GlobalMarkets

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SURINAME
2018
18 ¬ Interview With Finance Minister Gillmore Hoefdraad

Road to recovery
Suriname’s minister of finance, Gillmore Hoefdraad, tells GlobalMarkets
that the economic recovery is on track and that the government is taking
measures to ensure the country is better placed to withstand future shocks.

GlobalMarkets: How has Suriname unsustainable in 2015/16. In 2017 we saw the

recovered from the commodity shock? first benefit of reforms and a continued ex-
Gillmore Hoefdraad, Minister of Finance, penditure restraint. Now we are expecting rev-
Suriname: The disappearance of the centu- enue to pick up back to historical norms. With
ry-old alumina complex and the drop in oil VAT postponed, in the interim we are putting
and gold prices triggered major triple shock in place other taxes, such as a temporary
in 2014-16. But in place of alumina we have increase in import taxation and an increase in
a brand new gold mine [Merian] that nearly road and vehicle taxes. The idea is to ease the
doubles exports, and a new oil refinery that al- fiscal burden away from expenditure compres- Minister of Finance Gillmore Hoefdraad
most eliminates net oil imports. That, together sion to greater revenue.
with a recovering private sector and the end of Hoefdraad: To say that a significant oil dis-
fiscal retrenchment, has allowed the return to GlobalMarkets: Why did VAT not go ahead covery would be a game-changer for Suriname
growth. GDP grew 1.7% last year and there are as planned? would be the understatement of the century.
no signs that the economy will be reverting to Hoefdraad: VAT is a complex creature. The The finds in Guyana are worth a multiple of
a recession. There is a good pipeline of invest- world experts at Cartac (Caribbean Regional GDP and in Suriname it could be similar. Suri-
ment in gold, oil and other areas, which bodes Technical Assistance Centre) in Barbados told name is very well positioned to benefit directly
well for the future. us repeatedly that you have to make sure you from an offshore find because we have existing
implement VAT correctly; you cannot repair it oil infrastructure and a very large construction
GlobalMarkets: What are the policy afterwards. This needs a very well written law, industry surrounding the mining industry.
challenges and priorities now to ensure a regulations that fit, human capital and training
sustainable recovery? in the ministry of finance to manage it, and GlobalMarkets: How can Suriname diversify
Hoefdraad: Firstly, we must ensure that the to educate people and companies. We do not its economy beyond the extractive indus-
balance of payments and monetary situation yet have all those conditions in place, so were tries?
remain sustainable. The current account deficit risking doing it wrong if we did it in 2018. The Hoefdraad: Suriname wants to diversify
in the balance of payments shrunk to nearly timetable at the moment suggests it will be away from its heavy reliance on the extractive
zero but will now grow slightly as imports implemented in 2020. industries, and the areas most ripe for growth
grow. Nonetheless, reserves are growing and are agriculture and tourism. Diversifying is not
clearly exceed the minimum three months of GlobalMarkets: What has the government easy but there has been quite a bit of recent
imports. Secondly, we need to retain fiscal done with the funds from Staatsolie? interest in other industries, for example the
expenditure restraint and increase revenue. Hoefdraad: The funds from Staatsolie are establishment of an industrial park near the
Economic reforms are now required to allow being used for debt refinancing and reducing harbour where the bauxite refinery was. Alcoa
the government to move with agility and mit- the country’s interest burden. The government is driving this and there is important interest
igate future commodity shocks. The sovereign has deposited the funds in the central bank, is from outside investors to build on this.
wealth fund will begin operations on January selling the hard currency to increase reserves,
1, 2019. We must also put in place legal and and is using local currency proceeds to retire GlobalMarkets: What message would you
administrative reforms to make fiscal man- treasury bills as they mature. This has the dou- send to companies considering investing in
agement more agile and improve the invest- ble benefit of increasing reserves and reducing Suriname?
ment climate. Internal reform is needed in the the cost of debt. It is an ongoing process and Hoefdraad: Suriname has vast amounts of land
ministry of finance to bring our administration funds that are deposited will be used in the and fresh water resources and is more than 90%
firmly into the first 21st century, with more coming months to retire bills. Moreover, buy- covered by pristine Amazonian jungle, which
automation, computerisation and a flexible ing back the treasury bills injects liquidity into lends itself to extractive industries, agriculture
human capital base to allow us to address the market, bringing a reduction of interest and tourism. Moreover, Suriname is a peaceful
problems when they arise. rates. There has already been a consequent country with great ethnic diversity and a well
pick-up in credit to the private sector. educated, motivated middle class. The literacy
GlobalMarkets: How do you plan to meet rate is high and nearly everybody speaks at least
your fiscal targets? GlobalMarkets: What effect might a two languages, so we have a very large pool of
Hoefdraad: Our objective is to continue to significant offshore oil discovery have on workers readily available to be hired by companies
shrink the fiscal deficit, which was quite Suriname’s economic outlook? investing in Suriname is open for business.

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  Investor Relations | 19

Untapped potential
South America’s smallest nation is rich in economic potential, with
impressive natural resources, an investor-friendly government, and a
well-educated population.
With an area of just 163,820km2, of which 95% tries is infrastructure, with further construc-
is tropical rainforest, and a population of just tion required for highways, railways, bridges
over 567,000, Suriname is the smallest coun- and ports, among others, but its strategic po-
try in South America. It is also the youngest: it sition means that Suriname has high potential.
gained independence from the Netherlands in Finally, Suriname has a competitive advan-
November 1975. tage over several of its nearby states and rival
But with GDP per capita projected at $6,800 agricultural producers: it is located outside of
for 2018, Suriname is a middle-income country. the path of most Atlantic hurricanes.
Literacy rates are 95% and, though Dutch is the
official language, English is widely spoken. Credit ratings
Moody’s: B2 (negative)
Extracting wealth Standard & Poor’s: B (stable); Fitch: B- (stable)
Unsurprisingly, given a World Bank study in
2000 made it the 17th richest country in the Ginmardo Kromosoeto, CEO of Suriname boosts efforts at financial inclusion
world, based on natural resources per capita, Surinaamse Postspaarbank A key challenge that Suriname faces in its economic
the economy has long been orientated towards development is that the roughly 40% of the
extractive industries. population that lives in the interior of the country is
Long before independence, Suriname became disconnected from the rest of the country.
one of the world’s leading producers of bauxite. investors do not have to jump through a small This is also the case with the financial system,
US company Alcoa began operations in the window, but can talk directly to the govern- says Ginmardo Kromosoeto, CEO of Surinaamse
country in 1916 and ceased only in November ment and ministers.” Postspaarbank (the Surinamese Post Savings Bank).
2015 as aluminium prices slumped. As recently This should stand Suriname in good stead as The lender is therefore “supporting the government
as 2007, aluminium accounted for about half of it looks to diversify its economy. Agribusiness is to give access to those who did not before have the
the country’s exports. a particular focus, and this is a task facing the option of entering the banking system”, he says.
Though the end of bauxite mining, combined new investment promotion agency, Investsur. An important initiative that government-owned
with slumps in oil and gold prices, brought Of 15 nation states in the Caribbean Commu- Postspaarbank is promoting is the creation of debit
about a triple commodity shock that wiped 8% nity (Caricom), only Suriname and Belize have a cards, known as Moni Karta, that some Surinamese
off GDP in 2015-2016, a recovery has begun, trade surplus in fruit and vegetables, suggest- people can use to receive their social support.
with gold the new star player. ing there are several natural export markets. “This is a financial inclusion initiative that means
This started with the Rosebel Gold Mine, Suriname is also advertising opportunities in that even people living in areas without roads — who
Then Newmont’s Merian mine, which has 5.1m agriculture, where 66,000 acres of prime ag- therefore don’t have a home address required to
ounces of reserves, opened in 2016. Next to ricultural land are available; its underexploited open a conventional bank account — can become
open will be Iamgold’s Saramacca mine. fishing areas that boast tuna and shrimp; ani- visible in the banking sector,” says Kromosoeto.
Recent offshore oil discoveries in neighbouring mal breeding; and processing facilities. Postspaarbank had already signed an agreement
Guyana suggest another sector could become With vast swathes of rainforest, logging con- in 2016 with financial software company Euronet to
even more important. Several international oil cessions and wood-processing opportunities provide banking services to its customers living in
companies have signed production-sharing con- are available, while at the well-attended inau- more remote areas, by allowing them to conduct
tracts to look for oil on the Suriname side of the gural Suriname Trade & Investment Forum in transactions at merchant locations rather than
Guiana basin. Miami in September the government highlight- traditional bank branches.
ed the possibility of a carbon credit programme. Postspaarbank is also looking to encourage the
Beyond natural resources The rainforest also presents great potential development of the banking system by promoting
Suriname’s mining history has made it adept for ecotourism. “Although airlift is a challenge, mobile banking via Union Pay credit cards. “We hope
at attracting and dealing with big private com- flights tend to be completely full — especial- that such a big credit card company increasing its
panies. Ginmardo Kromosoeto, CEO of govern- ly during vacation times,” says Kromosoeto. footprint in Suriname can help the drive towards a
ment-owned lender Surinaamse Postspaar- “There is incredible ecotourism potential.” cashless company,” says Kromosoeto.
bank, says: “Because it is a small economy, big One big challenge in developing new indus-

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20 ¬ Key Data At A Glance

GDP – a commodity-led recovery International reserves – a slow rebuild

6
800
Real GDP growth International reserves (US$m)
4 700

600
2
500
0
2010 2011 2012 2013 2014 2015 2016 2017 2018
018 2019 2020 400

-2 300
Fitch forecast
200
-4

18
De 16

Au 8
Ju 8
Ju 4

M 4

M 6
Ju 6
-15

M 15
De 4

De 5
Se 4

Se 6
Se 5

Se 7

M 17
-17

17

1
-1
-1

1
-1
1

1
1

g-
p-

n-
c-
p-
c-
p-

n-
c-
n-

c-
n-

p-
n-
ar

ar
ar

ar

ar

De
Ju
Ju
M
-6

Suriname’s economy shrunk by 8% in 2015-16 as mining revenue shrank Before finally allowing a free float the Surinamese dollar in late 2015,
and the sharp fiscal contraction squeezed disposable income. But the central bank spent much of the country’s international reserves
GDP has returned to positive territory, and Fitch Ratings is predicting attempting to prop up the currency. A persistent current account deficit
growth will reach 2.7% in 2017 — no mean feat given what Suriname has meant the rebuild of these reserves has been a gradual process, but
lived through. However, this is still nowhere near the heights that the it is happening. Reserves received a significant lift in May 2018 thanks
economic growth regularly reached before the commodities slump. to state oil company Staatsolie repaying a loan from the government
Fiscal much-needed consolidation efforts are growth-negative, while and buying government shares in the Merian gold mine, though gave
Suriname struggles to find GDP drivers beyond commodity exports, back some of that uptick in June due to government debt payments.
leaving the recovery somewhat vulnerable. Government officials now expect reserves to increase as the central
bank resumes FX purchases.

Source: Central Bank of Suriname, Fitch Ratings Source: Central Bank of Suriname

Going for gold Fiscal consolidation

The composition of Suriname’s exports has evolved significantly, with The triple commodity forced a sharp decline in government expenditure
alumina disappearing and gold taking over. The strengthening of the in 2015-16 but further cuts have proved difficult. However, the revenue
gold sector has been a boon for government revenues and looks set to side of the fiscal equation is now pulling its weight, with gold royalties an
continue to blossom with Iamgold, which operates the Rosebel mine, important factor. Although the promised VAT law has been put on the
set to start operating its new Saramacca mine in the second half of 2019. backburner until after the election, the government has been putting
Although offshore oil exploration has so far proven fruitless, experts in interim technical measures to help raise revenues. From 2020, the
say that the successful drills in Guyana point to an exceedingly high government will start to receive income tax, not just royalties, from the
probability of similar discoveries being made in Surinamese territory. In Merian mine. This should further improve fiscal performance.
the long term this would have an important effect on mining revenues.

Source: Government of Suriname Source: Government of Suriname

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  Macro Overview | 21

Suriname searching for

sustainability after recovery
A strong policy reaction to a harsh commodity shock in 2015 has put Suriname
on the road to recovery. But the government still faces challenges in making
the recovery sustainable and reducing vulnerability to the commodity cycle.
If countries make their own luck, maybe Suri- implemented on July 1.
name was due a break. Hit by a triple commodi- “Suriname has a lot of potential as there is a
ty shock in 2015-16 that shrank the economy by lot of low hanging fruit, and the prospects for
8%, the government did a lot right: it floated the the natural resources sector are promising,”
currency, set to work with fiscal reforms, and says Petar Atanasov, co-head of sovereign re-
slashed expenditure. search at EM investment manager Gramercy.
It wasn’t perfect: an IMF programme lasted “But the delay in VAT implementation was a
less than a year, for instance. But, in the words huge disappointment for investors.
of Francisco Rodríguez, chief economist at To- “The uncertainty and delays in carrying out
rino Capital, the government’s handling of the fiscal measures mean it is hard to make a com-
negative shock “said something about its will- pelling investment case.”
ingness to reform”. B2/B/B- rated Suriname’s 9.25% 2026s have
Suriname was rewarded, then, with increase held up better in secondary than many single B Nathalie Marshik, managing director, head
in gold and oil prices that were nicely comple- credits during a torrid year for EM markets, and of sovereign research, Oppenheimer & Co
mented by exciting gold discoveries and the were trading at around 98.5 cents on the dollar in
completion of its oil refinery. If offshore oil lives late September, according to data from Market- has plenty to do to get totally on the right track”.
up to its promise, the commodity windfall will Axess. This equates to a yield of just above 9.5%. With VAT on the backburner, the government
be even greater. But Nathalie Marshik, managing director, is putting smaller technical measures in place to
Numbers have improved. The current account head of sovereign research at Oppenheimer & increase revenue in the interim and does fore-
deficit shrunk from 19.1% in 2015 to virtually Co, says the bonds would be perform better “if cast an increase in fiscal revenue in 2018. It has
zero in 2017. GDP returned to positive territo- the government delivered on their promises”. implemented several economic, administrative,
ry in 2017, and inflation has returned to single Presidential elections are scheduled for May and legal framework reforms aimed at ensuring
figures having peaked at 79% in 2016. The 2020, so if VAT is to happen it will likely be at that future commodity-price shocks will have a
economy is expected to continue to grow, even least two years away. This leaves the fiscal con- more limited impact on the economy.
if most analyst forecasts are not as high as the solidation effort “more reliant on the luck of com- Khadan of the IADB also highlights the limits
3% average that the government is predicting modity markets”, says Kelli Bissett-Tom, director imposed of fiscal deficit, and the passing of leg-
for 2018-2022. in Latin American sovereigns at Fitch Ratings. islation to establish a Savings and Stability Fund,
“There has been a recovery in some key eco- Fitch, which had anticipated that VAT would which will begin operations in January 2019.
nomic fundamentals,” says Jeetendra Khadan, provide an additional 1.5% of GDP in permanent “Despite these efforts, fiscal deficits and
economist for Suriname at the IADB. “The revenue, is now expecting a slower reduction of debt continues to be an area that requires more
gold sector is the main driver of the economic the budget gap, says Bissett-Tom. work,” he says. “The authorities have been work-
improvement, but there are important planned “The nearing election has also closed the win- ing to address challenges on the revenue and ex-
fiscal reforms in train to help ensure that the dow for policy reforms,” she adds. penditure side which can contribute to a more
gold-led recovery is sustainable.” Though the government is predicting the fis- substantial and sustainable recovery over the
cal deficit will fall below 6% in 2018 from 10.6% medium term.”
VAT in the vault in 2015/16 and 7.9% in 2017, Fitch is forecasting
However, certain developments in 2018 have a deficit of 6.1% and Torino reckons 6.8%. Expectation challenges
raised concern among bond market participants As Rodríguez of Torino says, the numbers will However, some still wonder whether the recov-
— who have increased their scrutiny of the depend very much on mining revenues, because ery is coming quickly enough.
country since a $550m 10 year bond debut in in such a small economy, a higher than expected Bissett-Tom says that, away from natural re-
October 2026. take at a mine can make a huge difference. sources, growth, investment, and consumption
Chief among these was April’s postponement However, the economist says that though in are “still quite weak”.
of a value-added tax law previously due to be Suriname is “partly” on the right track, “it still “Growth of just under 3% over 2018-2020 is

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22 ¬ Macro Overview

Suriname traditionally maintained low levels of

Debt ratios (2013-2019 (% of GDP) debt, with external debt mostly from bilateral and
multilateral sources on concessional terms.

Debt increase 2015-16 due to:

• Fall in fiscal revenue.
• Exchange rate adjustment.

Debt stabilization since 2017:

• Sharp contraction in fiscal deficit.
• Renewed economic growth.
• Stable exchange rate.

Source: Government of Suriname

not terrible for a country that underwent such Suriname closely because statistics are often on they have used it quite conservatively,” says
a large macro adjustment, but it is below previ- a lag and there is not great transparency in the Atanasov.
ous rates and lower than what you might have data,” says Atanasov of Gramercy. The government has deposited the fund in the
expected given some of the positive investment Suriname has taken steps to improve data central bank and is gradually using local curren-
stories in Suriname,” says the Fitch analyst. transparency. In January it implemented the cy proceeds to retire expensive treasury bills. In
And in certain areas, the recovery has under- IMF’s enhanced General Data Dissemination tandem, the central bank will gradually unwind
performed expectations. System (e-GDDS). And the US State Depart- some foreign exchange swaps.
“Analysts had been scratching their heads as ment released a report in September noting “Net benefits of this would be lower financ-
to why Suriname had been printing a current “considerable progress” in fiscal transparency ing costs in the domestic market, while it would
account surplus in 2017 without seeing an in- and the provision of quality information, accord- also create more headroom for the government’s
crease in international reserves,” says Marshik ing to the finance ministry. financing needs heading into 2019 and gives
of Oppenheimer. Quarterly GDP does not exist, though Torino the government more capacity to finance itself
According to Marshik, the central bank had notes that an IMF technical assistance report in domestic currency in an election,” says Bis-
published a current account surplus of 7% for published in August suggested it was targeted sett-Tom.
the first three quarters of 2017, but as interna- to be available for the end of August 2020. Additionally, the central bank is unwinding
tional gold companies were not bringing export close to $115m foreign currency swaps extend-
dollars back onshore Suriname ended up print- Staatsolie windfall brings wins all round ed by resident commercial banks to the central
ing a current account deficit of 0.1% of GDP for Marshik agrees with Atanasov that Suriname bank in 2015-2016 that had been “undermin-
the full year. could make itself more attractive to bond in- ing” the quality of the reserves, says the Fitch
“Though this is better than what it had been vestors by providing more “timely and reliable” analyst.
it was not the surplus we had hoped for,” says data, and underlines another pertinent issue
Marshik. “The country needs to build reserves where this is important. Energy opportunity
back up to more appropriate levels for a com- State oil company Staatsolie used $337.5m of If Suriname is really going to reduce its vulner-
modity producer.” the proceeds from a new syndicated loan to pre- abilities to external shocks, it needs to find an-
Finance minister Gillmore Hoefdraad told pay a $261.5m loan from the government and other engine for growth beyond commodities,
GlobalMarkets that reserves were growing and purchase the government’s stake in the Meri- says Marshik.
“clearly exceeding the minimum of three months an gold mine for $76m, providing an injection As the government looks to diversify (see
of imports”, and Torino’s Rodríguez said that to government coffers worth 9%-10% of GDP, Untapped Potential on page 19) it is vital to
the current account was not too much of a con- according to Khadan of the IADB. tackle state electricity company EBS’ profitabil-
cern. But Bissett-Tom agrees with Marshik that What the government does with these funds ity and find ways to produce cheaper electricity.
reserves are low for an economy where almost is Marshik’s primary concern about Suriname “There will be an opportunity when [alumin-
85% of annual FX earnings are from commodity right now, she says. “But without regular fiscal ium producer] Alcoa returns the Afobaka dam
exports. data it is hard to track how the Staatsolie mon- to the government at the end of 2019,” says
The current account deficit is predicted to ey is being spent.” Marshik. “Alcoa will continue to sell electricity
widen again as domestic demand recovers, but To be fair, the consensus among analysts is that to EBS until the handover, but the government is
this should be offset by an increase in exports the government is using the funds as proposed: negotiating a new price for the electricity, which
when the Saramacca gold mine opens in 2019. to refinance debt and reduce the interest burden. could help drive down EBS costs.”
Yet for some bondholders the episode speaks “Despite worries that the government would It is an opportunity Suriname must take if it is
to a major challenge in investing in Suriname. use the liquidity from the Staatsolie payment to to capitalise on the lucky hand it has earned for
“It can be hard for investors like me to follow stimulate the economy, my impression is that itself in the last couple of years.

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  Natural Resources Overview | 23

Oil optimism high as gold

gives economy sparkle
The stellar performance of Suriname’s gold sector continues, while the potential of
offshore oil remains huge despite a couple of early dry wells. A market-friendly
government is key to unlocking the country’s natural resource potential.
Perhaps it’s down to the pace of ExxonMobil’s but no reservoirs. This suggests there will be a
remarkable offshore exploration success in successful drill at some point.
neighbouring Guyana, but some observers seem When Kosmos announced the dry well at Ana-
spooked when drilling efforts in Suriname prove pai, CEO Andrew Inglis said the company was in
fruitless. “Offshore oil remains a potential for the “early stages” of exploring the “emerging” ba-
the country but markets are questioning feasi- sins. Kosmos’ next Surinamese well, Pontoenoe,
bility after last year’s Araku-1 well disappoint- is exciting as it is the first time a company will
ment,” says Nathalie Marshik, head of sovereign drill above the same source rock that produced
research at Oppenheimer. Exxon’s massive “Liza” discovery in Guyana.
Indeed, after Tullow failed to find oil at Araku, “It looks promising because it has the same
Kosmos abandoned its Anapai-1A well in June feeder system that is seen in Liza, and it is nota-
after an unsuccessful drill. ble that Hess, which is a partner in the Liza block,
Yet Rudolf Elias, CEO of Suriname’s oil compa- has come into this block,” says Reynolds at Edison. Julie Wilson, director, global exploration at
ny Staatsolie, is “even more confident than a year Kosmos is giving Pontoenoe a one-in-four to Wood Mackenzie
ago” that there will be offshore oil discoverie s in one-in-five chance of success, says Reynolds, but
Suriname. Oil industry experts appear to back him. even if it is not successful, “there are multiple Saramacca are imminent. Newmont has only
“Exploration is a journey, not an event,” says further prospect options on the block”. been paying royalties so far on its Merian invest-
Julie Wilson, director, global exploration at Wood As Elias says: “We have a lot to learn and are ment, because its contract allows accelerated
Mackenzie. “Each well — successful or not — still only scratching the surface of Suriname’s capital depreciation, in other words repaying the
brings new information about the petroleum sys- potential.” capital invested before paying taxes.
tem that helps explorers better understand it.” But it is likely to start paying income tax from
Kosmos and Tullow continuing to explore in Golden boy 2020, while the government should also be able
Suriname means they were “encouraged” by Yet for all the excitement over oil, Marshik points to collect royalties and income tax from the Sar-
what they found in their first wells, she says. out that, even if a company struck oil tomorrow, it amacca mine — which required lower capital in-
When Tullow plugged the Araku well, it high- would take several years to get it out the ground, vestment than Merian — in 2020.
lighted that the geological insights and seismic meaning limited near-term economic benefits. Newmont’s delay in paying income taxes high-
data it had gained from the drill had “de-risked However, the gold sector goes from strength lights just how market-friendly Suriname’s gold
deeper plays” in the group’s acreage. And the to strength and is already providing important mining contracts are, says Kelli Bissett-Tom,
company described Araku as an “ambitious wild- revenues. The government is earning royalties director for Latin American sovereigns at Fitch
cat exploration”. through its stake in Newmont’s Merian mine, Ratings. Accelerated depreciation incurs short-
Wilson says explorers have to find the “sweet which came on line in 2016. There is further term costs for the government — in balance of
spot” where all elements of the petroleum sys- excitement from Canada’s Iamgold, which has payments, slower rebuilding of international re-
tem are working together. “The success in Guy- been operating the Rosebel mine since 2004. serves, and the foregoing of tax revenues.
ana demonstrates that the sweet spots in this In September Iamgold confirmed that its But Suriname’s attitude is also a factor in at-
basin can be giant-sized, so I would not yet write recent drilling at the nearby Saramacca site — tracting investment from so many internation-
off Suriname offshore exploration,” she says. where it plans to start mining by the second half al companies. “There is an absence of natural
Elaine Reynolds, oil analyst at Edison Invest- of 2019 — would increase the company’s reserves resource nationalism in Suriname and greater
ment Research, says it is “not too concerning” that in Suriname by 1m ounces. The additional reserves contract certainty for foreign investors,” says
there has not yet been a discovery in Suriname. increase Rosebel’s life by five years to 2033, and Bissett-Tom. “Once a contract is agreed with the
First of all, says Reynolds, the number of dry the government, which holds a 30% stake in Iam- government, it passes into law, rendering a very
wells is small compared to the size of the basin. gold’s expansion, estimates that Saramacca holds stable agreement.”
And while some drills have found reservoirs but proven reserves of $1.9bn at today’s prices. This could be key in unlocking Surinam’s esti-
not hydrocarbons, others evidence hydrocarbons Economic benefits from both Merian and mated 5m kg of unproven gold reserves.

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24 ¬ Natural Resources Overview

Staatsolie eyes capital

markets amid new era
Suriname’s oil company could be on the verge of an exciting discovery that will
be likely to bring a first venture into international capital markets. Work to
ensure the company is prepared for this brave new world is well under way.
Rudolf Elias is a man with a mission. The former come from near-shore and shallow off-shore ex-
BHP Billiton project director is at the helm of ploration.
state-owned oil company Staatsolie, charged — “Even if we don’t find commercial quantities,
among other things — with coordinating one of near-shore drilling will be useful to tell us about
the most promising offshore exploration areas in the migration of oil,” says Elias. “Then 2020-
the world. 2025 will be an exciting period for shallow off-
Elias is well aware that offshore oil discoveries shore.”
that rival the scale of those found in neighbour-
ing Guyana could transform Suriname forever. Bond, equity market debuts in the works
But it has to be managed properly. Though it In May 2018, Staatsolie raised a $625m loan
would be the finance ministry’s job to ensure from a syndicate of international banks that en-
any windfalls are put to good use, the oil is the abled it to repay a $261.5m loan from the gov-
responsibility of Staatsolie, which plans to be a ernment, on which it was paying 9.25% interest,
partner in any successful oil finds there. and purchase the government’s 25% share in the Rudolf Elias, CEO of Staatsolie
That means Staatsolie itself has to be in good Newmont gold mine for $76m.
health. According to one US-based Latin America But preparations are more than just finan-
“We have to ensure that we are acting in the credit analyst, refinancing the expensive loan cial. A key arm of Staatsolie’s strategy is about
short term in a way that allows us to be success- put Staatsolie “in a much stronger financial po- preparing its people. Pairing up with a major
ful in the long term,” says Elias, CEO of Staat- sition and gives it a cleaner capital structure if it international oil company means thinking more
solie since May 2015. wants to approach international markets”. efficiently about safety, costs and production —
Here enters the company’s 2016-2020 “Strat- If a company strikes big with an offshore oil and getting that balance right, says the CEO.
egy for Success”, which states that it needs to find in Suriname, this will be necessary. Staat-
prepare Staatsolie to become the “partner of solie will look to be a 10%-20% partner in off- Cultural shift
choice” for international oil companies drilling in shore oil finds, and the CEO believes it would To help achieve this, the company has introduced
offshore Suriname. require $1bn of financing to do so. a cultural change programme and a succession
Achieving this means adapting quickly to One option would be to return to the syndicat- planning programmes to identify young talent
future oil markets. Having spent the past dec- ed loan market, but the company “would love to and bring them to managerial positions by de-
ade investing heavily in downstream activities, raise the money via an IPO”, says Elias. sign, rather than by default.
Staatsolie is refocusing on finding and producing First up would be a debut international bond, “If we manage to have a company where
oil, while efficiency, not growth, is the name of however, pencilled in for late 2018 or early 2019. everyone enters with a sense of purpose and
the game for downstream. “One part of the process of getting ready for leaves with a sense of accomplishment each day,
In more volatile markets, “it is very impor- an IPO is issuing a bond — either at the end of we’ll have succeeded in becoming a world-class
tant that everything we do will be based on the this year or early next,” says Elias. “That way company and will be able to handle the big off-
assumption that the oil price will be lower for banks and international institutional investors shore projects,” says Elias.
longer”, says Elias. “Therefore we want to ensure would begin to get to know us ahead of the IPO.” He is adamant that it is not just Staatsolie it-
that we remain a first quartile producer.” Proceeds would be used to pay off around half self that must prepare for the discovery of deep
A first quartile producer — meaning one that of the company’s bank loan. offshore oil, but also Suriname’s business com-
produces with the lowest quarter of the cost In an effort to meet the standards required by munity, as local firms are going to be needed to
curve — can be successful for 40 or 50 years, international bond markets, Staatsolie has em- support the burgeoning industry.
reckons Elias, even if oil will no longer be the ployed Ernst & Young as accountants to go over “If they wait until we discover oil to design the
driver for global energy growth. its numbers, while the company has moved from strategy it will be too late,” says Elias. “The local
Right now Staatsolie produces around 6m US GAAP to IFRS accounting standards to be business community needs to be looking today
barrels annually, and its immediate growth will more transparent for capital markets. what is necessary to be ready for tomorrow.”

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