With final decisions of two oil audits still outstanding, the contract for the third has been won by the same Vitality Accounting, Haynes and Ramdihal and Eclisar Financial (VHE) Consortium that did the second one and it will be inked next week, Minister of Natural Resources Vickram Bharrat said yesterday.
The National Procurement and Tender Administration Board last week posted on its website last Thursday that the contract was won by VHE.
In August, Bharrat had announced that the contract would have been signed the following month but had later updated that the tenders were still being evaluated.
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 ask a number of questions of the auditors and they in turn of 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 amounts 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 assigned 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.
In mid-February 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 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 Thornton UK LLP and PFK Barcellos Narine & Co submitted a tender, it 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 [to] Exxon saying, ‘this is the final figure,’ and we are waiting for the response. I think there is a time period for the response and then we will take it further from there.”
In October last year, the Guyana Revenue Authority (GRA) proposed 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 the government agreed.
At a recent press conference, ExxonMobil Country President Alistair Routledge had disclosed that the company was not accepting the audit findings sum but said that he did not believe arbitration would be the way to go. Instead, he pointed to the Production Sharing Agreement (PSA) which caters also for a sole expert.
“I don’t have any intent to call on an arbitration. I don’t think that that is the right way to get to resolution. But at the end of the day, it’s laid out in the petroleum agreement, the manner in which to approach this. Ultimately, the next step would be to involve an independent expert and if we can’t resolve that way, there is the provision for arbitration, but arbitration is generally a last resort…,” he said.
Annex ‘C’ of the PSA deals with audits and the processes triggered during and after. “At the conclusion of each audit, the parties shall endeavour to settle outstanding matters and a written report will be issued to the contractor within sixty days of the conclusion of such audit. The report shall include all claims arising from such audit. The contractor shall reply to the report in writing as soon as possible and in any event not later than sixty days following receipt of the report indicating acceptance or rejection of the audit claim and in the case of a rejection showing explanations thereof,” the PSA states.
“Should the minister consider that the report or reply requires further investigation on any item therein, the minister shall have the right to conduct further investigations in such matter within sixty days of its receipt of contractor’s reply. If within sixty days of the minister’s further investigation the parties are unable to agree to the disposition of the minister’s audit claim, the claim shall be submitted to the sole expert in accordance with Article 26 of the agreement.”
The Natural Resources Minister has said that the IHS Audit saw much controversy with some putting his and other government officials’ names into disrepute, and he therefore wanted to set the record straight.
“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 ensure that the monies spent are accounted for,” he said.
“So when we say it’s $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.”
Bharrat said that it was now up to ExxonMobil to decide whether to move to arbitration or pay the amount, but regardless, the second audit will continue and the government has moved to commence the third audit.
Vice President Bharrat Jagdeo had stated that if ExxonMobil was 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 sum other 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.
“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, 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 saw the same level of criticism, Bharrat contended, and bemoaned the fact that no praise was given to either government or the auditors for findings.
