Hoping to put the renegotiation of the controversial 2016 Production Sharing Agreement (PSA) with ExxonMobil to rest, President Irfaan Ali yesterday said that he has accepted that although the deal is lopsided, a move to revamp it would not only deflate investor confidence but halt the progress of development and hurt mostly locals.
“We came in to government and met what we have said publicly is a lopsided agreement, but we have a responsibility to honour an agreement that was made. I spoke about the consequences of walking away. I saw a completely different headline from what I said,” Ali yesterday told the opening of the Guyana Energy Conference where in attendance were leading representatives of all three of the Stabroek Block partners as well as hundreds of representatives from companies across the globe .
“Let us say we stopped production tomorrow; stopped all the production. What is the consequence? What is the exposure to the country? What is the exposure [to] all those who would have invested? Not just the big investor; to the man who took a loan and build apartments, the man that had three taxis and invested in 300 taxis now… what is the exposure to them, and the financial institutions that financed those investments based on what we did?”, the President questioned.
It is unclear how the President arrived at the conclusion that a renegotiation would lead to halt in production.
Ali asserted that his government was one which would honour agreements between investors and the country because while political parties change, businesses continue. He posited that governments are tasked with setting aside partisan views and looking at the development of the country and its people, and that was what he did.
Going forward, he pointed out that government has already said it will ensure that any other agreements signed would encompass better returns than the current one.
“We have something that was already signed. We agreed [that] we are going to efficiently manage it to extract as much benefits as possible. And all future agreements are going to be different,” he assured while pointing out that the new agreements are demonstrative of the promise made.
With US$30 billion already invested in the production of oil and gas, President of ExxonMobil Guyana, Alistair Routledge, last week echoed similar views about sanctity of the contract, saying that that it would be “very destructive” for Esso Exploration & Production Guyana Limited to renegotiate the 2016 PSA.
“There is a wide public view that Exxon and its partners are benefiting from the 11 billion barrels of oil more than Guyanese. Will you be willing to renegotiate the 2016 PSA?” Routledge was asked.
In his response, he was quick to point out that the view is unrealistic as the Guyanese people are benefiting more from the deal than the investors. He said it is very clear that under the Stabroek Block PSA, 50% of the profit goes to the country and 50% goes to investors. He noted that an additional 2% from the investors’ share goes towards the payment of royalty which results in Guyanese receiving a total of 52% of profit oil.
“In essence, 52% goes to the country so beyond that, what is incredibly important for any country or in any business is stability. We’ve made now over [US]$30 billion worth of investment committed to the country based on the contract as it stands. To change the contract when you’ve already made that level of commitment would be very destructive to investor confidence in the Stabroek Block,” Routledge contended.
He further noted that with 75% of revenues directed towards the repayment of costs, the remaining 25% is split 50/50 between the country and investors.
“Then out of the investor share, 2% of the gross is paid [as royalty]. So you’ll see through the course of any period, the Central Bank reports two things. One, the sales of the revenues are generated from oil lifts entitlements and then government takes their share of the profit oil and then in addition, we make payments directly to the NRF (Natural Resource Fund).”
Continuing to defend the controversial PSA which was struck without Guyana having expert advice, Routledge pointed out that it is always an investors’ risk his company takes when they enter a country to develop the resources.
“We take an investor risk and what those terms usually reflect is how much risk you are taking. And if you recall, when we signed the contract, we made one discovery Liza, nothing else. The system is truly still a frontier exploration base.”
