Global Witness is an international watchdog group that ‘campaigns to end environmental and human rights abuses driven by the exploitation of natural resources and corruption in the global and economic system’. Established in 1993, it has a staff of 100 with offices in London, Washington D.C. and Brussels and is supported by a global network of partners and allies. In its 2018 Annual Report, Global Witness noted significant achievements in relation to its work in several countries including Afghanistan, Democratic Republic of Congo, Zimbabwe, South Sudan, UK, Nigeria, Italy, Papua New Guinea, United States, China, Niger, Brazil, Liberia, Honduras and Peru.
Some of the key findings and actions taken as a result of Global Witness’s work include:
► Requirement for British Overseas Territories to have public registers of company ownership in order to curb money laundering in these tax havens;
► New mining law passed in Afghanistan to require the publication of beneficial ownership as well as production and payment data;
► New legislation requiring EU investors not to finance companies and projects that contribute to climate change, deforestation and human rights violation;
► Report on the State oil company in South Sudan led to blacklisting by the U.S. Securities and Exchange Commission of 15 companies;
► Bridgestone, Goodyear, and Continental to announce new rubber procurement policies requiring, among others, commitments to avoid deforestation and land grabbing;
► The full impact of the 2011 oil deal struck by Shell and Eni on the Nigerian economy high-lighted that expected government revenue was reduced by nearly $6 billion;
► Loopholes and weaknesses identified in the UK’s new open data beneficial ownership legislation resulted in the allocation of more resources towards compliance and validation of data;
► Exxon’s involvement in Liberia’s corrupt oil sector featured on the front page of the Wall Street Journal and led to an investigation that found that officials had broken the law; and
► Report detailing how the world’s three largest commodity traders, Glencore, Vitol and Trafigura, used middlemen strongly implicated in Brazil’s Car Wash corruption scandal. This led to an investigation of oil deals involving these three companies.
Earlier this month, Global Witness released a report entitled “SIGNED AWAY: How Exxon’s exploitative deal deprived Guyana of up to US$55 billion”. (The report can be found at https://www.globalwitness.org/en/about-us/annual-reviews/.) Since then, there have been numerous commentaries on the report. The Government, however, rejected the report, contending, among others, that it is ‘sensationalist, agenda-driven and extraordinarily speculative’; it presented no evidence of corruption and malpractice by government officials involved; and the timing of the report’s release appeared to have been to influence the outcome of next month’s general and regional elections.
In today’s article, we provide a summary of the key findings and recommendations of the report.
Events leading to the 2016 PSA with Exxon
In May 2015, ExxonMobil announced that it found oil off the coast of Guyana but did not provide any information about the details of the discovery. However, in April 2016, the U.S. oil giant realized that its 1999 Exploration Licence was about to expire and was required to surrender 75 percent of its holdings in its Stabroek block. Exxon ‘aggressively’ pursued a new deal by presenting a new draft licence to two ‘inexperienced Guyanese officials’ during a “ministerial visit” of its operations in Texas. The company wanted the new licence to be signed within ten weeks, with the threat that it would cease developing its oil fields which would result in Guyana losing an opportunity to earn oil revenues.
Exxon wanted to retain the same terms and conditions of the 1999 Licence which were very favourable to the company. This was notwithstanding it was an exploratory licence with no indication at the time as to the prospects for oil discovery, but more importantly, the company had ‘recently found significant oil reservoirs that would customarily allow the government to ask for more’.
2016 PSA and its aftermath
On 27 June 2016, the Government of Guyana (represented by the Minister of Natural Resources) and Exxon signed the new agreement which allows the company to carry out exploration activities for another ten years and to produce oil that it has found for up to 40 years. The agreement was largely under the same tax terms as that of the 1999 agreement, and parts of the license area that were required to be surrendered were retained. Three days later, on 30 June 2016, Exxon announced that it had found 1.4 barrels of crude oil in Liza 2! The question that logically flows is: Was the Government aware of this discovery at the time of signing the new agreement? According to the report:
During negotiations, [the Minister] knew that the company was analyzing a new possible oil find. [He]even thought the company would announce its results on a specific day: June 28 2016. But [he] did not wait for these results, which would have allowed Guyana to assess Stabroek’s true value and which turned out to be one of the world’s largest recent finds. Instead, on June 27, [he] signed Exxon’s license.
Since the grant of the new licence, Exxon has reported 16 separate discoveries, amounting to over eight billion barrels of oil equivalent. Based on an analysis carried out by OpenOil on behalf of Global Witness, the report stated that the deal was ‘an exceptionally bad one’ and that Guyana stands to lose up to US$55 billion on the Stabroek block. In our article of 26 February 2018, we had stated that when one assesses the financial implications in terms of the net benefit to the country (i.e. royalty plus net share of profit oil minus the value of the exemption from various taxes), the inescapable conclusion is that Agreement is overwhelmingly a one-sided affair.
The report stated that, while there was no evidence that the Minister was unduly influenced by his ‘lavish’ Exxon meeting paid for by Exxon, he presented ‘feeble’ negotiation terms which were not in the best interest of Guyana. In particular, he not only ignored expert advice that more financial information was needed before the signing of the agreement but also failed to capitalize on Guyana’s strong bargaining position.
In our article of 4 September 2017, we had commented that it was inappropriate for Exxon to fund the cost of the ministerial visit since it could influence decision-making in favour of the company, hence a potential conflict of interest; and the Government of Guyana should not have accepted a paid visit which in all probability would be charged as a recoverable cost against revenue. We noted that the purpose was to obtain an update on progress being made by the company in relation to the extraction of crude oil in Guyana’s waters and we identified several areas of concern:
Both the Government and ExxonMobil should have been aware that it was highly inappropriate from an ethical and moral standpoint for latter to fund the trip. The agreement with ExxonMobil is in the nature of a procurement contract, and our Procurement Act prohibits the acceptance of gifts and other favours from suppliers/contractors;
The Integrity Commission Act has a schedule with a Code of Conduct that prohibits the acceptance of gifts and other favours; and
Considering that in an age of rapid advances in information technology, virtual meetings can be conveniently held via Skye, conference calls and other technology-related means, is it not a case of waste and extravagance in the use of public funds?
We had also applauded Stabroek News for taking the high ethical and moral ground by declining the offer by Exxon to fund a trip for one of its editors.
The report noted that Exxon was not satisfied with one oil block and that within months of signing the new deal, it agreed to buy portions of two additional licenses from companies that had obtained them under ‘apparently suspicious circumstances’. This is in reference to the licences granted by the former Natural Resources Minister for the Kaieteur and Canje blocks just prior to the 2015 elections.
The report also discussed in detail: (i) the signature bonus of US$18 million which the Government had denied receiving until it was confronted with the evidence via the media; (ii) the relationship between the former chairman of the Alliance For Change whose firm did legal work for Exxon, and the Minister who was also a leader of that party that formed the APNU+ AFC Coalition. (Global Witness, however, acknowledged that the former chairman had resigned before the new agreement with Exxon was signed though he remained tied to the party through his spouse.); and (iii) the effects of Paris Accord on Climate Change which has the potential of changing the dynamics relating to the use of fossil fuels and its phasing out and replacement in the long-run with renewable sources of energy.
Government response
The Government’s response to the Global Witness request for comment mainly hinges on the border controversy with Venezuela; the threat of military action by that country; and since 2013 the Venezuelan navy twice harassed oil survey ships operating in Guyana waters claimed by Venezuela. However, the report stated that ‘Global Witness does not believe Guyana’s border (controversy) with Venezuela can be used to adequately justify the exploitative nature of Exxon’s Stabroek deal’. Suffice to state that the border with Venezuela was settled in 1899 via the International Tribunal of Arbitration award which Venezuela accepted. However, in the height of the Cold War in the early 1960s and on the verge of Guyana becoming an independent country, Venezuela chose to challenge the award. Since then, Guyanese have been living with this controversy, and so far Venezuela has not taken any military action, except for the occupation of Guyana’s part of the Ankoko Island. At the initiation of Guyana, the controversy is currently with the International Court of Justice, which is a further indication of the apparent lack of merit of the Government’s defence of the Exxon deal.
Recommendations
Global Witness has made the following recommendations:
(a) Renegotiate Exxon’s Stabroek oil license with a view to having a share of revenue that equates with international standards. In this regard, the Government should commission an independent evaluation of the amount involved;
(b) Place a moratorium on new drilling, considering issues relating to climate change and meagre amount of revenue that Guyana will receive from Exxon. The nine other licences granted should be cancelled and no new licences awarded;
(c) Investigate the process by which the Stabroek license was negotiated, including whether an apparent conflict of interest prevented the Minister from fully negotiating in the best interests of the country; and
(d) Adequately resource and ensure the independence of its anti-corruption agencies, including Guyana’s EITI and the State Assets Recovery Agency which is currently investigating the process by which the Kaieteur and Canje licenses were awarded.
Concluding remarks
The report confirms what we have been saying all along: (i) the 2016 PSA is overwhelming weighted in favour of the U.S. oil giant; (ii) the agreement should be renegotiated to provide Guyana with a better deal; and (iii) while companies exist to maximise shareholders’ wealth, such an approach should be tempered with a social conscience, by not taking advantage of weak negotiation skills, among others, especially for a poor developing country as ours.
It is evident that Exxon, as an American company, took total and absolute advantage because of our desire not only for it to act as a buffer against the Venezuelan threat but also to produce oil in time for the forthcoming elections in order to influence their outcome. The latter can be viewed as compromising the national interest in favour of narrow political interest. The oil giant used all possible means to extract the best outcome for itself, and itself alone, without regard for the welfare of the Guyana whose natural resources belong to the citizens of this country and which should be exploited mainly for their benefit. The apparent conflicts of interest involving the Guyanese actors should also be a source of serious concern.
In the final analysis, it is the future generations that will have to pay the price of what happened in relation to the signing of the PSA with Exxon as well as the contents of the agreement. When one reflects on the environmental damage that would be caused when the eight billion barrels of oil are extracted and burnt as well as the pittance we are receiving for exploiting our natural resources, it might have been better to leave the oil to where it belongs and focus on developing the Guyanese economy through a programme of diversification. In all of this, one must not also discount the effects of the “resource curse” and the “Dutch disease” as a result from having a mono-product economy, as experienced by some oil-producing countries.
