By Kiana Wilburg
Oil contracts are not set in stone. If there are fiscal arrangements that leave a country holding the short end of the proverbial stick, then renegotiation is not an unreasonable expectation. This is essentially the viewpoint of a report that was facilitated by the United Nations Development Programme (UNDP).
That report was written by Anthony Paul, Principal Consultant of the Association of Caribbean Energy Specialists Ltd.
In the document that was handed over since 2016, Paul noted that one of the basic rules of contract renegotiation is that the minute one party opens an agreement up for review; all terms are up for discussion.
It therefore means that Guyana during its review of the ExxonMobil oil deal in 2016 was in a position to renegotiate to the state’s benefit, all fiscal terms. Nothing was off limits.
For future contracts, it was recommended that Guyana puts in place a strategy for renegotiating contracts. Paul said that this must include engaging an experienced negotiator. As with other such advisory services, Paul said that if such a person is taken on, use should be made of her/his presence to train and mentor Guyanese staff from the Ministry and other agencies, involved in contract negotiations.
Paul also said that Guyana’s authorities must get clarity on terms it may want to review and this is regardless of the security of certain terms. He said that Guyana may want to review terms that relate to the extension of licences, sale of assets, opportunities to capture capital gains taxes, local content and capacity development, procurement rules and strategies, cost recovery limitations etc.
CHATHAM HOUSE AGREES
In an effort to ensure transparency and accountability, Chatham House is another international agency which has advised Guyana to input renegotiation and periodic review clauses in all oil contracts.
Chatham House is a non-profit, non-governmental organization based in London. Its mission is to analyze and promote the understanding of major international issues and current affairs.
In its 2016 report, Chatham House said that the aforementioned clauses would allow renegotiation when specific triggers are activated. It advised that such a move helps to maximize economic returns to the state.
Additionally, Chatham House advised that Guyana and other emerging producers should design fiscal terms that are aligned with a national vision and ensure clear fiscal priorities. It said that these must also clearly articulate the fiscal terms that govern upstream petroleum activity.
Chatham House said, “Emerging producers must also develop simple tax structures. Tax obligations should be defined in the tax code rather than in contractual agreements. This includes provisions for taxing capital gains earned by companies that sell or assign their rights or part of their rights before or during production.”
The London-based organization said, “New producers seeking capital for exploration should focus on requiring viable work programmes in order to encourage drilling activity. To attract and retain investors, the use of progressive, flexible fiscal formulas and royalties that respond to changes in profitability is particularly recommended.”
It added, “Emerging producers must strive to reduce the knowledge asymmetries they encounter in negotiations with foreign oil companies. For example, governments can engage consultants or technical advisers to evaluate the baseline conditions for the award of acreage.
“To simplify negotiations, emerging producers should move as many contract elements as possible into laws and regulations that apply across licences.”
Chatham House said that new circumstances, such as a major discovery being made, or a rise in commodity prices, may prompt many producers to seek to change the terms of their contracts with foreign companies.
It said that similarly, low prices may prompt companies to ask governments for revisions of terms. Chatham House said that Governments should respect existing contracts, and their first remedy when changes become needed should be to amend future licensing.
HELP IS AVAILABLE
If Government so desires, it would be able to tap into the expertise of an international group, which helps countries in the successful renegotiation of contracts on a pro bono basis. The group is called the International Senior Lawyers Project (ISLP).
Over the past 17 years, with support from law firms, foundations and government agencies, ISLP has mobilized hundreds of experienced lawyers to provide more than $100 million worth of pro bono legal assistance in support of just, accountable and inclusive development in more than 80 countries.
The Project was successful in helping Liberia renegotiate its contracts with Arcelor Mittal S.A., a German-based steel manufacturing company and American company Firestone Tire and Rubber.
The group has also helped other countries across the world in the renegotiation of oil contracts.
ISLP is also no stranger to Guyana as it has provided support to the Attorney General’s Office for the review of Guyana’s Cyber Crime Bill and Electronic Transactions Bill.
CALL FOR RENEGOTIATION
Local commentators have also expressed concern over the lopsided deal Guyana signed with ExxonMobil, especially when it is compared with the agreement Exxon Mobil signed onto with the African country, Ghana.
The glaring disparities between the two contracts also underscore the need for the Guyana-ExxonMobil contract to be scrutinized by Parliament, critics say.
The Ghanaian contract, for example, has an entire section dedicated to procurement laws, which ExxonMobil must follow at all times. Those provisions are in place to ensure that a significant number of the local companies are able to benefit from the nation’s oil sector. On the other hand, Guyana’s contract mentions nothing about procurement laws.
Given the aforementioned and other factors, locals have been calling for the contract to be renegotiated.
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