Introduction
It is surely a contradiction that even as Guyana has the fastest growing economy in the world, and amid a phenomenal expansion in oil production and export, the issue of the availability of foreign exchange is now a major topic, a running debate on facts among the Government, the Bank of Guyana, segments of the Private Sector Commission and of the banking sector and privately owned businesses.
Keeping to a promise in last week’s column, this Column looks at the foreign exchange issue in the context of the 2016 Petroleum Agreement, the only such agreement which has yielded oil, vast quantities of it. A separate and comprehensive Article of that Agreement deals with Foreign Exchange which unsurprisingly, is as permissive and generous to the oil companies as are the provisions on taxation, the number of blocks, relinquishments and royalties. Before examining that Article, a look at the legislative framework for foreign exchange controls in Guyana.
The laws on foreign exchange
Contrary to popular belief and while the Exchange Control Act was repealed in 1996 under the Cheddi Jagan presidency, there still exist some exchange controls under the Customs Act, the Foreign Exchange Miscellaneous Provisions Act and tangentially, the Bank of Guyana Act which finds itself at the centre of a problem not of its own making. And for the record, the Bank of Guyana does not set exchange rate policies: it simply acts “[w]ithin the context of the economic policy of the Government”.
On the exchange rate, the Bank is required to act in accordance with the country’s commitment to the IMF that the rate should be market determined. Economists prefer the description of a “managed rate”, pointing to the Bank’s prescription of a $3 cap in the spread between the rate at which commercial banks buy and sell the US Dollar, and an artificial official exchange rate of $208.5 to US$1. The Bank of Guyana Act prescribes the Guyana Dollar as the country’s currency, and that, except with the approval of the Bank of Guyana after consultation with the Minister of Finance, all transactions in Guyana must be expressed, recorded and settled in Guyana Dollars, a requirement which is openly and routinely violated with complete impunity.
The Customs Act requires a declaration by passengers of currency in excess of ten thousand US Dollars, or its equivalent, being taken out of or brought into Guyana, a provision which is at best, self-regulated and generally ignored, to the detriment of the country’s money laundering reputation.
The Foreign Exchange Miscellaneous Provisions Act which repealed the Exchange Control Act, seeks to regulate foreign borrowings by requiring the permission of the Bank of Guyana for foreign borrowings by domestic operators, or borrowings in Guyana by companies controlled by non-resident companies. Our weak Local Content Act also means that those companies which have paid their way into buying Guyanese status, have as a direct consequence, also bought their way around this Act as well. It is mind-boggling that the Government has not moved to address this glaring deficiency.
It only gets worse.
Exchange rate and the oil contract
The above represents the statutory framework regarding foreign currency within which the Minister responsible for petroleum may enter into petroleum agreements. That framework was completely ignored in the 1999 Agreement signed by Janet Jagan, the 2005 and 2012 Model Agreements under then Presidents Jagdeo and Ramotar respectively, and of course, the universally maligned 2016 Agreement signed by Raphael Trotman. A review of the Foreign Exchange provisions in each of the four documents (all framed as Article 22) shows an abominable lack of understanding of or interest in ensuring compliance with the law.
Here are the benefits enjoyed by the oil companies and their expatriate employees.
a) The right to retain abroad all foreign exchange
obtained from the export sales of Contractor’s Petroleum and to remit and retain abroad all foreign exchange earned from sales of Petroleum or assets in Guyana.
The right to open and maintain bank accounts in any foreign currency outside Guyana and to dispose of any sums deposited therein without any obligation to convert into Guyana currency any part of the said amounts.
The right to finance Petroleum Operations in any currency through any combination of equity, inter-affiliate or third-party loans, inter-company open accounts, or production payments.
The right to place foreign currency into both Guyanese and United States dollars bank accounts in Guyana and to dispose of the sums deposited therein without any restriction.
With the approval of the Bank of Guyana, the right to purchase and to sell Guyanese currency through local banks, obviously for foreign currency.
The right of expatriate Employees of the oil companies, Affiliated Companies Sub-Contractors engaged in Petroleum Operations to remit anywhere any portion of their salaries paid in Guyana and investment income earned in Guyana or to be paid their entire salary in their home countries.
The 2016 Agreement stipulates that the oil companies can maintain accounts in Guyana and United States Dollars and that the US Dollar accounts “will prevail in case of conflict”.
Agreement trumps Guyana’s laws
It is a well-established principle, that an agreement made under any law must comply with that law. Yet, the 2016 Agreement violates this principle in providing that any conflict is resolved in favour of the Agreement rather than the law.
The generous tax provisions mean that no foreign currency must be brought back to pay any taxes for the oil companies, branch profit tax of subcontractors or the personal income tax of expatriates of the oil companies, their affiliates and their subcontractors working in Guyana for less than 183 days.
For good measure, the total revenue earned by the oil companies in 2021 was $545,086 Mn. while the taxes which we the Guyanese people paid for them is $78,638 Mn. CNOOC immorally benefitted to the tune of $21,118 Mn. of that sum, and now generously donates $4 million of that to assist Christ Church Secondary School. It is like giving back to Guyana $1 out of every few thousands of dollars of the taxes we pay for them. What a deal!
CNOOC may be cut from a different cloth from Exxon and Hess but there is clearly no difference when it comes to exploiting the vulnerability of poor countries or their attempts at salving their bleeding conscience.
Next week: We return to the Head Office business.
