Oct 22, 2020 News
Kaieteur News – When former President and Minister of Petroleum, Donald Ramotar, awarded the Canje licence on March 4, 2015 to Mid-Atlantic Oil and Gas Incorporated, he granted the company an effective waiver of all taxes, duties and other charges derived from petroleum operations.
The Canje contract states in Article 15 that “no tax, value added tax, excise tax, duty, fee, charge or other impost shall be levied… on the Contractor or Affiliated Companies in respect of income derived from Petroleum Operations or in respect of any property held, transactions undertaken or activities performed for any purpose authorized or contemplated hereunder…”
The provision goes on to list a few exceptions to this stipulation including a few taxes, charges and fees. However, the contract later notes that any and “all rentals, taxes, levies, charges, fees, contributions and any other assessments and charges levied by the Government in connection with the Petroleum Operations and paid directly by the Contractor” are cost recoverable, meaning Guyana has to repay every cent.
As explained in the contractual provision, the exemptions will be, not only for the owner of the Canje block, which has now moved from one company to four. The exemptions will also apply to the contractor’s subcontractors and affiliate companies. Even their employees will effectively be exempt from footing the cost of their own personal income taxes. Every vehicle or piece of equipment brought in to the country will be brought in duty free. Every excise tax on manufactured goods will be effectively waived for these companies. Every fee that local companies and ordinary Guyanese are expected to pay, the Canje block owners are exempt from, and will be exempt from until the contract comes to an end. Even the rental fees the contractor is expected to pay to retain the Canje licence has to be repaid.
If you are hopeful that this can easily be changed, and that the government would impose taxes, you are in for a rude awakening. The contract has a rigid stabilization clause which prevents Guyana from imposing any new tax or other charge on Mid-Atlantic and its partners, Exxon, Total and JHI Associates. Ramotar signed off on the provision which states “the Government shall not increase the economic burdens of Contractor under this Agreement by applying to this Agreement or the operations conducted thereunder any increase of or any new taxes whatsoever, any new royalty, duties, fees, charges, value-added tax (VAT) or other imposts…”
The stabilization provision of the contract states that if the Government is ever to make a legislative change, or an amendment to its customs code or tax code, in a manner that changes the economic benefits of the contractor under the agreement, the government must take action to restore the losses so that the contractor gains as much as it would if the amendments were not made. This means that if the Government updates legislation in a manner that affects the economics of the contract, it would have to find a way to give the Canje block companies special exemptions. When Ramotar signed the contract, he agreed that Guyana would be held to such obligations.
This is just one of several sub-standard provisions in the contract which severely devastate Guyana’s chances of using future oil production in this block to bring prosperity for the Guyanese people, as Government has promised to do. The contract was signed away, with no signing bonus.
Ramotar gave Mid-Atlantic the right to explore despite the company having no insurance to foot the disasters which occur in this industry. He also agreed to indebt Guyana GY$100M in pre-contract costs to the company, with no explanation what the money is for. He also agreed that Guyana would repay every cent of the one percent royalty rate, ensuring that Guyana would not get any money from royalties – a stream oil-producing nations depend heavily on for revenues.
The former President handed the licence to Mid-Atlantic just weeks before the 2015 General and Regional Elections, and weeks before ExxonMobil went public with its first discovery in the nearby Stabroek block. He handed the block to an inexperienced company with no capability to acquire and develop the ultra deepwater block, on the advice of Minister of Natural Resources, Robert Persaud. The award and its subsequent farm-ins are wrought with red flags which anti-corruption experts say warrant investigation.
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