The Thwaites Glacier in Antarctica is about the size of Florida. Nicknamed “Doomsday Glacier”, it is on the verge of collapse which could result in several feet of sea level rise, according to scientists of the American Geophysical Union. The glacier currently accounts for four percent global sea-level rise, and the rate at which it is melting has doubled over the last 30 years. (https://ca.yahoo.com/news/antarcticas-doomsday-glacier-is-facing-threat-of-imminent-collapse-scientists-warn-220236266.html). In the Arctic Region, the rate of warming has been twice as fast as that of the rest of the world, with temperatures reaching a record high of 38 degrees Celsius last year. According to the National Oceanic and Atmospheric Administration, ‘[t]he trends are alarming and undeniable. We face a decisive moment. We must take action to confront the climate crisis’. (https://ca.yahoo.com/news/arctic-warming-twice-fast-rest-165800827.html).
There can no longer be any denying that the main cause of global warming and climate change is the extraction and burning of fossil fuels. Despite this, here in Guyana, we seem so preoccupied with the prospects of wealth creation from the discovery to date of some 10.5 billion barrels of crude oil resources off our shores that we ignore all the warning signals given and become oblivious of the dangers ahead. We will long be gone when the real effects of our actions set in, leaving future generations to grapple with the aftermath. How sad!
In our last Tuesday’s article, we discussed the controversy over the frequency of holding meetings of the Public Accounts Committee and the Committee’s decision to combine several years together, in an effort to address its six years backlogged examination of the public accounts. We stated that, while we welcome the decision to expedite the work of the PAC, we expressed the hope that `the desired level of thoroughness/comprehensiveness so vitally necessary to ensure the proper accountability for the use of public resources, will in no way be compromised’.
In today’s article, we discuss three other matters that were highlighted in the print media over the last few weeks. These are: status of the audit of the US$460 million ExxonMobil’s pre-contract costs; failure to audit some US$9.5 billion in expenditure incurred by Exxon; the functioning of the National Procurement and Tender Administration Board (NPTAB).
Status of the audit of the US$460 million ExxonMobil’s pre-contract costs
The Petroleum Agreement dated 27 June 2016 between the Government of Guyana and ExxonMobil’s subsidiaries defines contract costs to include all costs relating to exploration and development as well as those costs relating to operations, service, general and administration, and annual overhead but excludes pre-contract costs. Section 3.1(k) of Annex C – Accounting Procedure, refers to pre-contract costs as those costs as defined in the Petroleum Agreement dated 14 June 1999 entered into between the Government and Exxon. It also states that amounts totalling US$460,237,918 were incurred pursuant to the 1999 Agreement covering the period from 1999 to the end of 2015 in addition to all other such costs incurred from January 2016 to the effective date of the 2016 Agreement. The latter costs were to be presented to the Minister responsible for petroleum by 31 October 2016 and agreed upon by 30 April 2017. It is, however, not publicly known how much Exxon has expended during the six-month period to June 2016. Both sets of costs are to be included as recoverable contract costs, thereby reducing the revenue that will accrue to Guyana from the profit-sharing arrangement.
The 2016 Agreement refers to a “bridging deed” which is an agreement entered into by both parties on or around 27 June 2016 whereby the 1999 Petroleum Agreement and the 1999 Prospecting Licence will be replaced by the 2016 Agreement and a new prospecting licence for the contract area. Regrettably, the bridging deed has not been made available to the public.
In December 2019, the Government awarded a contract to the United Kingdom-based firm IHS Markit for the auditing of the pre-contract costs. The audit was expected to be completed over a four-month period but this period was extended by a month because of the COVID-19 situation. However, the results of the audit are yet to be made public. In the circumstances, it is unclear how much of the pre-contact costs claimed by Exxon is considered recoverable costs. We call on the Government, in the interest of transparency and proper accountability, to release the audit report for the benefit of the nation. After all, Guyana’s natural resources belong to its citizens and should be exploited so that they obtain the maximum benefit.
Failure to audit US$9.5 billion in expenditure incurred by Exxon
Section 1.5 of Annex C of the 2016 Agreement provides for the audit and inspection rights of the Government. The Minister is required to give 90 days’ notice of the Government’s intention to audit the accounts of Exxon for each calendar year. The audit is to be conducted within two years of the close of the year. As of now, Exxon would have finalized its accounts up to the end of 2020. Since no audits have been undertaken so far, the Government would have forfeited its right of audit in respect of 2016, 2017 and 2018. According to various media reports, the expenditure involved amounted to US$9.5 billion. In a few days’ time, the deadline for the audit of the 2019 accounts will expire. Exxon has, however, given the assurance that it will not enforce the requirement for the audit to be undertaken within the specified timeframe, presumably to give the Government more time to select the auditors for the assignment.
The Government’s explanation was that it had advertised for a foreign firm to undertake the audit but was unable to select a “strong” local group of auditors to partner with that firm. This was despite its acknowledgement that ‘our people have enormous skills, forensic skills [and] auditing skills’. It is nevertheless heartening to note that the Government has had a change of heart and is now engaging the Institute of Chartered Accountants of Guyana with a view to assembling a group of auditors to undertake the audit. It is, however, not clear whether this group will be teaming up with a foreign firm.
While it may be advantageous for a professional auditor to have prior experience in a particular industry, it is a misplaced belief to consider that he/she cannot deliver an effective audit without such experience. After all, in the course of his/her audit, the professional auditor is obliged to follow the International Standards on Auditing which set out the detailed procedures to be followed in the conduct of an audit. The key difference, however, is that the auditor has to dedicate more time towards understanding the nature and operations of the entity as well as its financial management and accounting practices. Based on his/her professional training and experience, a dedicated auditor can deliver a reasonable audit product in the first year. By the time the auditor completes his/her third round of audit, he/she becomes very proficient in the audit of the concerned entity.
Functioning of the NPTAB
Recently, questions have been raised regarding the effective functioning of the National Procurement and Tender Administration Board (NPTAB) in the light of allegations of the approval of certain contracts that did not satisfy the requirements of the Procurement Act 2003. Section 16 of the Act provides for the creation and membership of the NPTAB. It is to consist of seven members appointed by the Minister of Finance from ‘among persons of unquestioned integrity who have shown capacity in business, the professions, law, audit, finance and administration’: not more than five from the Public Service; and not more than three from the private sector after consultation with their representative organisations. The Board exercises jurisdiction over tenders the value of which exceeds such an amount prescribed by regulations, appoints a pool of evaluators, and maintains an efficient record keeping and quality assurances systems.
The Chairman of the NPTAB and one other member are to serve on a full-time basis. However, the current chairman is also a senior official of the Ministry of Finance with responsibility for monitoring the implementation of the Government’s infrastructure development programme. Concerns have been expressed that the involvement of the concerned official in the work of the NPTAB, more especially in his capacity as Chairman, presents a conflict of interest, since all contracts above $15 million are adjudicated on by the NPTAB,. The Government has, however, defended the appointment, mainly on the ground that the tenders are not evaluated by the NPTAB per se but by three persons from a pool of evaluators.
By Section 39 of the Act, the procuring entity is required to transmit promptly to the Evaluation Committee all tenders received from contractors or suppliers following the bid opening. Using only the evaluation criteria outlined in the tender documents, the Committee determines which tenderer has submitted the lowest evaluated tender. This is not the same as the lowest tender since the other criteria outlined in the bidding document will have to be taken into account. Where all the evaluation criteria are met, the lowest evaluated tender and the lowest tender are the same. If the procuring entity does not agree with the evaluation report, it is required to issue an advisory recommendation to the Evaluation Committee regarding which bidder should be the lowest evaluated bidder. The Evaluation Committee must comply with the recommendation.
Whatever the arguments for and against the appointment of the current Chairman, as a minimum, it is advisable that another member who is not in full-time employment, be appointed Chairman of the NPTAB in order to secure compliance with Section 16 of the Procurement Act.
