The Exxon Agreement is one which provides for cost recovery. Exxon’s investment in producing oil will have to be recovered from the sale of oil.
Since it is Exxon and its contractors which will be drilling and pumping the oil, it is in Guyana’s interest to be able to monitor closely the expenditure of Exxon to ensure that Guyana is not burdened with unlawful and unreasonable cost recovery. Too high a cost recovery will cut deeper into Guyana’s share of revenues. Guyana therefore has to put itself in a position where it should be able to call, at anytime, on Exxon to produce its books for auditing.
This is extremely reasonable, because Guyana is not involved in the production of the oil but has to foot the cost. Therefore, for Guyana to ensure that it is not being robbed, it has to be in a position to inspect the books of Exxon at anytime and at short notice, including even conducting surprise audits.
The right of Guyana to audit Exxon’s books is provided for under the Production Sharing Agreement. However, this right, as this newspaper reported last Sunday, comes with a caveat.
The Audit and Inspection Rights of Government clause contained in Annex C of the Agreement provides that before the Minister can undertake an audit, he has to give Exxon 90 days’ notice, conduct the audit at government’s expenses, and has to do so within two years from the end of the year of the accounts which are being audited. But even more shocking is the provision that the Minister is restricted to only one audit per year.
As reported by Kaieteur News last Sunday, the Minister has the option to review items previously subjected to audit in earlier years. However, the contract stipulated that the review shall only be carried out in conjunction with the annual audit for any given year. This can happen “no sooner than twelve (12) months following the previous audit thereof; and only be for the purposes of verifying a matter arising in a later period, which relates to the earlier year(s) in question or as specified in Section 1.5 (b).”
Like almost everything else in the contract, the Audit provisions are stacked in favor of Exxon. Theoretically, it can do whatever it wants with its books during the 90 days’ notice period which the Minister has to give the company. It cannot be caught off guard since it has time to do what needs to be done.
Guyana is being treated as secondary party in this agreement. Why should 3 months’ notice be given to the Contractor? And why should there be one audit per year. If Exxon is interested in transparency, it would not have imposed such a provision.
The PSA also states that at the conclusion of each audit, ExxonMobil and the Government shall endeavour to settle outstanding matters and a written report will be issued to the Contractor within 60 days of the conclusion of such audit. “The report shall include all claims arising from such audit”.
It is unreasonable for Exxon to ask the Ministry to issue a report to the Contractor within sixty days of the audit. This time is too short, because this is a multibillion-dollar investment and it is unfair and unreasonable to ask any Auditor to produce a report a mere two months after the audit. In practice, it means that there is not going to be any substantive audit if a report has to be submitted within 2 months at the end of the audit.
The agreement also provides that if within 60 days of the Minister’s further investigation, the Parties are unable to agree to the disposition of the Minister’s audit claim, there shall be arbitration in accordance with the arbitration provisions of the contract.”
What all of this implies is that Exxon continues to hold the upper-hand in the agreement. It is all the more reason for this contract to be renegotiated.
Guyana cannot be financing cost recovery and yet be so constrained in its right to audit Exxon. The time has come for the entire contract to be renegotiated so that there can be a more balanced agreement.
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