When a government fails to secure a “fair deal” for its nation, it should spark “unrelenting concern” among its citizens. This point was made in a detailed report by the Natural Resource Governance Institute (NRGI).
The NRGI is an international body which provides expert advice to administrations around the world as it relates to getting the best deals and arrangements out of extractive sectors. It has on several occasions, provided advice to Guyana on similar matters.
In one of its documents which look at the red flags of corrupt contracts, the Institute said that agreed terms which are more favourable to the contractor, often deviate significantly from industry or market norms. It further noted that if the terms of licenses or contracts depart significantly from expectations, past examples or industry norms, extra scrutiny from oversight actors would be warranted.
The Institute also stated that there is no global rule for how much deviation is too much – only close scrutiny of the underlying industry and country context can support informed judgment calls in that regard.
The Institute also cautioned that corruption is by no means the only possible reason why final terms may favour the company more than the country. It noted that other contributing factors could include the fact that the government negotiated poorly, based on limited experience, information or negotiating power.
Be that as it may, it said that there are specific warning signs which concerned citizens can look for.
In this regard, the report noted that citizens must be mindful of one or more terms of the license or contract which have been changed only shortly before signing, in a manner that favours the company.
The Institute warned of non-standard provisions which include excessive tax holidays, unclear or skewed currency conversion formulas or rates; unusually long payment windows; or concessionary credit lines, debt guarantees, or other non-standard financial support from the government to the winner, either as terms of the sale or in side deals with the winner.
GUYANA’S LOPSIDED DEAL
The Guyana-ExxonMobil deal has been criticized continually for being highly favourable to the contractor.
In fact, local critics have noted that there were several last-minute changes to the contract during the review in 2016. Chartered Accountant, Chris Ram had noted that one of the most significant additions was in relation to the stability clause.
The lawyer said that Article 32 of the Guyana-ExxonMobil oil deal speaks to the stability clause. Ram said that when one compares the 1999 Agreement to the 2016 Agreement, one notices several worrying additions in the latter.
The anticorruption advocate said that additions to the 2016 Agreement only serve the interest of Exxon Mobil, 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 lost.
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 authorized to modify the agreement to reestablish 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.”
Additionally, ExxonMobil is able to benefit from uncapped imports based on the Production Sharing Agreement it has with Guyana.
The International Monetary Fund (IMF) has also commented on Guyana’s lopsided deal with the American oil giant.
In its latest report which was prepared for the coalition administration, the IMF said that the ExxonMobil deal gave Guyana the lowest average effective tax rate among nine projects in countries that include; Norway, Brazil, Peru and Trinidad and Tobago. It stressed, too, that the terms are “relatively favourable” to the investor not the host country.
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