Not a cent more for Guyana if oil price increases

Feb 26, 2018 ExxonMobil, News 0

– ExxonMobil Oil Agreement

Not a cent more…
That’s what Guyana will be getting if international oil prices rise, thanks to the Production Sharing Agreement (PSA) the Government has signed with ExxonMobil.
That agreement prevents the Government from taxing “higher than expected profits”, which is likely to occur when international oil prices are high.
The contract’s ‘stabilization clause’ is what prevents Guyana from securing such “windfall profits” in the future. This clause insulates ExxonMobil from any new taxes or laws or fees not agreed to in the contract.
But while the nation is prevented from fully benefitting from higher than expected revenues, ExxonMobil gets to profit from favourable changing conditions in the oil market. This was also confirmed by Chartered Accountant and anticorruption advocate, Chris Ram.

Minister of Natural
Resources,
Raphael Trotman

Chartered Accountant, Chris Ram

“The question of whether there should be a windfall or normal profit tax really revolves around the issue of the fiscal regime and the level of the government take…But the tax you talk of is prevented by the stabilization clause,” Ram said.
“We lost out on that because of the stabilization clause…”

‘STRANGULATION CLAUSE?’
Ram in his recent writings has also deemed the Stability Clause to be a ‘Strangulation Clause’. The columnist said it is unthinkable that any government would sign on to an agreement which insulates an operator from any new law or tax that the Parliament approves. He also noted that the clause can even be deemed as anti-Constitution.
Additionally, the Chartered Accountant said that when one compares the Janet Jagan Agreement to the 2016 Trotman Agreement, one notices several worrying additions in the Trotman Agreement.
Ram said that additions to the 2016 Agreement only serve the interest of ExxonMobil, as it limits the role of the government in applying new laws made in the petroleum sector. Ram revealed that if Guyana were to amend any of its laws which would affect the entity’s operations then the Government would have to restore the benefits that are lost.

Minister of State,
Joseph Harman

President David Granger

Ram noted that the Stability Clause provides, inter alia, “that any delay by the government to respond to any notification from the contractor that they may have suffered any adverse effects can result in the contractor taking the matter to arbitration.”
The Chartered Accountant added, “In such a case, the arbitral tribunal is authorised to modify the agreement to re-establish the economic benefits under the Agreement to the Contractor. Where such restoration is not possible, the tribunal has the power to award damages to the Contractor that fully compensates for the loss of economic benefits under the Agreement, both for past as well as future losses.”
While ExxonMobil was able to get Guyana to sign a contract with such rigid stabilization provisions, it was quite comfortable signing on to a deal with the African state, Ghana which had none.