FUTURE BRIGHT AS STATE-OWNED OIL COMPANY TURNS 25

C O N F I D E N T I A L PARAMARIBO 000836

SIPDIS


STATE FOR WHA/CAR LLUFTIG, EB

E.O. 12958: DECL: 12/23/15
TAGS: EPET ENRG ECON KTDB PREL NS
SUBJECT: FUTURE BRIGHT AS STATE-OWNED OIL COMPANY TURNS 25
YEARS OLD

REFTEL: PARAMARIBO 788

Classified by Ambassador Marsha E. Barnes, Reasons 1.4(d).

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Summary
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1. (U) On December 13 Suriname's state-owned oil company,
Staatsolie, celebrated its 25th anniversary and said
farewell to the man who has led the company since the
beginning, Eddy Jharap. In his retirement speech Jharap
highlighted the company's financial success and described
the highs and lows of his tenure. In a separate media
interview, Jharap spoke positively about Suriname's
offshore potential, called for the responsible spending of
future profits, and recommended the company be partially
privatized. End Summary.

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The Achievements
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2. (U) On December 13 1980, the Government of Suriname
(GOS) signed the petroleum contract that established
Staatsolie. With a capital base of 500,000 Surinamese
Guilders, or 275,000 USD, the company started its
operations in 1981. Over the last 25 years, Staatsolie has
produced a total of 57 million barrels of oil at a total
value of 1.2 billion USD. The company's total profit has
been 466 million USD of which 149 million has been paid to
the GOS as income tax and another 175 million USD turned
over as dividend. In the meantime, stockholder's equity
has grown to 169 million USD. The oil reserves have
increased from 15 million barrels to 170 million barrels,
with commercially viable reserves at 110 million barrels.
At an average price of 20 USD per barrel the reserves are
valued at 2.2 billion USD.


3. (U) In his speech Jharap gave an overview of the
memorable moments he experienced with Staatsolie:

-- Within a year after the establishment of the company the
first commercial field was found, which was followed by
first production on November 25, 1982.
-- In 1987 the company exported its first crude oil.
-- In 1995 Staatsolie commenced the construction of a
refinery, which went into production in 1997.
-- To transport its oil, the company had three oil-tankers
built and two pipelines constructed.
-- In its 25 years Staatsolie has spent 441 million USD in
exploration, production investments, and the construction
of the refinery.

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Suriname's Offshore Potential
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4. (U) In an interview with the daily "de Ware Tijd" Jharap
talked about Staatsolie's offshore program. Besides the
three production-sharing agreements Staatsolie has with the
Spanish Repsol YPF, Danish Mearsk and American Occidental
Petroleum, it is also working on its own offshore project.
According to Jharap expectations are very positive and he
feels that the offshore programs will place Suriname on the
"oil map." Repsol's program is the furthest along and
expectations are that an oil rig will be placed next year
for test drilling. Just the placement of the rig requires
an investment of 25 to 30 million USD. If results from
this testing prove commercially viable, then an investment
of approximately one billion USD will be required for
production facilities. Based on preparations and research,
Jharap is optimistic that the program will be a significant
success.


5. (U) According to Jharap, Suriname will not have to wait
for investments to be recuperated before it sees any
revenue from offshore activities. In the contracts it has
with its partners, Staatsolie stipulated that the GOS will
receive 6.25 percent in royalties of the gross income from
every barrel of oil that is extracted. This does not
include the income tax Suriname will earn. Staatsolie's
initial input in the project is the oil field; in a later
phase the company will be able to participate in production
investments and development costs. Staatsolie's advantage
here is that once a commercial find has been made the
company will not have to tap into its own finances, but it
will be able to get external financing on the international
capital market, according to Jharap. Jharap is also very
optimistic about the effect the offshore activities will
have on Suriname's credit rating. One condition for this,


according to Jharap, is that the money the government earns
is spent wisely, including continued reinvestment in the
company.

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Staatsolie's Low Point
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6. (U) As a low point in his time with the company Jharap
recounted his near termination by the Wijdenbosch
government. In 1998 Jharap was fired after he opposed then
President Jules Wijdenbosch's plans to sell off the
Tambaredjo oil fields and other parts of Staatsolie. Both
management and workers of the company, supported by the
private sector and labor organizations, protested against
Jharap's termination by going on strike and shutting down
all operations. In fear of an escalation of the tension
and a spillover of the strike to other parts of the
economy, Wijdenbosch was forced to retract Jharap's
termination and his plans. (Note: This event was seen by
many as the beginning of the end for the Wijdenbosch
government, because less then a year afterwards massive
national protests forced Wijdenbosch to hold early
elections. End Note). Both Lloyd Read, chair of the labor
union at Staatsolie, and Marc Waaldijk, current interim
director of the company, cited this event in their farewell
speeches last week. According to Read this was the first
time in Surinamese history that workers and management had
united in such a way.

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The Future
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7. (U) In discussing Staatsolie's future Jharap said that
he would like to see the company privatized. He added that
both management and the GOS should do all they can to
prevent the "Wijdenbosch effect," as he called it, from
ever happening again. This can only happen if the company
has a broad-based board of directors. Jharap also argued
that a diverse group of shareholders would benefit the
company. According to Jharap, the management team plans to
present a proposal to the government to privatize 20
percent of the company. Only local businesses and
Surinamers will be eligible to participate.

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Comment
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8. (C) Through the years Eddy Jharap and Staatsolie have
been synonymous, and it would be hard to consider the
success of the company without thinking of Jharap. He has
managed to shield the company from the political patronage
staffing which has so damaged other parastatals. He has
fended off attempts to bleed the company dry, ensuring
constant investment in modernization and staff training.
In his farewell address to employees and invited guests,
including President, government, business and diplomatic
representatives, Jharap credited an American petroleum
engineer who mentored the company in its first two years
with putting it on the path to success. His willingness to
embrace foreign expertise contrasts with many Surinamers
misplaced nationalism that makes them leery of much foreign
intervention in the economy. His forward-looking comments
on the need for Suriname to spend its future oil profits
wisely are welcome and will hopefully prove an impetus for
continued dialogue on the subject. Jharap complimented the
Ambassador on an article in the press urging that Suriname
think about how to use any oil boom to promote sustainable
development. "You said what I want to say." The need for
responsible management of future oil profits will be a true
test for Suriname's government and people.

BARNES


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