Financing options, or a combination, should be used to meet the GYSBI loan request
I read, with interest, the rather substantial article, “IDB loan refusal seen as key setback to oil & gas here”, Stabroek News, March 14, 2022. It discussed the IDB’s decline of a large loan request ($180 million) from Guyana Shorebase Inc. (GYSBI) to fund the expansion of its existing facilities to better serve its customers. GYSBI appears to have become the latest victim of the Biden administration’s expressed policy of vetoing funding for oil and gas projects. Even without this policy in place, Western-influenced and dominated multilateral financial institutions were already disapproving of projects, particularly in the oil and gas sector, that contributed to ozone depletion. Overwhelmingly, the preference is for funding to target clean, renewable energy projects that involve low or no carbon emissions and are environmentally friendly.
I remember the rejection the coalition government received when it sought World Bank approval for the $20 million Guyana Petroleum Resources Governance and Management Project – a project that aimed to strengthen the country’s governance and institutional framework to manage the nascent oil and gas sector. It was ‘touch and go’ until the end. Eventually, the loan was approved and signed in March 2019. The article collected the views of several interviewees. All were concerned about the implications that the disapproval of the loan meant for the future financing of oil and gas projects in Guyana. A few identified, perhaps correctly, that approaches to alternative sources of funding in China and the Arab world could be “pushed back” and result in a backlash from the United States.
I believe that all is not lost; for every challenge, there must be an opportunity waiting to be explored and/or exploited. U.S. policy is unlikely to change substantially, if at all, in the near term, despite the current spike in oil prices, occasioned by Russia’s invasion of Ukraine and ongoing sanctions. then imposed by the Western Allies. Thus, analyzing the difficult situation of GYSBI, I propose the following financing options to continue the project. These options are not mutually exclusive. In fact, a combination of some or all of them should be used to reach a funding target of $180 million.
The first option is for GYSBI to expand its ownership structure by offering shares to the public. This underutilized source of funding has apparently been frowned upon by the private sector. Many businesses are family businesses that rely heavily on funding from family members and the local banking industry. However, successful companies, such as the DIH and DDL banks, have proven that raising funds through public offerings is an invaluable source of funding. The second option is to explore the possibility of listing on the regional stock exchange. I recognize that this option may not be timely or viable at present, but it is a reminder that there are sources of finance within CARICOM that could be tapped for the development of all sectors of the growing country. the fastest in the region.
The third option is the bond market. It will be remembered that under the coalition government, NICIL was able to raise 150 million dollars to finance the restructuring of Guysuco. The bond was the largest facility ever raised in Guyana and was oversubscribed. I think GYSBI should test the bond market as it will contribute to a viable alternative source of finance and deepening the capital market in Guyana. I am also confident that they would be able to raise the US$180 million on terms similar to those offered by IDB Invest. The fourth option is to seek the necessary financing from a consortium of banks and finance companies in the Caribbean and possibly Latin America. I remember around 2018 well-known banks from Jamaica and Trinidad and Tobago were looking for investment opportunities in Guyana. I’m sure others in other countries have been aggressive in their investigations.
The fifth option is to invest resources from the Natural Resources Fund (NRF) in the project. Currently, all NRF funds are deposited in a US dollar account which earns negligible interest. Even when the NRF Investment Committee is activated, the weighted average interest rate on investable funds is unlikely to exceed 3%, given the very conservative investment approach implicit in the law. However, in the interests of promoting local content and using some of the resources to invest in viable private sector projects, a portion of the funds, say $50 million, can be drawn from the NRF and loaned out on terms. at least equal to those that would have been offered by IDB Invest. I am sure that the earnings on the silver would far exceed what is being received now and what is expected in the future. The ball is in GYSBI’s court. Now is not the time to lament.
Former Minister of Finance