Dear Editor,
In what appears to be an attempt at rebranding, the AFC has claimed that it is committed to renegotiating the oil contract and that they are willing to assist the government in this regard. Bear in mind that it was the APNU+AFC Government during their tenure (2015-2020), that negotiated the 2016 Petroleum Agreement under questionable circumstances that they now claim they will help to renegotiate.
Be that as it may, technically, the PPP/C Government has already renegotiated the unsymmetrical 2016 Production Sharing Agreement (PSA), which will apply to all new production licenses going forward. Of note, (i) the fiscal terms have already been agreed upon, and (ii) the new model PSAs (deep water and shallow water) were used in the last auction, which was largely successful that attracted a number of expressions of interest. As it currently stands, ExxonMobil Guyana (EMGL) has registered a few concerns only on a few of the non-fiscal terms of the new model PSAs, which the government is open to consider, prior to finalizing. But importantly, the new fiscal terms are settled, which include the following:
• Royalty rate of 10%, up from 2%,
• The profit share of 50% remains,
• Cost recovery ceiling down to 65% from 75%, thereby increasing
the Government’s upfront take, and
• Corporate tax of 10%, up from 0%
Additionally, since assuming office in 2020, the incumbent government has moved swiftly to implement Local Content Legislation which is now generating an estimated G$200 billion annually from cost-oil to procure goods and services from Guyanese suppliers and provision of employment opportunities for Guyanese; Work began on the implementation of the gas-to-energy (GtE) project which would translate to another G$200 billion in direct and indirect benefits for the economy; and a new modern Petroleum Activities legislation was developed (already enacted into law) that repealed and replaced the outdated Petroleum law of the 1980s.
Outside of the Stabroek block, which was the only block that had moved to production before the PPP/C government assumed office in 2020, there are nine other active Petroleum Prospecting/Exploration Licenses for other blocks. Once commercial discoveries are made in those, the new PSA/fiscal terms will apply as they move into production. In other words, the government has effectively renegotiated nine other contracts that were based on the old fiscal terms because those have not moved to production as yet unlike the Stabroek block.
Sincerely,
Joel Bhagwandin