Sep 27, 2020 News
By Kemol King
A Kaieteur News analysis of 12 major corruption red flags to look out for in the oil industry deals shows that together, the People’s Progressive Party Civic (PPP/C) and A Partnership for National Unity + Alliance For Change (APNU+AFC), have managed to tick all the boxes.
The corruption red flags are outlined by the Natural Resource Governance Institute (NRGI) in a 2017 report titled ‘Twelve Red Flags: Corruption Risks in the Award of Extractive Sector Licenses and Contracts’.
NRGI said that while corruption schemes tend to be complex and opaque at times, the creativity of the players is not endless, and that these 12 scenarios are based on the analyses of recognizable problematic behaviour patterns across resource-rich countries. It noted that these red flags are not to be used as predictors or proof of corruption, but as tools of inquiry.
In this regard, the good governance advocate hopes that award processes will be designed by government officials in a manner that conducts due diligence checks which keep these red flags in mind. They also are meant to inform oversight by parliamentarians, journalists, law enforcement officials and other stakeholders.
In this article, Kaieteur News will explore how each of these corruption red flags is applicable to at least one scenario which has played out in Guyana in the period 2015 to present.
In its report, NRGI considered attributes of award processes to determine the 12 major red flags. To create a pool of scenarios to apply to these red flags, Kaieteur News also considered scenarios in which an award could have been rescinded as an award process. Hence, it was pertinent to consider intersections of the operations of the State Assets Recovery Agency (SARA) with the oil industry.
Several of these conflicts overlap in a few of Guyana’s scenarios. So, while Kaieteur News may use one scenario to explain certain red flags, it does not mean that those are the only red flags which apply. It just means that their application is more evident.
A notable observation made by Kaieteur News is that ExxonMobil is a common denominator in most of the scenarios outlined in this article.
The first three red flags, in the very least, apply to the questionable award processes for the Kaieteur and Canje blocks. This is not the first time those awards were flagged for a likelihood of corruption. Global Witness urged Guyana to investigate them. An investigation was started by SARA, but it has gone nowhere.
The Canje and Kaieteur Blocks were signed away on March 4 and April 28 respectively, according to Global Witness (GW). The Kaieteur Block stakes were split 50/50 between a company called Ratio Energy, then represented by an Israeli-based lawyer named Richard Roberts, and Ratio Guyana, owned by the Israeli company, Ratio Petroleum which has some natural gas drilling experience. Ratio Energy, according to Global Witness, was sold in February 2017 to Cataleya, a company run by two miners, Canadian, Mike Cawood, and the Guyanese, Ryan Pereira. Pereira was previously involved in the Kaieteur licence as the Guyanese representative for Ratio Energy in April of that year, when the company received the block.
The Canje Block was signed away to a company called Mid-Atlantic, said to be run, at the time, by Guyanese businessman, Edris Dookie who went on to become the sole shareholder of the company in 2016.
Later on, JHI Associates acquired a stake in the Canje Block. JHI’s website lists a Canadian, John Cullen, as the CEO and Director. GW said that Cullen founded the company. It also noted that public documents from JHI do not list its shareholders.
ExxonMobil farmed in these blocks after they were awarded, and now holds a 35 percent stake in each.
The other current owners of the Canje Block are Total (35%), JHI (17.5%) and Mid-Atlantic (12.5%). The other current owners of the Kaieteur Block are Ratio Guyana (25%), Cataleya (25%) and Hess (15%). Hess farmed in, through a deal with Exxon.
Red Flag #1 – The government allows a seemingly unqualified company to compete for, or win an award
Several specific warning signs to Red Flag #1, listed in the NRGI report, are applicable in the Kaieteur, Canje scenario. Information on these companies is scarce. Most of the early companies which were awarded the blocks or farmed in, did not demonstrate their industry reputation or name recognition when explanations were sought after by Global Witness.
Red Flag #2 – A competing or winning company shows signs of having a PEP as a hidden beneficial owner.
Red Flag #2 was identified by NRGI as the second highest occurring corruption red flag in the scenarios it studied. Several companies involved in the Kaieteur, Canje scenario were registered in secrecy jurisdictions, making it difficult to ascertain who truly benefited from the awards, and who may still be benefiting. Kaieteur News has militantly pursued this issue, but government officials both with the former APNU+AFC government and the PPP/C government have been less than cooperative. Kaieteur News will carry the question “Who really owns the Kaieteur and Canje Oil Blocks?” every day on its front page, until the nation finds out who is truly benefitting from these suspicious giveaways.
Former Minister of Natural Resources Robert Persaud facilitated the awards, and he has not provided information on the beneficial owners, despite it being a necessity. He said that his decisions were made based on briefing reports prepared by lawyers of the Guyana Geology and Mines Commission (GGMC). However, he did not reveal those reports, as he was no longer in office when the controversy arose, neither did he reveal the identities of the lawyers.
Red Flag #3 – The winning company or its owners sell out for a large profit without having done substantial work.
Numbers have floated around in the public sphere about how much was paid by ExxonMobil to JHI, Mid-Atlantic and the Ratio Group for stakes it now holds in the Canje and Kaieteur Blocks. All that is in the public is what the Ratio Group has said about how much it has paid, revealed by Global Witness. Kaieteur News is unaware how much was truly paid for the stakes, and who the true beneficiaries of those payments are.
The companies also did little to no work in the blocks before signing away the stakes. JHI said that it purchased seismic data packages on the Guyana-Suriname basin after it acquired its share of the Canje Block, though 35 percent of the licence was sold to Exxon less than a year after Canje was awarded, Global Witness said.
NRGI said that a question that would be asked in such a situation is why the government didn’t just give the licence to the company that took over, in the first place.
Red Flag #4 – A company or individual with a history of controversy or criminal behaviour competes for, or wins, an award.
This red flag was the third highest occurring scenario under the examinations done by NRGI. When the APNU+AFC government had to decide who would market its first three cargoes of oil from the Stabroek Block, the Energy Department last year announced that Shell Western Supply and Trading Limited (SWSTL) would do the job. The Energy Department had said that the factors which led to its decision included a competitive pricing that limits the Government’s exposure to market uncertainty; the size, scale and global reach of its trading operations; the company’s high level of integration between Upstream, Trading and Downstream; and Shell’s strong foothold in the Latin American markets, among other things. While these would all be deemed fair considerations, the Energy Department mentioned nothing about ruling out companies notorious for corruption.
In 2011, Global Witness showed how Shell participated in a vast bribery scheme for one of Africa’s most valuable oil blocks, known as OPL 245, paying over US$1.1 billion to convicted money launderer and former oil Minister of Nigeria, Dan Etete, who had awarded himself ownership of the block in 1998 via a company he secretly owned, Malabu Oil and Gas.
This is likely the world’s “biggest corruption scandal” as it has so been called, and Shell is currently on trial for the matter.
Red Flag #5 – A competing or winning company has a shareholder or other business relationship with a politically exposed person (PEP), or a company in which a PEP has an interest.
Red Flag #6 – An official with influence over the selection process has a conflict of interest.
Corruption red flags #5 & #6 involve SARA and its former Special Assistant, Eric Phillips. Phillips had been a pivotal player in the investigations started under the immediate past government of the Kaieteur and Canje Block awards. As someone entrusted with a prominent function by the government, he was a PEP. He is a co-founder of the African Business Roundtable Oil and Gas Exploration, which applied in 2016 for a licence to explore Block C.
It is a clear conflict of interest for Phillips to vie for ownership of an oil block, while he investigates awards of oil blocks. Phillips denied that there was a conflict, when it was reported by Kaieteur News, explaining that he left ABR Oil and Gas in September, 2018. However, the oil blocks probe started in May of 2018, which means he was conducting the investigation while still part of ABR. Phillips also denied that there was a conflict by contending that he did not own a block, but NRGI has noted that the red flag also exists during the application/competing stage.
The next three corruption red flags apply to the controversial Stabroek Block agreement granted in 2016 by former Natural Resources Minister, Raphael Trotman.
Red Flag #7 – An official intervenes in the award process, resulting in benefit to a particular company
Under the terms of the 1999 agreement, which ExxonMobil utilized to explore the Stabroek Block, there were relinquishment provisions. However, they were not strictly applied over the years, which led to Exxon holding on to a large acreage for almost two decades under that agreement. In 2016, before Exxon’s 2018 relinquishment date could come, Trotman decided to grant ExxonMobil a new agreement, using a ‘bridging deed’ which the government kept hidden from the public for four years. When Kaieteur News did manage to get its hands on the deed, it was through a leak, and not that APNU+AFC decided to release it, of its own volition.
While the Deed seeks to ground itself in section 10 of the Petroleum (Exploration and Production) Act governing the oil and gas sector, a perusal of that section shows there is no mention of a Deed. Attorney-at-Law and Chartered Accountant, Christopher Ram had explained this, writing that “[it] gives the Minister no power to enter into any Deed and certainly not one to breathe life into an expiring agreement”.
At the time of the signing of the Deed and the 2016 petroleum agreement, Trotman could have told ExxonMobil and its partners, CNOOC and Hess, that his authority was constrained by the law, Ram posited.
Instead, according to Ram, he made an award, which he had no authority to make. As a result, ExxonMobil is still in 2018, holding on to one of the largest blocks in the world. It has been in control of the block for over 20 years.
Red Flag #8 – A company provides payments, gifts or favours to a PEP with influence over the selection process.
NRGI stated that this is the highest occurring red flag in the scenarios it studied. It was Global Witness that earlier this year revealed the circumstances under which Trotman was treated to a lavish trip to ExxonMobil’s Texas headquarters.
“He had flown first class, was staying at a pricey hotel nearby, and would dine at Exxon’s exclusive Wolfgang Puck restaurant– all on the company’s dime.” Global Witness wrote.
It said, given the former minister’s legal responsibility for negotiating the licence, Exxon’s “apparent generosity” raises questions about the company’s compliance with its Gifts and Entertainment Policy. When questioned on this, the company said it is “committed to the highest standards of business conduct.”
Trotman said that he did not consider the situation untoward, as he was accompanied by other officials.
Red Flag #9 – The agreed terms of the award deviate significantly from industry or market norms
The lopsidedness of this agreement cannot be understated. Years of coverage of various provisions of the Stabroek Block Production Sharing Agreement (PSA) have led this newspaper to conclude that the deal is unfair to Guyana. Even Global Witness said that Trotman left US$55B on the table due to the poor nature of the deal. The most prominent provision is the two percent royalty, which is well below the international norm, especially for oil as valuable and as cheap to produce as Guyana’s. Though the royalty has taken centre stage, the contract has been criticised as poor “through and through”. The country has been urged, time and time again, to renegotiate the deal in a manner that reflects the dignity of its patrimony. Both major parties have refused.
Red Flag #10 – Competition is deliberately constrained in the award process
Overseas secrecy jurisdictions are used by several oil companies, which have interests in Guyana’s oil blocks to prevent the disclosure of various details when transactions are made. Places like Gibraltar and the British Virgin Islands have been used by companies like ExxonMobil to hide information.
Financial secrecy facilitates corruption, and the incorporation of oil and gas companies in secrecy jurisdictions serves the purpose of obstructing and distorting fair competition.
For example, by hiding the cost of a licence, the company awarded the licence inhibits other companies from being able to compete with it.
To combat this, Guyana can amend the law to require the release of financial information in the conduct of its own transactions.
Red Flag #11 – A company uses a third-party intermediary to gain an advantage in the award.
This red flag applies to the granting of the contract to draft Guyana’s local content policy under the previous administration. While internationally respected Trinidadian local content expert, Anthony Paul, worked on previous drafts of the policy, the David Granger administration ultimately replaced Paul with a UK consultant, Dr. Michael Warner.
Warner had been contracted by ExxonMobil to work on its Centre for Local Business Development. Despite Kaieteur News identifying this as a clear conflict of interest, the Granger administration allowed him to finalise the policy, which has been criticised for ignoring private sector recommendations, removing several vital provisions included by Paul, and including confidentiality provisions, which inhibit the fullest scrutiny of oil companies’ local content commitments.
Red Flag #12 – A payment made by the winning company is diverted away from the appropriate government account.
The former APNU+AFC government hid from the Guyanese public for over a year that it had received a signing bonus from ExxonMobil of US$18M at the time of inking the 2016 Stabroek Block Production Sharing Agreement. When asked about it, government officials maneuvered their way out of acknowledging receipt of the bonus. Part of the reason why it was kept secret for so long is the use of a secrecy jurisdiction by ExxonMobil. The money was deposited into the Consolidated Fund in May of 2019, three years after it was received from the oil major.
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