Introduction
Last week’s column argued that, the best use of Guyana’s oil wealth would be strategic spending on, and through, a dedicated Ministry of Renewable Energy. Only such a body would be capable of the measured and fierce competitions required to ensure Guyana’s hydrocarbons wealth promotes the aspirational goals of the ‘Green State’. This proposal acknowledges the several weaknesses of government ministries, but believes sub-ministerial bodies cannot meet the expected demanding standards. Ministry risks are many, and include weak accountability/transparency; sloth and bureaucracy; lack of technological/managerial adeptness; and outside political direction. Such risks, however, affect sub-ministerial bodies probably even more.
Today’s column shifts discussion to fiscal revenues and related matters, following the coming petroleum sector. The implicit distinction between gross and net revenues under present contracts, is acknowledged upfront. Thus, government’s contingent liabilities, (environmental, social and other such costs), must be factored, before declaring net benefits.
Starting point
My contribution starts with an evaluation of fiscal revenues flowing from existing contracts. My treatment of this topic has been delayed expecting that, by now, details of the Esso Exploration and Production Guyana Limited (EEPGL) (45 per cent), Hess Guyana Exploration (30 per cent) and CNOOC Nexen Petroleum Guyana Limited (25 per cent) Petroleum Agreement with the Government of Guyana would have been released. It is from this agreement, (accompanied with a Project Development Plan and Environmental Authorisation) that the Petroleum Production Licence was provided.
Readers should note, the authorisation has been published, but as of writing, the agreement has not been released. I go on record, therefore, supporting the request made by the WPA to the Minister of Natural Resources for this to be done. On June 6, the WPA wrote the Minister, noting: “the continued withholding of the general publication of the Contract between Exxon Mobil and its partners with the Government of Guyana is unwise for several reasons, including in particular the fact that such contracts are available online for countries with 1) odious authoritarian reputations and 2) racked [sic] with severe domestic and external conflicts”. The communication stated further: there is no justifiable reason for withholding the contract. “Seeking public comment on it is a democratic obligation; as is engaging the widest possible sharing of views, which can only help the coalition government to make wiser decisions”. The WPA then requested: “in the spirit of Walter Rodney, the occasion of his death anniversary (June 13th, 2017) is used to make the contract public”. In response the Minister met with and briefed the WPA’s Executive Committee on November 22, 2017, making it clear it was a pending Cabinet decision.
I am heartened by the ministry’s recent release (November 15) stating it “has taken note of each and every call for the ExxonMobil agreement to be disclosed in the interest of transparency … These calls whilst validly grounded on the basis of transparency, also engender the promotion of related discussions and necessary considerations of national and international importance.” The release committed to: “Within this wider framework, the Government of the Cooperative Republic of Guyana [has] expressed its intention to publish the details of all Production Sharing Contracts as soon as it is opportune to do so.”
As of writing, access to the contracts is still denied. My expectation is though, their release will be soon. The question arises: will their release be better late than never or too little too late? Today, public trust is a highly prized development asset, and judging from experiences across the globe, publics are increasingly skeptical of governments’ urging ‘secrecy/confidentiality/national interest’, in this era of open media.
Practically, most informed Guyanese are aware of the main contours of the contracts. Although I am personally not privy to them, I am 95 per cent confident about the basic revenue terms of the 1999 Agreement. I am, however, less confident (5 per cent) about changes, if any, made to the 1999 Agreement. Nonetheless, available information provides a credible basis for the coming columns.
Also, it should not escape readers’ attention, Guyana is participating in the Extractive Industries Transparency Initiative, EITI. The EITI promises disclosure of financial inflows and hydrocarbons revenues paid to the state; this was discussed earlier in three columns (February 12-26, 2017).
Petroleum contracts
For purposes of popular exposition, industry analysts categorize petroleum contracts into four broad types, with the caveat, asking readers to keep in mind that: “in reality it is rare to find any contract that fits entirely into one of these descriptions”. Instead, what is far more likely is that individual contracts would contain elements from more than one type. This is an important caution, given some popular labellings and attributions to the Guyana contracts, as these seem, frankly, geared more towards being agitational, than informative. With this in mind, the four types of contracts are:
First, contracts termed as ‘concessions’. These are the first (original) contracts. Here, the oil company owns the land, whose sub-surface contains the hydrocarbons. Such ownership can be obtained through purchasing the land (concessions). It is reported by legal specialists that this contract type follows legal practice in the US, where the landowner has legal ownership rights of the land below (sub-surface) and sky above, the landowner’s property (concessions). Under such contracts the oil companies own the hydrocarbons in their concessions, having exclusive rights of exploration and production.
Second, there are service contracts. Here the contractor does not have title (or own the oil). Indeed, the contractor gets paid by contract agreement with the owner (typically the state), for getting the oil out of the ground.
Third, there are joint ventures. Here, the state (or its agent, for example, a national oil corporation) typically partners with another oil company (or companies) to explore and commercialize its hydrocarbon resources. For this purpose joint ventures are given the rights to the hydrocarbons and distribute revenues based on pre-agreed joint venture arrangements.
The fourth type of contract is a production sharing agreement (PSA). This is what the Government of Guyana presently has in place. This contract will be the subject of much of the discussion in the next and coming weeks.
Conclusion
Next week I discuss PSAs, and their recent variants.
