More than three years ago, and even before the first barrel of oil was produced, the 2016 Petroleum Agreement signed by Esso Exploration and Production Guyana limited (Esso) and Hess and CNOOC, its Joint Venture partners, concluded its first renegotiation with the Government of Guyana. The result was a Deed of Amendment (the Deed) signed by the oil companies and President David Granger in his capacity as Minister responsible for petroleum.
Specifically, the Deed amended Section 3.3 of Annex C – Accounting Procedure, to provide expressly that royalty paid by the Contractor under the Agreement would not be recoverable. Those who had argued that royalty was not a recoverable expense must have known of the renegotiation of this provision but never thought it necessary to share that information.
The APNU + AFC Coalition suffered a barrage of criticism for what is often referred to as a lop-sided oil contract. But the Coalition must be given some credit for at least effecting the renegotiation of one element of the Agreement, albeit not a particularly major one. The question inevitably arises why the current Administration keeps repeating the mantra of sanctity of contract, driving fear into Guyanese of the consequence of any attempt at renegotiation. Interestingly, the APNU+AFC’s renegotiation was conducted without a change in circumstances, while the incumbent Administration is adamant that it is powerless to even broach the question with the oil companies.
Putin’s misguided special military operation has dramatically and adversely affected the world economy and has impacted almost every household in the world, including those in Guyana. We now pay substantially more for cooking gas, petroleum, and minibus fares, substantially because of the huge increase in the price of petroleum products. Consequently, the oil companies are making unprecedented profits and are allowed to keep those profits all to themselves and their foreign shareholders. One would expect to see a caring government taking the side of the population, sometimes from two sides – a cap on prices as well as a windfall tax. In Guyana, our Government does the opposite: it takes the side of the oil companies and ignores the plight of the consumers.
But our situation is actually worse than this. The huge spike in fuel prices means super profits for the oil companies. In theory, the higher profits give rise to higher taxes but under the APNU+AFC contract, it is the taxpayers of the country who are called upon to pay those higher taxes, out of our share of profits from the extraction of our oil. That is almost criminal.
This arrangement, sometimes referred to as “pay on behalf of” is clearly unsustainable. I noted in a recent letter I wrote in the media that the Natural Resource Fund (NRF) is overstated by tens of billions of dollars. The high profits being earned by Esso and its partners will necessitate an increasing share of our NRF going to pay the taxes of the oil companies. Despite the OECD 15% minimum tax, the American partners under the Agreement will then claim the tax we pay as credits against their home tax obligations.
The apparent reliance on better contract management in place of reasoned renegotiation may sound good but it seems designed to deceive. It is both the PPP/C and the APNU+AFC that have given Guyana this abominable contract. Contrary to what Vice President Jagdeo said a few nights ago on the Glenn Lall Show, the 2016 Production Sharing Agreement was based on the Robert Persaud–Donald Ramotar 2012 Model. How can we better manage a contract when we know not its origin, its content, or its implications? Indeed, it is still my strongly held view, that Esso was not entitled to a second Agreement. We may not be able to reverse the 2016 Agreement, but that should not mean that we have to prostrate ourselves at the feet of Esso, Hess and CNOOC, as our leaders are doing.
Let us take the example of the APNU+AFC and demand renegotiation.
