Guyana chaos a warning sign
Electoral uncertainty is highlighting the dangers for new companies hoping to invest in the country’s offshore resources
Guyana’s recent election was supposed to determine the political direction of Latin America’s newest oil producer. Instead the election has morphed into mayhem.
A week on from the 2 March poll and a winner has yet to be officially declared. Incumbent President David Granger, head of the Partnership for National Unity (APNU/AFC) coalition, and opposition candidate Irfaan Ali, leader of the People’s Progressive Party (PPP), have both declared victory.
On 5 March, the country’s electoral body (GECOM) released results that pointed to a narrow Granger win. But international observers, including the EU, released a statement soon after saying the count in Guyana’s Region 4—the most populous region, which includes the capital Georgetown—was incomplete.
“The law requires that tabulation must be conducted in the presence of party agents and observers,” the joint statement reads. “Until this transparent process takes place, the counting of votes recorded for Region 4 remains incomplete.”
On 8 March, Guyana’s chief justice Roxanne George upheld an injunction blocking GECOM from proclaiming a winner. Meanwhile tensions have begun to escalate during an election process that split the vote along ethnic lines. A bomb threat was reported at GECOM headquarters on 6 March, and at least one protestor was killed over the weekend during clashes with police.
Oil discoveries made offshore Guyana are expected to cause the country’s wealth to skyrocket. The IMF forecast that GDP will grow by 86pc in 2020. Research consultancy Rystad Energy has predicted that government income will increase by $120bn over the next decade.
In December, US operator ExxonMobil achieved first oil offshore Guyana with the early startup of its landmark Liza project in the prolific Stabroek block. The US company has a 45pc stake in the block, together with joint partners US independent Hess (30pc) and China’s Cnooc (25pc).
“It is a major step down from a country that was perceived to be a flawed democracy but a democracy nonetheless" Wagner, Verisk Maplecroft
ExxonMobil expects to start up Liza phase two in 2022 and is targeting production from the Payara discovery for 2023. Combined, ExxonMobil is projecting over 750,000bl/d of output by 2025.
Looking further ahead, there is potential for even more offshore exploration. “I remind you of the considerable potential of the blocks,” said Neil Chapman, ExxonMobil senior vice president, on an earnings call. “Our current inventory of exploration targets is in excess of 50.”
But electoral concerns demonstrate the continued vulnerability of Guyana’s political institutions and the risks of investing in the country. "No one is satisfied with the way the election was handled,” says Christian Wagner, Americas analyst at political risk consultancy Verisk Maplecroft. “It is a major step down from a country that was perceived to be a flawed democracy but a democracy nonetheless.
“If the Granger government forces its hand and says, ‘we won and we are going to initiate the next term’, [then] this is going to go to the Caribbean Court of Justice for the second time in two years,” Wagner continues. “During this process, legislation is not being passed and politicians will be focusing on who is in power."
>750,000bl/d ExxonMobil’s production target
Wagner envisions three possible scenarios. The first is that the Granger coalition declares victory and refuses to leave because it has the support of the army. Foreign pressure, however, means this option is unlikely. Far more plausible is either a supervised recount of the votes, or that the PPP heads to the Caribbean Court of Justice to contest the results while Granger remains in power in the interim.
Despite the chaos, both the PPP and APNU/AFC have a strong interest in ensuring oil production continues smoothly. However, the controversy will increase wariness among new investors. “If you come in and sign with a government that is being challenged by the international community or in a caretaker capacity, maybe you prefer waiting a few months and seeing how it plays out,” says Wagner.