Dear Editor,
There has been a continual flow of opinions during the past two years urging the PPP/C government to re-negotiate the Exxon and Partners’ Profit-Sharing Agreement (PSA) of 2016. This stream was a trickle
during the PNCR-led government, but these opinions have currently evolved into a gush. Critics believe that re-negotiation could result in superior conditions (both financial and other wise) for Guyana. Not only the critics, but every Guyanese, would be happy with a better deal, but re-negotiation is fraught with many formidable challenges that would be difficult to navigate. The circumstances under which the Exxon contract was negotiated are filled with anomalies. It was reported, for example, that the address provided on the contract was that of a well-known lawyer. In addition, Minister Raphael Trotman blamed the Geology and Mines Commission for the deficiencies in the contract. More astonishing is the claim of the Minister that he was instructed to sign the contract but has failed to provide the instructor’s name or his/her official title. If the instructor was not the then President, who was it? When these glaring aberrations are taken together, along with the reluctance of the PNCR-led coalition to have made the contract public, credibility in the contracting process plummeted and suspicion multiplied. As a pretext, Guyanese were told that disclosure of the contract was a matter of national security (presumably Venezuela might expand its claim to Guyana’s territorial waters given its oil discoveries!). It was not until the $(US) 18 million signing bonus was exposed by social critic, Chris Ram, and subsequent pressures from the PPP/C opposition and civil society groups, that the PSA was made available to the public, after being kept in secrecy for over one year. The deviance continued. The PNCR-led coalition’s Minister of Finance had denied receiving the signing bonus. It was also revealed that the sum of $(US) 18 million was not paid into the Consolidated Fund, as required by FM&AA.
The many dark spots in the Exxon contact have led to much uneasiness, apprehension, and speculation. Critics feel that enough and careful thought were not injected into the negotiation process. The Guyana team, under the Minister of Natural Resources, was overwhelmed by the Exxon negotiators who succeeded in delivering a lop-sided contract. It is for this, and other reasons, that critics have been pressing hard for the re-negotiation of the Stabroek Block Exxon contract. They want to re-negotiate, among other things, an increase in the size of the signing bonus, an increase in the proportion of profit oil, strengthening the EIS (including insurance coverage and safety measures), removal of the generous tax concessions, and introduce ring fencing. To justify their position, critics point to Suriname which gets 6.25% as royalty compared with 2% for Guyana. They also indicate that Guyana gets 14.5% profit oil, while Suriname gets 35.84%. Suriname got $(US) 100 million signing bonus for Block 58, while Guyana got only $(US) 18 million. In Suriname, the oil company pays 36% income tax compared with zero for Guyana. Under EIS, they want better control of flaring and want Exxon to provide insurance to cover oil spills and other potential environmental disasters. Guyana pays Exxon Income tax while Suriname makes the oil company pay 36% income tax.
Ring fencing was not included in the 2016 PSA contract. Simply stated, ring fencing is the procedure that allows companies to recover development costs only within a defined geographic ring, and not outside of it. Where there is no ring fencing, a company can utilize the profits from operation A to conduct exploration elsewhere, and thus reducing the size of the profits at operation A. While acknowledging that the Exxon contract was lop-sided, the PPP/C government is constrained in what it could do to mitigate the situation. The repercussions of any contract re-negotiation could be detrimental to the country’s credibility as a haven for investment. Then, there is the “stability” clause in the contract that makes re-negotiation almost impossible. Chris Ram notes: “What Trotman has done is that he has crippled succeeding Parliaments and generations by a stability clause which will take expensive and heavyweight legal action to unshackle.” The PPP/C government, however, has pledged to negotiate better terms and conditions for the future PSAs. And in respect to the 2016 PSA, the Government has been exploring avenues through administrative action (such as imposing a fee for flaring at a cost of $(US) 45 per tonne of carbon emitted until emission could reach zero) to enhance benefits, as well as to use other legal means to add to existing benefits. For example, through Local Content legislation, all foreign investors must form joint partnerships with Guyanese so that the latter owns 51% of the shares and employs 75 Guyanese as managerial staff. Judging from the public pronouncements, combined with the reasons cited before, re-negotiation is not likely to happen. What is perplexing is that opposition MP Mr. David Patterson has conveniently jumped onto the re-negotiation band wagon. For 5 years his PNCR-led government never considered re-negotiation. Is he trying to bait the PPP/C into a tricky situation? Why isn’t local content policy cast at the center of the political radar?
Sincerely,
Dr. Tara Singh