August 29, 2021
Vice President Jagdeo recently added some clarity regarding the long-term vision of the PPP/C administration. This clarification came at the Offshore Technology Conference in Houston, Texas. The first vision pertains to the immediate maximising of oil revenues because of the uncertain prospects for fossil fuel in the coming three decades. The second vision has to do with renewable energy forming part of the national energy mix.
The Low Carbon Development Strategy (LCDS) was invoked in order to justify the second long-term vision. The long vision implies a fairly large hydropower station, most likely Amaila, is the objective. More granular renewable energy sources do not seem to be in the works. By granular, I mean providing incentives for families and businesses to convert rooftops into solar panels for own use and selling the surplus. However, the latter approach need not be inconsistent with a grander plan such as Amaila. They all require legislation and the upgrading of the grid system.
Mr. Jagdeo provides a few rationales in support of his argument for maximising oil revenues now. First, he notes that since Guyana’s offshore is a relatively low-cost alternative, then this country’s oil ought to take some existing market share from higher cost oil-producing regions. Second, the Vice President argues that if Guyana does not commit deeply right now, others will since there is a market of US$4 trillion.
It is interesting to observe the inherent strategic uncertainty driving the Vice President’s decision to go all in now. Here is the strategic uncertainty: since Guyana (and the Vice President) cannot be sure others will decarbonise – meaning cooperate – for a noble and much larger vision to save the planet, then we might as well pump as much as we can now. I find this to be very interesting as it rings a parallel with a metaphor I have used over the years to analyse Guyana’s voting contest and its associated economic development outcome – hence, the internal political strife in the title of this column.
If the Vice President and Guyana play nice and refuse to jump all in immediately (cooperate for the grand vision) while other countries do not (they cheat or defect), then Guyana loses significant amounts of revenue that Guyanese can only hope their leaders will spend wisely and equitably. On the other hand, the defectors (other oil producers) gain the revenues as Guyana loses.
There is of course a theoretical outcome in which the world is better off – where Guyana and all other oil-producing countries play nice and cooperate to decarbonise starting today. However, this depends on a high degree of trust among nations. Guyana has to trust that others will do the right thing and also decarbonise. New upcoming oil producers like the Brazilian offshore also have to trust that Guyana will not jump all in.
Such trust requires a grand global governance, which most scholars in International Political Economy will argue is unattainable. Several countries such as the United States, Germany, the United Kingdom, Canada, and other democracies, have leaders who are beholden to their home constituencies at election time. It is very hard to make deep commitments in the spirit of multilateral governance (think Brexit), particularly in global cooperation for curbing the carbon economy.
Oil producers with authoritarian governments do not fare any better, and in some ways do worse. China, Russia, Saudi Arabia, among others, are still committed to carbon-based economies for a much larger time period in spite of their impressive talks at the international level.
Therefore, the outcome or the equilibrium is all oil producers, including Guyana, become self-serving and pump as much oil now – the worse possible outcome for the planet. The bad outcome is driven by the strategic uncertainty. Some readers following my take on Guyana’s internal political economy might have noticed that I am applying a well-known metaphor in this column: the prisoners’ dilemma. This is a very useful analytical tool that is not only relevant for analysing international relations, but also internal politics.
Mr. Jagdeo may have a point, therefore, with respect to gaining enough funds. One can only hope that the funds are going to be used for adaptation since global warming and climate change are now cast in stone and there will be serious adverse consequences in coming decades. Guyana’s coastal plain will demand significant amounts of money for adaptation. In spite of reference to the LCDS, there does not appear to be much commitment either when it comes to mitigation: Minister Juan Edghill makes it clear that mangroves can be replaced with concrete walls.
Guyana’s adaptation to climate change would require national consensus and cooperation across the political divide, as well as the “maximised” revenues. In the case of Guyana, the political divide is strongly aligned to the ethnic divide. The Vice President will no doubt not be pleased with an application of the prisoners’ dilemma (well, the repeated version of the PD) towards understanding the economic underpinnings of the two ethnic security dilemmas in Guyana.
Nevertheless, it is worth repeating it so that the reader can observe the parallel with the revenue “maximisation” example above. It goes something like this: on the day of voting the ethnic base (all good folks) of the PNCR cannot be sure the ethnic base of the PPP/C will cooperate by voting for independent parties (split their votes). On the other hand, the ethnic base of the PPP/C (also good folks) cannot be certain that the ethnic base of the PNCR will cooperate by voting for independent parties (split their votes). What if the PNCR’s base split their votes and the PPP/C’s does not? Then the latter gets most of the contracts, prestige, scholarships and the pivotal civil service jobs. And what happens if the PPP/C’s base split their votes and the PNCR’s base does not? Then the supporters of the PPP/C lose most of the prestige and other goodies mentioned previously. The trust is just not there; as a result, the safe strategy is for both ethnic bases to vote solidly for their ethnic leaders (to defect). In doing so, one votes to keep the other side out.
Of course, leaders and supporters of the PPP/C have been saying that their party gets crossover votes since the last population census has the East Indian population at 39%. I am not convinced about the last census that was released two years late in a fiasco. Surveys such as LAPOP and this newspaper’s recent report on the PNCR’s Brooklyn protest, as well as the stark editorial “The tale of two diasporas” (SN. 21/08/21) tell a different story.
Over the years, one scholar at the University of Guyana, Dr. Thomas Singh, has argued in favour of building trust as a means of transcending from the bad outcome in which both sides are worse off to a more cooperative one in which everyone is better off. It is not going to be an easy task. However, the cast-in-stone climate change ought to be a wake-up call for enlightened adaptation and mitigation. A starting point may be as follows:
The PNCR and AFC must accept the 2020 election result and recognise the PPP/C as the legitimate government.
(ii) The PPP/C must recognise that it does not have monopoly on competence and reach across the divide for the PNCR and AFC to be involved in critical decision making in the oil industry, Natural Resource Fund and other institutions that are in everyone’s interest.
(iii) Commence cleaning up and upgrading the voters’ list. My personal feeling is a credible voters’ list will also be dependent on a new and credible population census.
In closing, maximum production means maximum revenues for the oil companies. Guyana’s share for the next decade, at least, will likely be capped at an effective rate of 14.5% per barrel (I think it’s 13.5%) given the cost recovery of 75%. One way of maximising upfront revenues for Guyana is to get the cost recovery cap down to 50%. Just that single change to the contract will increase Guyana’s take on each barrel to 27%.
Comments can be sent to: tkhemraj@ncf.edu
