Last week, Singapore’s Transport Minister, S. Iswaran, and a hotel tycoon, Ong Beng Seng, were arrested on allegations of corruption, following a probe by the Corrupt Practices Investigation Bureau. Ong is the managing director of Hotel Properties Limited that owns several high-end hotels and resorts around Asia and the Pacific. They were later released on bail. Details of the charges were, however, yet to be disclosed. Ong is a Malaysian, who was granted permanent residence in Singapore. He was ordered to leave the country by the Prime Minister. Singapore has long had the reputation of being one of the least corrupt country in the world. See https://www.theguardian.com/world/2023/jul/15/singapore-arrests-cabinet-minister-in-top-level-corruption-probe.
In Panama, the court sentenced former President Ricardo Martinelli to more than 10 years in prison in addition to a fine of US$19.2 million on money-laundering charges relating to the use of public funds to buy a media conglomerate and to give him a majority stake. Four others were also sentenced for their involvement in the scheme. The former president also faces money laundering charges for his alleged involvement in the Odebrecht case, a massive bribery scandal involving public officials across Latin America. Two of his sons returned to Panama earlier this year after facing prison time in Guatemala and the United States for money laundering in a case linked to Odebrecht. The United States has barred Martinelli from entering the country for accepting bribes in return for the award of government contracts during his 2009-2014 administration. See euters.com/world/americas/panama-court-finds-former-president-martinelli-guilty-money-laundering-2023-07-18/.
This is our fourth and final article on the above subject. The Bill contains 19 parts. So far, we have completed our summary of the main points on six parts. We now conclude our summary of the remainder of the Bill.
PART VII – Revenues and Financial Guarantees (cont’d)
There is no provision relating to production or profit-sharing which no doubt will be left to negotiation between the Government and the petroleum exploration and production companies and reflected in the Production Sharing Agreements (PSAs). We have seen how the 2016 PSA with ExxonMobil’s subsidiaries was overwhelmingly weighted in favour of the U.S. oil giant. In particular, 75 percent of monthly production of crude oil goes towards the recovery of costs, leaving the remaining 25 percent as profit oil to be shared equally between Exxon and the Government.
The fixed share of profits approach, however, ignores the profitability of the project over time. According to the IMF: (i) most PSAs around the world have a formula in which the government’s share increases as a function of production, a combination of production and prices, or an economic variable such as the ratio of cumulative revenue to cumulative costs, or the project’s internal rate of return; (ii) in many countries, the top tier government share of profit oil could be as high as 80 or 90 percent; and (iii) considering that Exxon’s tax liability has to be settled from the Government’s share of profit oil, the Government’s take is considered relatively low.
Several aspects of the 2016 PSA has been severely criticized by many stakeholders. One such criticism relates to the possibility of recoverable costs being overstated due to several loopholes in the Agreement, especially the absence of ring-fencing provisions. Although there is provision in the Agreement for the auditing of such expenditure to ensure the accuracy of the amounts shown in the cost statements, there has so far been a laissez-faire attitude towards enforcing this requirement and acting on the results. For example, when auditors were eventually appointed to review Exxon’s pre-contract costs covering the period 1999 to 2016, and the related report issued, the Authorities failed to get Exxon to adjust the amounts shown as recoverable costs, citing the possibility of going to arbitration. This attitude renders the auditing provisions ineffective, if not meaningless. Considering the difficulties that entail in the verification of recoverable costs, several countries have moved away from the profit-sharing model, or about to do so, to one of revenue sharing.
Last March, the Government released a draft model PSA for public comment with a two-week deadline for doing so. The draft contains provisions for enhanced Government’s stake, including 10 percent royalty on production, with 65 percent going towards recoverable costs, as well as taxation. It is, however, not clear what the status of the draft is; whether it will be tabled in the Assembly for approval once finalized; and what its legal status will be for the purpose of application to all future PSAs. In order to avoid repeating the mistakes made in the 2016 PSA, details relating to signature bonus, royalty, fiscal concessions, profit-sharing, or preferably revenue-sharing, should as far as possible be imbedded in the legislation.
Part VIII – Application of Tax Laws
The Minister of Finance has the authority to direct that the Property Tax Act, the Capital Gains Tax Act and the Value Added Tax Act shall not be made applicable to a licensee who has entered into a production sharing agreement with the Government. However, such direction is subject to affirmation resolution of the Assembly. This was one of the criticisms of the IMF as regards the Minister’s discretionary powers. The Minister’s authority, however, does not extend to other taxes, such as income tax and corporation tax.
Part IX – Abandonment and Decommissioning
Following the expiry or termination of a petroleum exploration or production licence, the licensee must: (i) remove all property used in petroleum operations from the affected area, subject to any arrangements for future use of any property under an approved abandonment plan; and (ii) take steps to remedy the affected area with due regard to conservation and protection of natural resources and the environment. The licensee is required to submit to the Minister a proposed abandonment plan and budget not later than two years prior to the anticipated cessation of production, including the permanent plugging of all wells and the conduct of an environmental impact assessment. In the case of the termination of a licence, the abandonment plan must be submitted not later than 90 days later. If the Minister rejects the abandonment plan, he/she must give reasons for doing so and direct the licensee to resubmit a new or amended abandonment plan.
Within three months following the completion of a well abandonment programme, the licensee must submit a report to the Minister that: (i) provides independent verification that the abandonment has been carried out correctly; and (ii) includes the results of tests carried out to ascertain the effectiveness of the abandonment operations. The licensee is also required to establish an abandonment fund to ensure that there is adequate funding to implement decommissioning and abandonment operations. Upon completion of abandonment and decommissioning obligations, the licensee must submit to the Minister a post decommissioning report and an independent verification certificate issued by qualified verification bodies.
Part X – Transportation and Storage
The Minister may grant rights of way through the national territory for the transportation of petroleum via pipelines under such terms and conditions prescribed by regulation. Licences are also required for the construction and operation of facilities for transportation, treatment or storage of petroleum, to the extent that such activities are not incorporated in an approved development plan and reflected in the production licence.
The Minister may require the owner and operator of such a facility to grant access to third parties for certain purposes, including environmental impact and other national interest considerations. Where mutual benefit can be achieved, the licensee must use best efforts to reach an agreement with other producers for construction and operation of common facilities.
Part XI – Disposal of Petroleum, Domestic Supply and Exports
The holder of a petroleum production licence is free to sell, export or otherwise dispose of their entitlement of petroleum. However, the amount must not exceed the amount of the licensee’s share of profit oil under the petroleum agreement.
The Minister may require the licensee to market abroad on competitive terms all or part of the Government’s share of crude oil. When the needs of the domestic market exceed the Government’s entitlement from all crude oil production in the country, licensees are required to contribute to such needs in proportion to the share of their entitlement to the entire volume of crude oil produced in Guyana by all licence holders.
Part XII – Carbon Storage
The Minister may grant rights for prospecting for and exploration of underground carbon dioxide storage sites under such terms and conditions prescribed by regulation. Once a licence is granted, the licensee has the exclusive right to: (i) explore for potential storage sites in the area as specified in the licence; and (ii) develop the storage site, permanently store CO₂ and undertake activities incidental to CO₂ storage as specified in the licence.
Part XIII – Safety, Security and Emergency Response
The Minister is required to issue regulations governing the safety of petroleum operations with the objective of, among others: (i) protecting the health, safety and welfare of persons engaged in oil and gas operations and communities; (ii) securing the safe design, construction and operation of all facilities as well as safe and environmentally sound abandonment and decommissioning of facilities and site restoration; and (iii) maintaining a high level of safety at all facilities.
Licensees must ensure that petroleum operations are conducted in a safe, competent and efficient manner; and inherent risks are addressed such that those risks are eliminated where possible or are kept as low as reasonably practicable. The regulations and the petroleum agreement must require licensees to conduct comprehensive risk assessments and have in place a safety management system.
Licensees must diligently institute and maintain appropriate preventative measures to reduce the risk of accident or emergency and have in place emergency preparedness and response procedures and control measures that are aligned with national and regional oil spill emergency response plans. There must also be regular or periodic testing for all tiers of the response. Licensees are also required to implement and maintain preventive security measures designed to protect facilities and wells from deliberate attacks and to have in place contingency plans to deal with the occurrence of any such attacks.
Part XIV – Restriction of Rights of Licensee
Except with the approval of the President or the written consent of the lawful occupier, licensees’ rights do not extend to land that is, among others: (i) sensitive for national security or defense purposes; (ii) earmarked for such public purposes; (iii) part of the shore of the sea and of tidal navigable rivers that is covered by the medium high tide between the spring tides and the neap tides; (iv) the site of, or which is within 200 metres of any inhabited, occupied or temporarily unoccupied house or building; (v) within 50 metres of any land that has been cleared or ploughed or otherwise for agricultural purposes; and (vi) within 200 metres of a railway, dam, reservoir, canal, or other public work, for drilling purposes.
Part XVI – Offences and Penalties
Any person who fails to comply with any provision of the Act, or any licence, regulation or order, is liable to a fine of not exceeding ten million dollars. However, notice of such failure must be given, including any period allowed for corrective action. Liability extends to making false statements, representation, or certification in any application, record, report, or other document filed or required under the Act; or disclosure of any data or information required to be kept confidential. In these cases, the fine is not to exceed $30 million of not more than thirty million dollars, or imprisonment for not more than three years, or both.
The court may also order the forfeiture of assets, including petroleum recovered, of the convicted person. Additionally, any person who, without reasonable excuse, obstructs or prevents a licensee from carrying out his/her authorised activities, is liable to a fine of ten million dollars and imprisonment for one year.
Part XVI – Monitoring, Supervision, Inspection and Verification
The Minister, or any person or government agency duly authorized by him/her, is responsible for the oversight, inspection, research, monitoring and enforcement of the provisions of the Act, including:
Entering any area, structure, building, vehicle, vessel or aircraft being used in connection with petroleum operations for the purpose of inspection and testing;
Taking or removing samples of petroleum, water or other matter or evidence from a well for analysis;
Issuing directions to, and impose restrictions on, a licensee with respect to the health and safety of persons employees; and
Directing the licensee to cease any of the operations, withdraw of all personnel and discontinue the use of any machinery or equipment if in the opinion of the Minister the area, structure or building, or machinery and equipment is unsafe, until such action taken to remedy the situation is completed.
Part XVII – Miscellaneous
Without the approval of the Minister, a licensee cannot directly or indirectly assign any of the rights under a licence or petroleum agreement, whether in whole or in part, to a third party or an affiliate. This includes a body corporate that is the holder of a licence.
A licensee must indemnify the State against all actions, claims and demands that may be brought or made against the State, including omission or failure to act in exercising licensee’s rights under the Act, the licence or petroleum agreement.
Ownership of petroleum data obtained under an exploration or production licence is held jointly by the State and the licensee and becomes the sole property of the State with respect to any area which ceases to be part of the license.
In any action arising out of petroleum operations pursuant to or in any manner whatsoever connected to this Act and/ or related legislation that impacts the State, the Minister shall be named as a party as of right.
Part XVIII – Regulations
The Minister may make regulations to give effect to provisions of the Act, especially as regards:
Execution of all works relating to exploration for and production of petroleum;
Conservation and prevention of the waste of petroleum or other natural resources;
The form and contents of, and conditions with respect to, an application for the grant or renewal of licence;
The methods to be used for the measurement of petroleum, water and other substances from a well;
Safety and welfare standards, and the health and safety of persons employed in or in connection with exploration, production or conveyance of petroleum;
Transportation, storage and treatment of petroleum via pipeline;
Underground storage of natural gas; and
Underground storage and transportation of carbon dioxide.
Part XIX – Transitional Provisions and Savings
The Petroleum (Exploration and Production) Act 1986 and the related Regulations are repealed. However, notices, orders, directions, appointments or any act lawfully made or done under the repealed enactment and in force immediately before the commencement of the Act, will continue to have effect until revoked, cancelled or terminated.
