Dear Editor,
Must Guyanese wait 12 more years before change comes to the ‘lopsided’ 2016 Exxon contract?
Let’s look at the 2016 Exxon Production Sharing Agreement (PSA) and this hoary principle of “sanctity of contract” by which the parties involved are expected to honour their promises and fulfill their obligations. The PSA lifecycle is 20 years, and, by this principle, not till sometime in 2036 can Guyana see changes to this lopsided agreement.
A few days ago, something happened in Canada that challenges or, at least, weakens the principle. Without going into details, Quebec and Newfoundland-Labrador (two provinces in Canada) signed the 1969 Churchill Falls hydropower contract, whereby Newfoundland agreed to supply hydro-power from Churchill Falls to Quebec at ridiculously low prices, fixed over long periods. For example, when the deal was (automatically) renewed in 2016, the price was preset at $2 per megawatt hour — lower than the initial price of $3/MWH — remaining fixed until 2041. Meanwhile, Quebec (Hydro Quebec) has been selling electricity at multiples of the contract price while energy prices kept climbing year after year. Since the 1970s Newfoundland tried various attempts, even took Quebec to the Supreme Court of Canada to nullify the contract. All efforts failed and the contract became a matter of deep resentment that caused bad relations between Quebec and Newfoundland.
And now (year 2024) when the deal is set to expire in 17 years in 2041, Quebec decided, partly out of self-interest, to renegotiate. The result: A new agreement replaces the 1969 agreement with a fairer deal for Newfoundland. It includes higher selling price of electricity that is not fixed; Newfoundland will get billions more in revenue (compared to C$300MM gross; C$20MM net currently); and Quebec gets energy security till 2075 at affordable prices as its power demand grows. A win-win outcome. Does all of the above sound familiar in Guyana, saddled with a lopsided 2016 PSA (fixed 2% royalty, zero corporate tax, 50-50 profit split, and 75% cost recovery). What are the lessons that Guyana can learn from Canada?
Whilst Exxon is legally not obliged to renegotiate the contract (as long as it fulfills its obligations), three things may nudge Exxon to come to the table:
1. All political parties and citizens in Guyana staying united in seeking contract renegotiation. Otherwise, Exxon would exploit political divisions in the country and find Guyanese who are willing to serve as mouthpieces (once the price is right).
2. Goodwill or generosity by Exxon — driven by self-interest — could put the company in a favourable light for future exploration in and outside the Stabroek block.
3. Continuing efforts by Guyana to appeal to the court of world public opinion with the hope that Exxon would become weary of the complaints of unfairness, and “shame” would nudge Exxon to the renegotiation table. Corporations have an image and reputation to nurture.
So: The Quebec-Newfoundland story is one of hope for improving the 2016 oil contract if current and future Guyana governments stay united and, furthermore, if they do not lose hope and say, “It’s time to move on than dwell on the past.”
Yours faithfully,
Terence M. Yhip
