-still no resolution oner IHS
The contract for a third cost-oil audit is expected to be signed next month, as government awaits responses from ExxonMobil on whether the disputed US$214 million in the IHS Markit audit will go to arbitration and answers on the findings of the US$7.3 billion RHVE audit.
“With regard to the third audit, we are on course to sign that in a month, in September. Again, we’re looking at the same model [as the audit done by the RHVE consortium] where we can have the local consortium partner with an international company or companies so that we can build capacity,” Minister of Natural Resources told a mid-year press conference held on Wednesday.
In mid-February of this year, the Government of Guyana advertised for a third audit, covering the period 2021 to 2023.
It had specified that the auditing team must comprise persons who are transfer pricing specialists. There must also be cost accountants, crude oil valuation experts, certified fraud examiners, procurement and contracts experts, a partner who specialises in natural resources/risk management, and a partner with expertise in cost recovery audits in the oil and gas industry.
The consultant as a firm or with partners must have completed at least three similar assignments during the past seven years. Team members should also have in-depth international expertise, local and regional knowledge, and access to benchmarking for comparable deep-water environments.
When the bids were opened on March 5, at the National Procurement and Tender Administration Board, three companies submitted tenders.
VHE Consulting submitted a $229 million bid while N Sookhai & Company of Guyana and the Nigeria-based Infoworks Solutions Ltd’s bid was pegged at US$973,520.
Although the London-based Grant Thorton UK LLP and PFK Barcellos Narine & Co. submitted a tender, they did not include a bid.
Updating on the other two audits, the minister said, “The first audit…we have closed that at the US$214 million figure. Based on advice we have written Exxon saying “this is the final figure,” and we are waiting the response. I think there is a time period for the response and then we will take it further from there.”
In October of last year, the Guyana Revenue Authority (GRA) stated that the US$214.4 million in disputed ExxonMobil oil expenses, as identified by UK audit firm, IHS Markit, be accepted as the final figure and government agreed.
In February, ExxonMobil Country President Alistair Routledge had disclosed that discussions were still being had on the way forward and announced then that they had been told that a third audit, covering the period, 2020 to 2022, would be commencing soon.
‘Perception’
The Natural Resources Minister said that the IHS Audit saw much controversy with some putting him and other government officials’ name into disrepute, for which he wanted to set the record clear.
“There is this perception, allegations against myself, the Vice President, staff, that there is some kind of sinister motive behind the whole issue of that first audit. First, let me say in an audit there is nothing to do with cash. There is no money involved in an audit. An audit is to look through receipts and ensuring that the monies spent are accounted for,” he said.
“So when we say its $214 million, it doesn’t mean in any way that $214 million will be transferred from ExxonMobil to the Ministry of Natural Resources. It doesn’t work like that. That is not how audits work. It simply means that $214 million will be removed from the cost bank and the country wouldn’t have to pay back that US$214 million… it is just writing off that amount from the cost bank,” he added.
Bharrat said that it is now up to ExxonMobil to decide if they want to move to arbitration or pay the amounts, but regardless, the second audit will continue and government has moved to commence the third audit.
Vice President Bharrat Jagdeo has stated that if ExxonMobil is adamant in disputing the $214 million figure, the arbitration process may be the best option to determine the matter, as it [government] too was holding out and would not accept any other sums than the US$214.4 million as advised by both IHS Markit and GRA.
“This is the easiest way. And given also, the kind of populism… I think you need an independent third party to deal with this. If you settle on any figure with Exxon. If you settle at US$200 million, you would have somebody saying, we gave into Exxon. And if you settle at US$3 million, it is worse, and therefore you need a third party that would deal with all of these issues maybe a third party that would be agreed to,” he had said.
Further, he added, “The arbitration provides for a third party, maybe some other mechanism that provides for a third party not provided for right now, provided for by the PSA [Production Sharing Agreement], but a third party that everyone has faith in, the whole country. Maybe that is a route that could be explored, but right now I think that we should not engage in negotiations.”
The second audit has seen the level of criticisms, Bharrat contended, and bemoaned the fact that no praise was given to either government or the auditors for findings.
The consortium of Ramdihal, Haynes, Vitality Consulting, and Eclisar Financial & Professional (RHVE), had conducted the US$7.3 billion cost audit for the 2018 to 2020 timeframe and those findings have seen the GRA asking a number of questions to the auditors and they in turn to ExxonMobil
Stabroek News had reported that the final report for the RHVE audit challenged around only 1.3% of the US$7.3 billion total – much less than the 12.8% in the first audit of the US$1.67 billion by UK auditing firm IHS Markit. Most of the challenged amount related to small-ticket items and expenditure unrelated to oil and gas operations, raising questions about the sampling.
The RHVE audit report had said that the company assigns costs using a complex system and while only a small figure, some expenses were above what they should be and included a transfer pricing percentage.
“The second audit, again we have seen a lot of things in the newspaper that government not doing anything with regards to expenses paid for in the Kaieteur and Canje blocks… let me remind all of us that it is the government that initiated all of the audits. And that is the purpose of the audit, to look at these issues – when Exxon is using revenue in the Canje and Kaieteur blocks but it is being added in the Stabroek cost bank. Rather than carrying negative releases, the auditors would be commended for finding these inaccuracies…” the Minister said.
“And to say that we are not doing anything about it is unfair, because there is no final report on the second audit as yet. There is no final report as yet, so it simply means we’ll take that cost out of the cost bank, before any final report is produced. There is no way the government is going to accept expenses from Canje and Kaieteur, in the Stabroek cost bank…,” Bharrat added.
