The rate of return on ExxonMobil’s investments has been avidly pursued for years by stakeholders, as without a cap on this cost, oil companies can easily abuse the provision, walking out with millions and possibly billions of US-dollars annually.
The lopsided Production Sharing Agreement (PSA) with Exxon and partners allows the recovery of uncapped interest on investments to meet expenses related to the Stabroek Block, without the prior approval of the Minister with responsibility for Petroleum.
The PSA states in Annex ‘C’- at costs recoverable without the prior approval of the Minister- that “interest, expenses and related fees incurred on loans raised by the Parties comprising the Contractor for Petroleum Operations and other financing costs provided that such expenses, fees and costs are consistent with market rates.”
This question has been frequently raised at Vice President, Bharrat Jagdeo’s press conferences with varying responses being provided over the years.
‘Raising capital is difficult’
The public would recall that the Chief Policymaker for the petroleum sector previously told reporters that the issue is complex and reflective of the cost of raising capital. He argued that raising capital for the oil and gas industry is a difficult task, as many banks worldwide are moving away from supporting projects linked to fossil fuels.
Though Guyanese are concerned that the country could lose out on billions unreasonably through this provision, Jagdeo indicated that the government wants to maintain momentum in the oil sector and attract investment to the country.
He said, “We don’t wanna kill the momentum. The moment you start a dispute to kill the momentum of the industry, everything dries up here for a while. And then you also can’t get the investment dollars that are so scarce now for this industry to flow, which is what we want to flow here so our local people can start doing better too.”
‘Ask Exxon’
When the matter was raised again at another press engagement hosted by the VP, he directed Kaieteur News to question ExxonMobil on the interest rates it is charging the country.
In October 2023, President of ExxonMobil Guyana, Alistair Routledge during a press conference explained Guyana was not being charged an interest rate on its multibillion-dollar investments in the Stabroek Block.
According to him, “ExxonMobil is not charging any interest on what we are recovering like for the Liza projects and the likes, we are not charging financing costs to Guyana so one of the things that’s been raised before is Guyana in debt to the Stabroek investors and it’s not true.”
Jagdeo was later asked to confirm the statements by Routledge when he said, “If he says that and there is an interest rate and there is a charged interest rate in the cost bank then it wouldn’t be allowed. So it’s a straight forward matter for me as far as I’m concerned.”
‘There is a cost of business’
Meanwhile, at a press conference in June 2023, the VP said Guyana was paying a rate to Exxon as this is a standard practice for a return to be generated on a company’s equity. “Regardless of whether you make the financing in the form of a loan or equity you have to get a rate (of) return. There is a cost of capital and that is how it is,” Jagdeo asserted.
Tune changes
On Thursday, the Vice President revisited the subject, following statements by the People’s National Congress Reform (PNC/R) and the Alliance For Change (AFC) on the non-disclosure of the rate of return charged by the company.
He said, “Last week I explained again for the 100th time that there is no interest charged on the cost bank… right now, as of now, there is no interest, zero interest that is charged to the cost bank.”
Jagdeo said this was verified by the auditors reviewing the company expenses. The VP further explained that Exxon was not funding the Stabroek Block operations from loans, but from the company’s local earnings which are not sent to its parent company.
It must however be noted that the PSA also allows for the operator to deduct interest on “other financing costs” which include the company’s equity contribution or investments from the company’s earnings. This means that interest payments are not limited to loans taken by Exxon to develop the Stabroek Block.
“I pointed out that this was checked by the auditors…they are funding this from equity and money earned that they don’t repatriate to their parent company. I pointed out that they lease a lot of the FPSOs and so the people who are leasing the FPSOs may charge or borrow and therefore they have an interest cost but that is subsumed in the lease cost so Exxon would lease the vessel but the interest cost by the people who are leasing the vessels might be subsumed in the cost of the lease,” Jagdeo said.
To this end, he made it clear, “Zero interest at this point in time (is) charged to the cost bank.”