Jan 03, 2018 News
By Kiana Wilburg
The International Monetary Fund (IMF) is urging the authorities of Guyana to commence the auditing of all exploration, development costs by USA oil operator, ExxonMobil. The Fund made this known in one of its recent reports on Guyana’s oil sector. This document was handed over to the government last year.
The IMF said that plans to establish a petroleum industry taxpayer unit attached to the large taxpayer office in the Guyana Revenue Authority (GRA) should be prioritised. The Fund said that this effort is supported by a consultant from the US Treasury office of Technical Assistance.
The IMF said, “It will be important for this unit to start verifying and undertaking audits of cost incurred during the exploration and development phase, which is getting underway now. It would be advantageous to establish close working relations between the GRA and the sector regulators (Ministry of Natural Resources, Guyana Geology and Mines Commission and the prospective Petroleum Commission) to ensure that the limited petroleum sector expertise in government is applied most efficiently.”
The International Monetary Fund said the intention is that the Guyana Revenue Authority will be the single revenue collection agency for the petroleum sector.
It opined that this is a reasonable decision, given the key role played by the Production Sharing Agreement and the pay-on-behalf arrangement for corporate income tax in existing contracts (this is where the contractor’s income tax obligations are settled from the government’s share of the profit oil).
However, given the limited experience in the GRA with petroleum taxation, the IMF said that there is urgency to develop skills in this area.
Oil production is expected to get into to full swing by March 2020. That is just about two years away. But even at this point, the government is yet to point out what ‘specific’ measures are in place to ensure that it can authenticate cost recovery claims by USA oil giant, ExxonMobil.
Kaieteur News had asked President David Granger to provide some details in this regard and he was unable to. The said question was also put to the nation’s point man on oil and gas, Natural Resources Minister, Raphael Trotman. He too is yet to list just two things that are in place to ensure Guyana is not robbed through such claims.
At a recent Press Conference, Trotman said that the authenticity of cost recovery claims was one of the main discussions he and others had with the International Monetary Fund (IMF) and its experts.
Trotman acknowledged that indeed, several countries around the world including Kenya, Ghana, the USA and Great Britain, have had struggles with ensuring cost recovery is precise and transparent .
The Natural Resources Minister said, “We have turned to some of the best financial experts in the world and they have come, they have done their assessments and they will be guiding us. It is a work in progress and we are doing better by the day.”
When Kaieteur News still insisted on him outlining a few provisions in this regard, he pointed out that the Guyana Revenue Authority was able to garner $900M in taxes due to its attentiveness in this regard.
TANZANIA AND INDONESIA
Kaieteur News had carried an article on the Tanzanian experience with ExxonMobil in which it was stated that the country had serious difficulty in verifying the how the figure of “cost oil” was arrived at.
Upon examination of the leaked contract with ExxonMobil, the Chairman of the Public Accounts Committee disclosed that there was no “ring fencing” of blocks and that the Production Sharing Agreement contained no provision to guard against the incurrence of costs in one block and recovering them from another profitable block.
The Chairman referred to the writings of Nobel Laureate Joseph Stiglitz who asserted that “The fact that the typical contract allows the oil companies to walk away with the windfall profits suggests that something is wrong with the way these contracts are designed.”
This newspaper also reported Indonesia’s switch from the profit-sharing model to a revenue-sharing one. This was because each passing year has seen a dwindling of the country’s share of profits in the belief that oil companies were inflating their costs.
This was despite the fact that the government-owned entity that manages the oil sector has a staff of 750 professionals. Approximately 80% of that staff is involved in the verification of cost recovery claims by oil companies to ensure that they are fair and accurate.
The Chartered Accountant insisted that there are limited resources available in Guyana to enable the independent verification of the accuracy and reasonableness of the costs that are chargeable to revenue.
He said it is mainly for this reason that the Government of Guyana should re-negotiate the contract with ExxonMobil to allow for a revenue-sharing model to be in place.
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