With government still to adequately explain why it allowed auditing of over US$9B in ExxonMobil’s expenses to fall into default, Chartered Ac-countant Christopher Ram flayed its nonchalant attitude saying it could have asked Canada for help.
“And if the Government was so interested in auditing those costs, it could have called on the Audit Office, which has easy access to Canada and its wealth of experience in petroleum audits, to provide assistance, even as a short-term measure,” Ram told Stabroek News yesterday.
Vice President Bharrat Jagdeo last week announc-ed that ExxonMobil’s post-2017 expenditure had not been done because government was not able to select a strong local group to undertake it, although it had advertised this year for foreign firms.
“We have been very disappointed that we have not been able to select a group to do the audit of the post 2017 expenditure on Exxon. The reason is we did not have a strong local content. We had two local groups that came in but they were not strong enough. We want to build a capacity in Guyana to do this audit,” Jagdeo said.
“We think our people have enormous skills, forensic skills, auditing skills, and we are looking to see if we can’t have an arrangement where we have a consortium of local people partnering with a foreign company so we can build capacity right here in Guyana. We are disappointed that from the individual bids we did we have not been able to do this. When I get back from Scotland I have asked the minister to see if we can’t get all the groups that expressed interest to see how we can partner, they can partner with a foreign company to do this audit. We also have to build this capacity in GRA (Guyana Revenue Authority). GRA has been mandated to build a capacity to do this. But it is a disappointment because it has been quite a while,” he added.
Jagdeo’s explanation has raised questions about the fate of the bid by an international company to do the auditing and why the government here did not seek urgent overseas help for the task given the magnitude of the sum. If the US$9b in expenses is inflated it means that Guyana would be getting less profit oil than it is entitled to. Prior to Jagdeo’s casual announcement on Friday there had been no statement by the government that it was having difficulty sourcing an auditing firm and that there was a risk of the statutory period for doing the audit expiring.
Stabroek News yesterday reached out to Minister of Natural Resources Vickram Bharrat who informed that he was in a meeting. He was told that an email with questions on the issue was sent and he acknowledged the message.
Pointing to an April 2021 notice and terms of reference by government which called for only firms with extensive experience to bid for the auditing contract, Ram said that Jagdeo’s statement is disingenuous.
Unfortunate
“It is both misleading and unfortunate for VP Jagdeo to lament the absence of local capacity to audit the costs reported by the oil companies. The statement is inconsistent with the Government’s own advertisement, inviting bids to audit the contract costs: it was directed to `internationally recognized accounting and audit firms with extensive experience in …. auditing petroleum costs under production sharing contracts and other petroleum agreements and its fiscal implications.’ Were firms expected to lie about their status and capacity, or was it a condition of the World Bank’s US$20 million for a project which includes the audit?“, Ram questioned.
In the April notice, Guyana Oil and Gas Capacity Building Project (P166730), the government had outlined that the audit would entail the company, among other objectives, understanding the methodology applied in conducting the audit and interpreting the findings while communicating those findings to the contractor. It was expected that the auditing process would take four months.
Ram added that “The history of audits of petroleum costs goes back to the 1999 Agreement signed by the PPP Government, imposing a two-year limit on the Minister responsible for petroleum to audit the costs, expenses, accounts and records of the oil companies. That restriction was further entrenched in the 2012 Model Petroleum Agreement published by the Natural Resources Ministry under Robert Persaud during the Ramotar presidency. And of course, Raphael Trotman, Persaud’s successor under the APNU+AFC Government, sleepwalked into signing a pre-discovery contract for a post-discovery situation! That no such audit has been done in seventeen years of the PPP and five years of APNU+AFC signaled to the oil companies that they were free to do as they please, in all matters concerning their operations, including Local Content, an absolute requirement of the law,” he stressed.
Now that successive governments have failed to protect the country’s interest, rein in Exxon, and verify the billions of US dollars charged every month against oil revenue, according to Ram, “Mr. Jagdeo blames the absence of `strong local content’. This is not an academic, theoretical issue – it is serious and deals with real money.”
He said that when the calculations are worked out, even a 10% overcharge found would have been significant for this country and to let that opportunity go to waste is unconscionable of any government to its people.
“Just think what even 10% of US$1 billion can do, let alone US$10 billion. Why would any Government be so casual with billions of dollars when from day one, those same oil companies refused to explain the US$92 million discrepancy between their claimed pre-contract costs as at December 31, 2015 and their own audited financial statements? It was a mix of arrogance for the people of this country,” Ram said.
Comparing
Laying the blame on both government and the opposition, he said the two main parties should admit they failed in this regard.
“The PPP/C and the APNU+AFC governments should admit their failure to subject the costs reported and claimed by the oil companies to audit and their consistent violation of the law requiring satisfactory local content as a condition for an exploration or a production licence. Had the past and present governments complied with the law over the past five years alone, we would have been some considerable way to meaningful local content,” he said.
Ram also advises that the government also look at a possible amendment of the laws to allow the same period permitted under the Income Tax and Corporation Tax laws for post contract auditing,
“It is also worth comparing the two years limit for the audit of costs under the Petroleum Agreement with the seven years period permitted under the Income Tax and the Corporation Tax Acts applicable to taxpayers, and no limitation in the case of fraud or willful neglect,” he said.
“Or that under these Acts, tax is paid to the Government into the Consolidated Fund. Under the Petroleum Agreement, tax is paid by the Government out of the Consolidated Fund! Incredibly, it is not only possible but real that the Agreement requires the Commissioner General to issue to the oil companies a certificate that the oil companies have paid taxes to Guyana. While we conspire with Esso in a fictitious tax cheat on not one but two countries in favour of oil companies, our President falsely tells the world that Guyana supports the removal of subsidies from fossil fuel production,” he added.
IHS Markit
In addition to this fiasco over the US$9b in expenses, the PPP/C government is yet to release any information on the audit of US$460m in pre-contract costs by IHS Markit.
In December of last year, GRA Commissioner-General Godfrey Statia had told Stabroek News that the audit of ExxonMobil’s US$460 million pre-contract costs had been completed and the report was handed to the Department of Energy to be forwarded to the company for its response.
“We have actually completed our part and have given it to the Department of Energy to give to Exxon. When you are finished with an audit, you have to give the other party a chance to respond. That is normal. You have to inform the party of your findings, if not you have not completed the audit so that is where I know we last were,” Statia had said.
This newspaper understands that the report was handed back to the consultant for the completion of some work and it was returned to the Department of Energy.
ExxonMobil, according to sources, never received any report from the DoE.
At a cost of US$300,000, United Kingdom-headquartered IHS Markit was hired by government in 2019 to undertake the auditing of ExxonMobil’s pre-contract costs and had begun working alongside the GRA to complete this task.
“Many of our contracts require the consultants to be in country with Guyanese expertise working alongside those consultants. Because of the COVID-19 pandemic and cessation of international flights, our consultants could not return into Guyana to complete aspects of their work so that has caused us some delays requiring us to provide them with a no-cost suspension,” Statia had explained on why more time had been requested by company last year.
Statia too had explained that representatives chosen from his agency would “mirror the audit team from IHS Markit in both technical, legal and audit skills,” while GGMC’s Commissioner Newell Dennison assured that “ample and qualified officers” would be represented on the audit team.
The Production Sharing Agreement between Guyana and Exxon affiliate Esso Exploration and Production Guyana Limited and its co-venturers states that the pre-contract cost “shall include four hundred and sixty million, two hundred and thirty-seven hundred thousand and nine hundred and eighteen United States Dollars (US$460,237,918) in respect of all such costs incurred under the 1999 Petroleum Agreement prior to the year ended 2015.
