When fundamental circumstances have changed and game-changing revenues are at stake, it would be prudent for any government to renegotiate the fiscal terms of all Production Sharing Agreements (PSA).
This salient piece of advice by the organization, Publish What You Pay (PWYP), was documented in one of its most recent reports.
PWYP is the world’s leading coalition of civil society organizations united in the call for a more transparent and accountable extractive sector.
With more than 800 members, a global secretariat and 40 national coalitions that span the globe, PWYP is committed to ensuring that citizens have a say over whether their resources are extracted, how they are extracted, and how their revenues are spent.
Its report is intended to help stakeholders pinpoint mechanisms and policies that can safeguard critical revenues. On this note, the organization said that it is in keeping with international best practices and the “good faith” that binds contracts that oil companies allow governments the change or revise their fiscal terms when their circumstances in the sector have improved.
The entity said, “it is only fair, since oil companies often ask for the renegotiation or revision of current tax terms. This is usually permitted in good faith.”
On the note of stabilization provisions, the organization stressed that based on international best practice, governments that are new to oil contracts or are on the road to first oil, should avoid or at least carefully limit such a clause in oil contracts.
The company noted that governments often seek to promote investment by granting investment incentives or tax holidays, which can significantly reduce government revenues.
It said that these fiscal terms are often locked in for the lifespan of the project through stabilization agreements, making them difficult to revise when they are recognized to be unfair.
GUYANA’S LOPSIDED DEAL
The Guyana-ExxonMobil deal has been criticized expansively 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. The Chartered Accountant said that when one compares the Janet Jagan Agreement to the 2016 Trotman Agreement, one notices several worrying additions in the latter.
Ram said that additions to the 2016 Agreement only serve the interest of Exxon Mobil as they limit the role of the government in applying new laws made in the petroleum sector.
He added 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 so 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 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.”
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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