In a report on March 13, 2019 last Dr. Jan Mangal, who has been on a crusade to get the contract with ExxonMobil’s subsidiary renegotiated is credited with having indicated that “… changing the royalty, from two to more, would see Exxon putting up a fight. He said that it may want to take Guyana to arbitration…” (Rockcliffe-Campbell, March 13, 2019). We doubt very much that Exxon would do such a thing. This article analyses the reasons why.
The Organisation for Economic Co-operation and Development (OECD) has a goal to “shape policies that foster prosperity, equality, opportunity and well-being for all” (OECD, 2019). The guidelines of this organization (see OECD, 2011) shed some light on the international dimensions of the Exxon contract.
The 2018 OECD Watch briefing paper indicates that the guidelines “have unique potential to strengthen the global system of corporate governance and provide access to remedy for the victims of corporate misconduct.” It indicates that the guidelines “represent a commitment by some of the most powerful governments in the world to advance responsible business conduct” and that they have “broad coverage of sectors, value chains, and types of human and environmental impacts” and that they encompass “expectations for the responsibility of corporations to account for the negative externalities of their operations” (see OECD, 2018; p1).
We have demonstrated to date (in this series) that the Exxon contract does not compare favourably with best international practice to put it most politely. Recognition of this fact should be at the forefront of the reader’s mind when examining the wording of the Exxon contract which deals with remedies available for breach. The wording, especially the famous stabilization clause, appears intimidating until one realizes that the international climate is on the lookout for multinational companies which somehow manage to inveigle hapless third-world countries into agreements in which they (the multinationals) hold all the trumps. Here are some model principles and practices and our comments:
Guideline I. Concepts and Principles (5): “The Guidelines are not aimed at introducing differences of treatment between multinational and domestic enterprises; they reflect good practice for all. Accordingly, multinational and domestic enterprises are subject to the same expectations in respect of their conduct wherever the Guidelines are relevant to both.” Reference to non-discriminatory treatment of enterprises also appears at subsection 9 of the preface to the guidelines.
Reality check: The Exxon contract will entrench the practice of differential treatment. Here are the words of the Guyana Gold and Diamond Miners Association (GGDMA) president Terrence Adams: “It is evident that Government has, unwittingly perhaps, undervalued, and under-supported the aggregate efforts of the local miners at a time when the fiscal and other incentives offered to foreign direct investment are well known, and clearly are way beyond what local investors in the gold mining sector are accorded” (see Wilburg, May 9, 2018).
The operations of our local miners are subject to public tender while oil companies’ operations are not. There is even differential treatment between foreign and foreign – GTT is subject to a neutral regulator while Exxon is not only not so subject, but has the government openly rooting for it!
Guideline I. Concepts & Principles 2 & 8: “Obeying domestic laws is the first obligation of enterprises.” “The entities of a multinational enterprise located in various countries are subject to the laws applicable in these countries…”
Reality check: The Exxon contract reads like a document imposing its own laws to circumvent local legislation. Take, for example, the clause: “1.3 The provision of this Agreement relating to the Petroleum Prospecting Licence shall be read as part of the provisions of such Licence.” Clause 1.2 provides that the contract is subject to the law but 1.3 says the agreement trumps the law. Furthermore, Article 25 of the contract gives Exxon freedom to change the ownership of the licence at its own pleasure while pretending to give the minister some say.
Article 26.3 provides that “The Government hereby irrevocably waives any claim to immunity for itself, its agencies, its enterprises, and any of its assets with regard to any arbitration pursuant to this Article 26 and to any proceedings to recognise or to enforce this Article 26 or any proceeding to recognise or enforce an arbitral award rendered in an arbitration thereunder.” However, the GOG has no such authority according to the arbitration act (See final section of this column below).
Article 27 – “Applicable Law” is a fundamental clause of any agreement. It reads as follows: “ 27.1 This agreement shall be governed by, interpreted and construed in accordance with the laws of the Cooperative Republic of Guyana, and, consistent with such rules of international law as may be applicable or appropriate, including the generally accepted customs and usages of the international petroleum industry.” We have already shown (See articles 3 & 5) that in two material ways this “contract” breached international custom, i.e., in the exceeding of the maximum allowable under a single licence (even if it were legal), and the breach of international practice by the sheer size of the superblock produced by the combination – 26,800 sq km. We have been able to find no country in the world that comes anywhere close. The agreement has managed to accidentally shoot itself in the head in this clause.
Guideline II. General Policies A5: Enterprises should “Refrain from seeking or accepting exemptions not contemplated in the statutory or regulatory framework related to environmental, health, safety, labour, taxation, financial incentives, or other issues.”
Reality check: Exxon has managed to have the GOG pay its taxes. It has also managed to proceed to production without the granting of an environmental permit as required by law.
Guideline III. Disclosure 1: Enterprises should ensure that timely, regular, reliable and relevant information is disclosed regarding their activities, structure, financial situation and performance… with due regard taken of costs, business confidentiality and other competitive concerns.
Reality check: The contract itself was secret. Key derivative services such as insurance of operations are in the hands of Exxon. Not only is such information not available, but the very services which should generate such information independently of Exxon are in the hands of the company.
Guideline III. Disclosure (2): Enterprises should also disclose material information on: a) The financial and operating results of the company; b) Company objectives; c) Major share ownership and voting rights; d) Members of the board and key executives, and their remuneration; e) Material foreseeable risk factors; f) Material issues regarding employees and other stakeholders; g) Governance structures and policies.
Reality check: The beneficial owners of the supposed subsidiary registered in Guyana are unknown. The company is a shell company.
Guideline VI. Environment (8): “Contribute to the development of environmentally meaningful and economically efficient public policy, for example, by means of partnerships or initiatives that will enhance environmental awareness and protection.”
Reality check: Our fishermen’s concerns regarding oil spills have not been addressed to their and the rest of the nation’s satisfaction. Ditto for the Shell Beach ecotourism site. The insurance policy, if it exists, to compensate for these risks, is in the hands of Exxon.
Guideline VII. Combating Bribery, Bribe Solicitation and Extortion (5): “Enhance the transparency of their activities in the fight against bribery and extortion. Measures could include making public commitments against bribery, bribe solicitation and extortion and disclosing the management systems and the internal controls, ethics and compliance programmes or measures adopted by enterprises in order to honour these commitments. The enterprise should also foster openness and dialogue with the public so as to promote its awareness of and co-operation with the fight against bribery, bribe solicitation and extortion.”
Reality check: No comment. But we will refer readers to a scandal in which Shell and Eni are embroiled over a block in Nigeria that has now become famous. It shows the lengths to which officialdom and government functionaries will collude to defraud the country of its due. Incidentally, the story of that block began in 1998 – one year before the first contract was signed with Exxon.
Guideline II. General Policies (B)2: “Enterprises are encouraged to co-operate with governments in the development and implementation of policies and laws. Considering the views of other stakeholders in society, which includes the local community as well as business interests, can enrich this process… Enterprises should be viewed as partners with government in the development and use of both voluntary and regulatory approaches (of which the Guidelines are one element) to policies affecting them.”
Reality check: Stakeholders and civil society organisations talk at GOG and Exxon and vice versa but there is essentially an absence of meaningful engagement. Several reputable international organisations have recommended renegotiation of the contract in recognition of the fact that it is disproportionately in Exxon’s favour. The calls for renegotiation from civil society and other local actors have been consistent, however, the government, the political opposition and Exxon appear to be united in their resistance to renegotiation. Notably, both the political opposition and the government have played major roles during their respective stints in government, in the contract with Exxon.
The stability clause
This is a famous clause in which multinationals attempt to bind countries to make them immune to any adverse effects of change of law. However, this clause has at least one Achilles’ heel. S32.3 provides that “If at any time after the signing of this Agreement there is a change in the laws of Guyana…”. Unfortunately for this clause, there is no protection from laws which were not changed since the time of the signing of the agreement. Among the laws which would change the picture with Exxon dramatically, is the Procurement Act. Fortunately for Guyana, it is not easily fixable by another secret amendment as it requires a constitutional change since the requirement is embedded in the constitution as we have pointed out.
Guyana arbitration act
Perhaps the most important of the international dimensions is the enforceability of an arbitral award. The Guyana Arbitration Act (Cap 7:03) provides at S 28(1) that “In order that a foreign award may be enforceable under this Part, it must have (a) been made pursuant to an agreement for arbitration which was valid under the law by which it was governed…and the enforcement thereof must not be contrary to the public policy of the law of Guyana.”
It appears that an attempt to enforce an award brought against the GOG under this contract would fail under both counts quoted above. The arbitration clause is part of the agreement which we contend is not legal. Therefore, the arbitration clause is also invalid.
Secondly, as we have contended in article #8 – Exxon Contract: The public policy issues, (see SN of September 18, 2019) – that the contract collides with a number of public policy issues and enforcement would be therefore invalid by virtue of being against public policy.
