Even as the government paints a daily picture of an economic oil bonanza on the horizon, it is highly likely that a very grim future awaits Guyanese. This is according to international lawyer, Melinda Janki, who points out that the country is neck deep in US$900M worth of pre-contract costs.
During a panel discussion on Guyana’s oil contract with ExxonMobil at Moray House, Janki reminded that the country has to pay US$460M in pre-contract costs. This covers the period 1999 to 2015. But there is a second lot of pre-contract costs.
Janki noted that the contract specifically states that Guyana is to pay contract costs from January, 2016 to when the deal was signed on October 7, 2016.
The international lawyer said, “The costs for the whole of 2016 were about US$583M, and if you apportion it to October, you get roughly US$400M. Again, Minister of Natural Resources, Raphael Trotman has agreed for Guyana to pay this. As at October 7, 2016, Government’s attempt to sell our oil costs us US$900M. I have found no law which gives the Minister the authority to burden the nation with this, so it is quite possible that he acted illegally.” (See link for more details: https://www.facebook.com/jerome.edwards.925/videos/2144978259094356/)
In his earlier writings on the petroleum sector, Chartered Accountant Christopher Ram had also pointed out that there was a second set of pre-contract costs specified in the 2016 Agreement signed by Minister of Natural Resources, Raphael Trotman.
Speaking with Kaieteur News on the matter yesterday, Ram said his examination of the financial statements of ExxonMobil’s partners (Esso and CNOOC/NEXEN and Hess), revealed that the second element of pre-contract cost for the period January 1, 2016 to the execution date of the 2016 Contract – sometime in October 2016 – could range anywhere between G$75B to G$100B or roughly US$375M to US$500M. He noted therefore that Janki’s estimates are within reason and that it is up to Exxon as the Operator to disprove these amounts.
Significantly, Ram pointed out that the Government ought to have been aware of the exact amount for the second set of pre-contract costs since Annex C to the 2016 Agreement required that those costs be provided to Trotman before October 31, 2016, and agreed upon, on or before April 30, 2017.
Ram expressed fear that neither the US$460 million, which in his opinion is substantially and improperly inflated nor the additional US$375M to US$500M, has been subject to any verification, let alone audit.
HISTORY OF PRECONTRACT COSTS
Ram was also one of the first concerned citizens who called for the US$460M pre-contract costs to be audited. Based on his examination, he said that the numbers were not adding up.
Ram in his writings noted that ExxonMobil is represented by three companies as the contractor for the Stabroek Block: Esso, CNOOC and Hess. Using the financial statements of Esso and CNOOC, the only ones, which were publicly available, he pointed out a few important things.
Ram highlighted, for example, that the combined expenditure of Esso and CNOOC at December 31, 2015 was $26B with reported losses of $21B, giving a total of $47B. In United States Dollars, using a $200 rate, Ram said that this gives a total US$245 million, well short of the US$460 million that the Government accepted in the Agreement with ExxonMobil.
To make up the total of US$460 million, Ram said that Hess alone would have had to spend, in contract costs, some US$215 million or approximately $46B, which he opined would defy logic. When Hess finally and belatedly filed its audited financial statements with the Commercial Registry, the numbers fell far short, validating Ram’s worst fears.
Ram’s recommendation that the only satisfactory and acceptable resolution of this matter is a special audit, independently undertaken, has been ignored by the Granger Administration. In an indirect response to Ram and others, Finance Minister Winston Jordan related that Guyana does not have the technical competence to carry out such an audit.
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