Former head of the Environmental Protection Agency (EPA), Dr Vincent Adams has called out the PPP/C government’s decision to halt the finalisation of an agreement guaranteeing full liability insurance coverage from ExxonMobil for the offshore Payara development project.
Payara, which is the third petroleum development project in the Stabroek Block, will see the drilling of some 45 injection and production wells and is expected to produce between 180,000 and 220,000 barrels of oil per day. According to the Environmental Impact Assessment for the project, in addition to Guyana several Caribbean and South American territories can be affected should there be a spill offshore Guyana.
In a letter to the press released yesterday, Dr Adams said that there seems to be some confusion surrounding the narrative as to how Guyana found itself in a situation where it does not have a full liability coverage agreement with ExxonMobil and its affiliates. He said that during his 22-month tenure at the helm of the EPA, the priority was to get Exxon to guarantee full liability coverage as part of the Payara development.
“The most pivotal fact is that after very stiff resistance, Exxon did indeed agree in writing, to have full liability coverage, and we were close to celebrating ‘mission accomplished’ when at the last moment in August 2020, defeat was snatched from the jaws of victory by the incoming PPPC Government, when they inexplicably, stopped finalization of the EPA/Exxon Agreement to realize this full liability coverage,” Adams said.
He added that the PPP government, led by President Irfaan Ali with Vice President Bharrat Jagdeo holding the responsibility for the oil and gas sector, chose it best to part ways with the attorney negotiating with Exxon on behalf of the EPA. That move was executed shortly after the PPP/C assumed office in August 2020.
“The Government must explain to its people why it so callously stopped finalization of the Agreement with Exxon, thus reducing us from the agreed-upon full coverage to no coverage,” the former EPA head declared.
Exxon’s contract with the Guyana government caters for “self-insurance,” which basically translates to Exxon and its partners bearing all financial liabilities and it is not required to obtain outside insurance.
‘In writing’
Providing a chronology of the events that led to the current situation, Dr Adams said that the current head of the EPA, Kemraj Parsram, signed the environmental permit for the Liza 1 development in 2017 without any insurance coverage. He assumed that this was done under the belief that Esso Exploration and Production Guyana Limited (EEPGL) would cover the costs in the event of an oil spill offshore Guyana.
However, EEPGL is a newly formed limited liability company, which does not have any assets to cover any such extensive liabilities.
Adams assumed the position of Executive Director of the EPA in 2018 and it was then that he sought to correct the flaws in the permits. At the time Exxon was pursuing the development of the Liza Phase 2 project and was seeking environmental permission for that development. During the negotiations. Adams said he made it clear that the EPA will not issue an environmental permit for the project until full liability coverage was guaranteed.
The EPA, according to Adams, received intense pushback from ExxonMobil and after refusing to budge, the oil major obtained a US$2.5 billion policy claiming that it would be adequate. However, the then EPA head was not satisfied as he explained that the cleanup for BP’s Macondo spill in the Gulf of Mexico was approximately US$70 billion and that “such a liability would bankrupt Guyana, not to mention potential lawsuits from neighbouring countries and other affected parties.”
“During these most tense discussions, Exxon expressed that coverage by parent companies is totally unnecessary, since Exxon is, after-all Exxon, and will never walk away. Of course, we quickly seized upon the opportunity to retort that with such an avowal, there should be no problem for them to put it in writing.
“That ended the argument! And Exxon eventually acceded to our immovable demand for parent companies [to] cover above the $2.5 Billion insurance; but asked that we sign the Liza 2 Permit, so as to maintain confidence in their investors while affording time for the parent companies to agree upon how they will share the liabilities,” Dr Adams explained in his letter.
He added that EPA gave in to the request and signed the permit for the Liza 2 development since that was not expected to come on board until 2022. That was issued mid-2019 with US$2.5 billion insurance and a guarantee that full coverage would be in place prior to production.
This requirement became the standard language in all subsequent permits issued to EEPGL and other operators and EPA signalled that the same process would be employed for the Payara permit.
“EPA’s success at getting Exxon to consent to full liability coverage received wide media attention due to the fact that this departed from The Contract which allows for only self-insurance from EEPGL. Along the same lines, the EPA was also able to attain unfettered any-time access including unannounced visits to the operating facilities, thus again departing from the 7-day notice required in The Contract deemed to be sacrosanct as the reason used by both Governments for not pursuing re-negotiations. The bafflement was that if the EPA can deviate from The Contract, why can’t the Government also re-negotiate for changes?” Adams’ letter read.
“Subsequent to the issuance of the Liza 2 Permit, regular meetings were held for several months, between attorneys of EPA and parent companies to arrive at the Agreement as to how the parent companies would share the full coverage. This Agreement was nearing finalization when my service was terminated along with the ongoing meetings to finalize the Agreement, followed by the removal of the EPA Attorney handling the matter,” he added.
Dr Adams’ service was terminated in August 2020 and the Payara permit was granted on September 24, 2020, by then-acting EPA head Sharifah Razack.
Financial assurance
Section 30 of the Environmental Protection Act states that “financial assurance” can mean cash (an amount specified in the environmental authorisation; a letter of credit from a bank with a specified amount; a guarantee from any person whose long term unsecured obligations are rated equally with a bank by an internationally recognised credit rating agency; or a performance bond with a specified amount.
With respect to financial assurance, the Act states that the EPA may include, in any environmental authorisation, a requirement that the recipient of any environmental authorisation shall provide financial assurance to the state for a number of reasons.
Section 31 of the Act lists some of the reasons as “the performance of any action or compliance with any condition specified in any environmental authorisation; the provision of alternate water supplies to replace those that the Agency has reasonable grounds to believe are or likely to be contaminated or otherwise interfered with by the works to which the environmental authorisation relates; measures appropriate to prevent adverse effects upon and following the cessation or closing of the works.”
The EPA, under the Act, is required to specify the amount of financial assurance to be provided by the body receiving the environmental authorisation. Additionally, the Act empowers the Minister of Natural Resources and the Environment to make regulations to the circumstances under which financial assurance must be required by the EPA, the terms and conditions of the financial assurance and the effect of failure to provide financial assurance.
Last year, Jagdeo said that the government is pushing ahead with a US$2 billion insurance demand but no agreement has been announced as yet. Adams questioned whether the government has dropped the US$2.5 billion he was able to secure.
“As protector of the nation’s economy, environment and health, the Government owes it to its people, to explain why it has taken such a dangerous step in taking the country from agreed-upon full liability coverage to no coverage….the Government owes it to its people, to explain why it took such a dangerous step in taking the country from agreed-upon full liability coverage to no coverage,” he argued while saying that the recent motion by the Opposition for the Government to recant its decision to stop the finalization of the full coverage Agreement already agreed upon by Exxon is welcomed.
The last bit of information coming out of the EPA, in relation to insurance, was that an agreement is being worked out.
“The EPA is currently reviewing and in negotiations with the EEPGL and plus we’re having our legal minds in Guyana as well as the Ministry of Natural Resources to review the draft agreement on and the contents therein. I’m working assiduously and I’m just waiting for feedback from the legal minds. I recently reached out to the Ministry of Natural Resources and their team to provide your feedback. I’m sending it to the AG Chambers for review as well. I’m hoping to wrap this up as soon as possible. So as soon as I’m comfortable with the agreement, then I will sign and have them sign,” Parsram has said.
Efforts to contact both Parsram and Jagdeo yesterday were unsuccessful.
