The Land Base Loan – Stabroek News
The decision, guided by the Biden administration, to veto a $180 million loan from the Inter-American Development Bank (IDB) for the Guyana Shore Base Inc expansion was questionable in October. After the events of last month, this could be seen as positively reckless.
First, a recap: GYSBI, the main land base in Guyana serving ExxonMobil’s operations here, applied for the loan from IDB Invest in April 2021 as part of a vital expansion project including the construction of two additional berths and additional storage capacity. The project notably included 10 MW of solar energy which would have made the base almost self-sufficient in renewable energy and avoided the use of fossil fuels. The base currently employs some 550 workers and, with expansion, would have supported another 100 direct jobs.
The company submitted an environmental assessment and an environmental management plan and received approval from the Guyana Environmental Protection Agency. From what GYSBI officials say, everything was ready for approval, but when the application was submitted to the board in “what was supposed to be just a formality”, the American member put it down. rejected. This veto stemmed directly from guidance contained in the U.S. Treasury Department’s Fossil Fuel Energy Guidance for Multilateral Development Banks (MDBs) (August 16, 2021) which, according to Secretary Janet Yellen, seeks to “establish a clear pathway to end support from multilateral development banks to fossil fuels”. fuels, except in exceptional circumstances, while helping developing countries build a strong and sustainable future. The document itself is quite direct and unequivocal: “We will oppose oil-based energy projects. There may be limited exceptions, such as oil-based electricity generation in crisis circumstances or as an off-grid clean energy source, if no cleaner option is feasible.
So the loan was turned down despite apparent assurances that the policy wouldn’t come into effect until mid-2022, and what executive director Robin Muneshwer said was “good support from the local embassy here. . and the IDB”. Company officials are understandably frustrated with what “was a very brutal instrument they used against us,” but also acknowledge that IDB board policy made it an American decision.
For his part, IDB President Mauricio Claver-Carone still held out hope for the loan saying “we are working very closely with this company in Guyana and with the Guyana government to be able to redesign the project so that it responds to some of the concerns that some of our board members had…” However, the question must be asked if oil already accounts for more than half of Guyana’s GDP and its activity impacts so many other areas that have nothing to do with oil and gas, how does a bank with ‘development’ in its name assess that and recognize Guyana’s unique situation?
The US veto on the GYSBI loan must also be seen in light of the cataclysmic events of the past three weeks and the beginnings of what is a new world order – in fact two new world orders – which will have massive consequences for all countries. It is clear now that the West is seeking a complete political, financial and economic divorce from Putin’s Russia. Even if he were to capitulate (which is highly unlikely), the complex trade and financial relationships cannot be easily pieced together. Does anyone think Russian banks will ever revert to the global international payment system known as SWIFT, now that it has been deployed as an economic weapon? And as the West talks about weaning itself off Russian oil and gas, Russia must also calculate that Europe and elsewhere are no longer reliable customers. They will inevitably turn to Asia and China for new markets. In recent days, there has also been talk of China investing in Russia’s oil assets, now that several Western oil companies have pulled out. It must also be recognized that even with oil north of $100 a barrel, the OPEC oil group does not seem at this stage willing (or able) to increase its production significantly. It may well be determined to earn maximum revenue as the world moves towards energy transition, even if that means benefiting Russia and hurting Western economies with high prices.
In response to these events, the United States is already seeking supplies as part of the rapid achievement of national energy security. If we need more proof of the urgency of this situation, senior US officials traveled to Venezuela on Saturday to hold meetings with the administration of President Nicolás Maduro. The United States has since reportedly told its Venezuelan counterparts that any easing of US sanctions would be contingent on Venezuela shipping oil directly to the United States. It’s a 100% turnaround in US foreign policy after years of an oil embargo, and three weeks ago would have been unthinkable.
As for Guyana, the United States must have long regarded our reserves of more than 10 billion barrels as ideal: plentiful, low-cost, low-carbon, high-quality oil close to U.S. refineries in a calm neighborhood. Politically, Guyana may seem to present various risks, but not on par with many other oil-producing states. These are considered “manageable” and the country has shown that it responds positively to pressures to maintain a relatively democratic and stable environment conducive to reliable oil production.
There has also been a lot of talk in recent years about US investment and financing here, including the visit of a senior team from the US International Development Finance Corporation (DFC) in October 2020, with the message being very clear that this was preferable to Chinese funding, investments and influence here and in Latin America. Indeed, many Chinese banks are lining up to finance projects such as a shore base.
So even before the events of last month, the US decision to reject a project that helps develop an indigenous oil services sector in America’s backyard was misguided and undermines the perception of US support for the development of Guyana. Now, in the context of the current massive uncertainty, this also looks like self-sabotage.
Finally, what signal does this send about the rights of developing countries to develop their energy sectors? As Robin Muneshwer bitterly noted, Western countries had “developed their world at the expense of the world. They have developed their empire and their wealth and they impose their standards on very small countries like us.
This echoes remarks by Barbados Prime Minister Mia Mottley, who recently said that it should not be up to the West to decide which countries supply fossil fuels as part of the energy transition.
It is unclear what will happen now with the specific GYSBI loan because although the IDB has said it will review the project, the company has said it is now looking to partner more with local banks to guarantee funding.
But with the invasion of Ukraine and the decoupling of Russia, the world may have changed irrevocably and energy security will be a priority, at least in the short term, as we prepare for the fallout. Nimble and flexible policymaking is not the forte of many governments, let alone the United States, but if there ever was a time, it’s now.