In capital investment there is a risk of losing every penny invested and no guarantees

Dear Editor,

The consequences of Guyana’s socialist past continue to hamper the development of the people and the nation; the failure to understand capital investment, risk and return on investment leaves us without a compass in a modern capitalist world. Our local economic commentators are unable to explain why we can’t have bigger shares of oil revenue right now, and the buzzwords/phrases “equitable resource distribution” and “corn sharing” fill the space between the ears of the ignorant. A quick introduction to pragmatic capitalism is long overdue.

ExxonMobil, CNOOC and Hess took huge capital risk when they decided to explore the Stabroek block, had Liza1 run dry these companies would have been saddled with a loss of over $600 million. These companies bet on finding oil with the money from the sale of shares and the reinvestment of profits from previous companies. If Liza had been dry, thousands of shareholders would have borne the losses collectively (i.e. the more shares they had in Exxon, Hess and CNOOC, the more money they would have lost. These are the people who invested the capital for the adventure in Guyana and they did it in the hope that we would find oil and that there would be a return on their investment.

Currently, these companies continue to invest in exploration and production in Guyana, and the reimbursement is capped at 75% of the oil produced, 2% royalties are paid to Guyana, and then and only then, the “profit oil ” is shared between the companies that have invested and Guyana in equal shares. It will be at least a decade before shareholders are reimbursed and can see stock dividends. Guyana, however, started making a profit from day one of production without a penny of investment or an iota of risk. When all development and production costs are amortized in approximately 10 years, Guyana will earn a 2% royalty and 50% of the profits, while the three investing companies will share 50% of the profits. Guyana oil is often described as a “godsend” for Guyanese, hopefully we understand better why now.

Nigel Hughes says ‘PPPC does not distribute oil wealth evenly’ to date, no oil revenue has been distributed to any group; cash grants to school children, pensioners and various vulnerable members of society were provided on a needs basis and without drawing from the NRF. One wonders if the oil money were to be used to build a bridge over the Demerara River, would Hughes stand up and count the number of people by ethnicity, and then pronounce on inequality. Hughes and his ilk would do better to seek out those within their communities who need capital investment in their businesses or start-ups and invest real money rather than lip service; Hughes can lead the shift in the socialist mentality from “the government has to provide contracts for my company” to “we can invest capital in each other”.

Capitalism beckons, risk and rewards are available to all; Guyanese can set up venture capital firms to bid for oil blocks, build onshore bases (see NRG and TRI-Star) provide transport services or any number of creative businesses, but first we We must understand that there is the risk of losing every penny invested and there are no guarantees. I look forward to the day when we can discuss the impact of Gas-to-Energy and multiple coastal bases on the economy versus the temporary low catches of a few fishermen as the river mouth is dredged; for some would have us abandon big projects and rely on fishermen to lead us to prosperity; such idealism abounds in the utopian socialist minds shaped by the Burnham years and a long-awaited strong reality.

Sincerely,

Robin Sing

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