Introduction
Following a question raised in the National Assembly by Opposition MP Mr. Ganesh Mahipaul, ExxonMobil’s Country Manager Alistair Routledge, emboldened by his increasingly comfortable relationship with the PPP/C, reacted to Mahipaul by declaring that the approximately US$160 million expenditure to build the company’s headquarters at Ogle, East Coast Demerara, would be recovered from oil revenue. Routledge volunteered that “the cost recovery mechanism had been cleared by both the previous and the current administrations”. Of course, neither the APNU nor the PPP bothered to indulge Guyanese with that detail.
If Routledge is right, it means that Guyana will bear 50% of a cost which is not expressly permitted under the 2016 Petroleum Agreement. The effect of course, is a reduction in Guyana’s share of profit. If we can interpret Routledge, the decision on the recoverability of the cost means that both the APNU+AFC Government and the PPP/C Government have yielded to Esso by agreeing that the petroleum operations should bear the whole cost of a building which Exxon would use for its own investment management and administrative purposes as well.
How and when the clearance was arrived at will no doubt remain a secret, as have so many things about the administration of 2016 Petroleum Agreement under both the APNU+AFC and the PPP/C.
Recoverable or not recoverable
The answer to the “how” of the question requires an understanding of the concept of Recoverable Contract Costs, defined in the Agreement to mean “such costs as the Contractor is permitted to recover, as from the date they have been incurred, pursuant to the provisions of Annex C [to the Agreement]”. It also requires an understanding of how costs are classified (section 2 of the Annex) and the kind of authority required for recovery of costs (section 3 of the Annex).
Both sections contain superficially exhaustive lists, but a more granular reading shows that these are not exclusive or exhaustive but are rather terms of expansion such as “including”, “all”, “any other contract costs” and “including but not limited to”.
So let us review the framework under section 3 of the Annex which would make the building cost recoverable against petroleum operations.
Section 3.1 provides for Costs Recoverable Without Further Approval of the Minister as follows:
Costs relating to Surface Rights; Labour and Associated Labour Costs, including any personal income taxes owing by employees of the parties comprising the Contractor and paid or reimbursed by a Party comprising the Contractor; Transportation; Charges for Services; Material; Legal Expenses; all Training Costs; General and Administrative Costs and Annual Overhead Charge; Pre-Contract Costs; Interest and Financing Costs; and Abandonment Costs.
What does “including any personal income taxes owing by employees of the parties comprising the Contractor and paid or reimbursed by a Party comprising the Contractor” mean? Seems to mean that Guyana bears half the cost of the employees’ taxes which one can say is only half as bad as the Government actually paying the taxes due by Esso, Hess and CNOOC.
Section 3.2 specifies as Costs Recoverable only with Approval of the Minister, Commission paid to intermediaries by the Contractor; Donations and contributions to organisations in Guyana; and expenditure on research into and development of new equipment, material and techniques. On the other hand, section 3.4 allows the recovery of “Other Costs and Expenses incurred by the Contractor in the conduct of the Petroleum Operations”, but subject to the approval of the Minister.
The difference between 3.2 and 3.4 is that 3.2 is specific about those costs requiring approval while 3.3 makes costs not otherwise recoverable to be recovered subject to approval of the Minister – a classic case of six of one and half a dozen of the other.
No public disclosure is required anywhere. One therefore fears the private discussions between demonstrably underinformed politicians and avaricious oil companies, enabled by hamstrung and fearful public servants. The opacity of the annual financial statements of the oil companies and the refusal of the PPP/C to establish an independent Petroleum Commission is ominous and not unrelated.
For completeness, section 3.3 specifies costs and expenses which are expressly not recoverable such as arbitration expenses and court fines and penalties.
Construction of the Head Office
Deductively, the cost to build the Head Office is not recoverable under sections 3.1 and 3.2, leaving 3.4 as the only avenue. The case for a huge capital cost on a building for the exclusive use of one of the contractors to the Petroleum Agreement seems weak and would no doubt require help from the Minister. And as Routledge gloated, both the APNU+AFC and the PPP/C have colluded with Exxon in a procrustean contortion of contract interpretation to serve the oil company’s greed to inflate recoverable cost. The only outstanding question then is the identity of the Minister granting the special approval for “clearing the cost recovery mechanism”. Is it Raphael Trotman under the APNU+AFC Government or Vickram Bharrat under the PPP/C?
And the question of the land
Another issue concerning the Head Office relates to the land on which it is being constructed. Esso has sub-leased from Ogle Airport Inc. (OAI), ten acres out of the hundreds of acres of land leased from the Government to OAI for Airport development. There are two “clearances” which were required to make this legally possible. One, OAI needed approval for subletting the land for non-airport purposes and two, by virtue of section 333 of the Companies Act of Guyana, Esso needed a licence, authorised by the President no less, to hold land in Guyana.
Was it President Granger whose Administration sleep-walked into signing arguably the worst oil contract in the petroleum world in the modern era, or President Irfaan Ali whose PPP/C Government in 2012 birthed the model for the infamous 2016 Petroleum Agreement, and which has failed at every opportunity to protect, promote and defend Guyana’s interests ahead of those of the oil companies?
There is no doubt that when it comes to maladministration, negligence, slackness and squandering the people’s patrimony, not even water, let alone oil, separates the PPP/C from the APNU+AFC.
Next week’s column will join the exchanges on allegations of a foreign currency shortage amidst a petroleum production bonanza in the fastest growing economy in the world.
