persons to be counted were the households of the President, Prime Minister, and the Leader of the Opposition”, going so far as to naming the offspring of the President and the Prime Minister. It would be great if such obsequiousness and tastelessness were matched with better quality and range of output from the Bureau.

Vague timelines

In March 2023, the Chief Statistician was quoted in the press as stating that preliminary results of the census had revealed significant shifts in the population”, without offering a preliminary report, as would be the norm. Adding another twist to the timeline, the Minister of Finance told the National Assembly in December 2023, that the report was “slated to be made available to the government by the second quarter of 2024” but that the bureau would require a further four to six months from that time for preparation and publication of all reports. This begs the question whether the preliminary report is for the eyes of the Government only and why the public is not permitted access to that report.

The Bureau and the Government must understand that this census is historic and critical since it will be the first after the discovery of oil in Guyana, the most game changing economic event in this country’s history. That planning and major expenditure are taking place in this census vacuum is not only unfortunate but unacceptable. Since that time, the country is witnessing an explosion in largescale and transformative projects, in major roads and other infrastructure, in building a new city from the ground up, in locating about a dozen new hospitals, in more than a single gas-powered plant, and in the construction of schools and court houses etc. It means that Guyana will have expended as much as trillions of dollars without a proper population, household and demographic census, labour availability and unemployment conditions, in place.

Anyone visiting the Bureau’s website will have noted that there is information but more in the form of raw data, very little of it sufficiently organised and mostly with no analysis, as its Act requires. The Bureau needs to organise focus groups to meet with its technical team(s)  to consider ways of making the trove of information it collects more relevant and useful.