Dear Editor,
It appears that Chris Ram, equates the “stability clause”, as per Article 32 pursuant to the Petroleum Agree-ment (2016), to ceding legislative sovereignty to ExxonMobil.
It would appear that he has inadvertently interpreted Sub Articles 32.2, 32.3 and 32.4 in isolation, or, separately from Article 32.1 of the Petroleum Agreement. Accordingly, Article 32.2 states that…”After the signing of this Agreement and in conformance with Article 15, the Government shall not increase the economic burdens of Contractor under this Agreement by applying to this Agreement or the Operations conducted thereunder any increase of or any new petroleum related obligation, including, but not limited to, any new taxes whatsoever, any new royalty, duties, fees, charges, value-added tax (VAT) or other imposts”.
Article 32.3 establishes that…” If at any time after the signing of this Agreement there is a change in the laws of Guyana whether through the amendment of existing laws (including the hydrocarbons law, the customs code or tax code) or the enactment of new laws or a change having the force of law in the interpretation, implementation or application thereof (whether the change is specific to the Agreement, the Contractor or of general application) and such change has a materially adverse effect on the economic benefits, including those resulting from the fiscal regime provided by this Agreement, accruing to the Contractor hereunder during the term of this Agreement, the Government shall promptly take any and all affirmative actions to restore the lost or impaired economic benefits to Contractor, so that Contractor receives the same economic benefit under the Agreement that it would have received prior the change in law or its interpretation, application, or implementation. The foregoing obligation to resolve promptly by whatever means may be necessary any conflict or anomaly between this Agreement and any such new or amended legislation, including by way of exemption, legislation, decree and/or other authoritative acts”.
However, Article 32.1, which Ram seemingly ignored establishes that… “Except as may be expressly provided herein, the Government shall not amend, modify, rescind, terminate, declare invalid or unenforceable, require renegotiation of, compel replacement or substitution, or otherwise seek to avoid, alter or limit this Agreement without the prior written consent of the Contractor”.
In other words, in accordance with Article 32 of the PSA, if the Government wishes to institute any fiscal changes or renegotiation, inter alia, an amendment to the Agreement or any legislation, that the Government must first seek the prior written consent of the Contractor. After all, it is an Agreement between two parties and therefore, both parties must agree in principle, prior to effecting any material changes to the original Agreement. Further to note, this clause protects both parties from potential adverse ramifications by acting unilaterally. In fact, there is a similar historic case involving ExxonMobil and the Venezuelan Government, wherein the Venezue-lan authorities had unilaterally instituted material changes to the originally agreed fiscal conditions. This, in turn, led to a series of adverse ramifications for Venezuela, including subjecting the Venezuelan Govern-ment to unnecessary liability to the tune of billions of United States dollars, in the form of compensation to the aggrieved parties (ExxonMobil and its co-venture partner).
Suffice it to state, Ram ignored a number of crucial successes that the incumbent government managed to secure for the country, that ultimately translate to maximizing the in-country value, all within the framework of the 2016 Petroleum Agreement.
In this regard, the Government, through negotiations, implemented the Local Content legislation, thereby enabling the transfer of upwards of G$200 billion annually to the local business sector, which will only grow relative to the scale of development over the years, and improved local capacity and capability. Second, the gas-to-energy project is another major negotiated outcome between the Government of Guyana and the Contractor, which would also transfer, upwards of an estimated G$200 billion annually in direct and indirect benefits. Third, the Government improved the environmental permitting conditions by introducing additional costs and penalties borne by the Contractors. Fourth, the Government repealed the old Petroleum Law, viz-á-viz, the enactment of a completely new and modern Petroleum Legislation. Fifth, the Government introduced a revised model PSA, to be applied to all future exploration/developments, with significantly improved fiscal terms, that are more favourable to the country.
Moreover, Ram ignores altogether that the 2016 Petroleum Agreement has an expiration date. That expiration date, provided that there is no “force majeure” event in the foreseeable future―is in October 2027. With this in mind, to date (since 1999), less than 2% of the entire 26,802 sq. km., of the Stabroek block, to which the Agreement currently applies, have been explored and developed, including the total project development size of all the future developments in the pipeline, considering the total discoveries thus far.
This means that subject to the expiration of the 2016 Agreement, that the Government will effectively re-possess roughly 90-95% of the Stabroek Block area, following which the new PSA containing the revised fiscal terms and all the new pieces of legislation, shall apply.
Yours respectfully,
Joel Bhagwandin
