Paragraph 4.130 of the Budget Speech states emphatically that the PPP/C will “immediately engage the oil and gas companies in better contract administration/renegotiation”. After a series of mixed signals, the statement should assure those members of the public who have consistently called for the renegotiation of the Exxon contract. Perhaps understandably, the PPP/C did not engage in the debate over whether or not the contract should be renegotiated even after the appearance of the explosive Clyde and Co. report which provided evidence that the negotiation of the Agreement did not meet acceptable standards. Now in Government, the PPP/C can no longer avoid the question, particularly as it had to face being asked to approve the Payara Project in the Stabroek Basin.
The Government may of course find Exxon unwilling to be a part of any renegotiation process, a stance that will raise a number of issues. It is not enough to feel cheated of US$55 billion as calculated by Global Witness, the international NGO. We can expect the oil companies will aggressively assert the sanctity of contract and rely on what is called the stability clause. These are valid issues and the Government will have to arm itself not only to counter the arguments but to make its own case for a bigger and fairer share of the petroleum pie. Exxon after all, is not just another company but as the title of the bestselling book by Steve Coll suggests, the company is a private empire.
According to the Agreement, the government is under what is called the Stability clause, barred from amending, modifying or negotiating for changes to the agreement or amendments to the law adversely affecting the oil companies, without equivalent compensation. Should that position hold, over the next 40 years or so Exxon and its partners would pay no taxes in Guyana while the rate of royalty is frozen at 2%. Exxon and its partners would no doubt be aware too, that the dispute resolution clause in the Petroleum Agreements is unquestionably upheld by the courts, which would take the matter entirely out of Guyana’s hands. Unless Exxon is willing to negotiate, any action barring nationalization, which has to be ruled out, will turn on the issue of the stability clause.
The issue of such clauses has been addressed in a number of jurisdictions and the results have not been consistent one way or the other. In Israel, The Movement for Quality Government in Israel v Prime Minister HCJ 4374/15 demonstrated that stability clauses can be stuck down by courts if it is found that the clauses defy basic principles of the rule of law. In Nigeria, in adjudicating on the issue of the legal validity of legislative stability provisions, it was held that it is unconstitutional for investment statutes to fetter the legislature from making law, a right acknowledged by the Constitution. On the other hand, some cases have gone the other way, holding that even in the absence of a stability clause or specific promises by the Government, there can be a legitimate expectation that the Agreement will be upheld. However, in Parkerings v. Lithuania, it was stated that:
…legislative changes, far from being unpredictable, were in fact to be regarded as likely. As any businessman would, the Claimant was aware of the risk that changes of laws would probably occur after the conclusion of the Agreement. The circumstances surrounding the decision to invest in Lithuania were certainly not an indication of stability of the legal environment. Thus, in such a situation, no expectation that the laws would remain unchanged was legitimate”.
Guyana badly needs to receive a larger share from the exploitation of this non-renewable resource. There are considerable hidden costs which the country has to bear merely to oversee the operation and worse, there are added costs from Guyana becoming a polluter, a costly tag to wear.
It is hoped that Exxon and its partners would show some willingness to even the scale by agreeing to a more reasonable deal and recognise that it is not in its interest to have a confrontation with the Government of a small state over a lopsided Agreement negotiated in secret by its predecessor. Worse yet, it may have to confront serious examples that suggest illegalities in the contract.
