Jan 13, 2021 News
Kaieteur News – The 2019 Auditor General’s report has revealed that as of 2019, Guyana has only ten officers from the Guyana Revenue Authority’s (GRA) Petroleum Revenue Department involved in the auditing of costs incurred from the oil sector, even as the billions in bills continue to pile on.
The AG’s report outlined that since the unit’s initial establishment back in September 2019, it boasted fifteen officers but it was noted that only ten of them were directly involved in the execution of the audits.
It was explained that GRA employed a strategy of training officers from various audit functions to build a repository of necessary skills and competences which would be mobilized and influenced by the demands of the industry.
Those audit officers were said to have benefitted from multiple training sessions held by the Office of Technical Assistance and the International Monetary Fund (IMF) to build capacity to ‘Administer Domestic taxes within the Oil and Gas Sector’ and ‘conduct Cost Recovery Audits’ from March 2017 to July 2019.
But such a small team may not be enough. Only recently, Vice President, Bharrat Jagdeo, revealed that Guyana has in excess of US$6 billion in oil related expenses to audit from petro-giant ExxonMobil and Stabroek Block partners, affiliates and sub-contractors.
The previous Coalition regime had allowed years to go by before contracting a firm – IHS Markit – to audit expenses from Exxon but this was only the US$460 million in pre-contract costs. The country has a long way to go with little window to conduct their audits. Per the Production Sharing Agreement (PSA) Guyana signed with ExxonMobil in 2016, the Minister with responsibility for the oil sector has only two years to audit the expenses incurred by the US supermajor at the end of each fiscal year.
That is to say, the Minister would have had only up to 2017 to audit expenses incurred in 2015. And not only that, the government would also have to foot the bill for all costs associated with that very audit.
Guyana had received warnings from the IMF to ensure that it builds capacity to audit the many bills Exxon would produce. The IMF would have also highlighted the need for these audits to be conducted in a timely manner, since its failure to do so would leave Guyana forced to accept whatever cost is reported by Exxon.
And in light of the fact that Guyana failed to establish a Local Content Committee to review costs incurred by Exxon, it would have to accept as correct, whatever expenses the company incurred for the years 2015 to 2018. That figure stands at US$95 million.
Other nations who have been producing oil years before Guyana stepped into the game, have struggled with auditing the billions of costs from their oil industry.
One prime example is that of Indonesia, the country who was said to have birthed the PSA. Like Guyana, the Indonesian Government penned a PSA arrangement which stipulates that the host country will receive its profits after the oil company deducts its operating expenses.
But as the years went by, it soon noticed that its cut of the spoils got smaller, the taxes from the oil sector began to shrink and the operators’ claims of deductable expenses was increasing by the millions which later led to claims that the oil companies were inflating costs.
In fact, the Supreme Audit Agency of Indonesia found that several oil and gas production sharing contractors inflated their operating costs claims to US$300M.
Reports from Indonesian media revealed that SKK Migas, a government-owned entity that manages the oil sector, has a staff of 750 professionals. It was said that approximately 80% of that staff is involved in the arduous task of ensuring that cost recovery claims by the company are fair and accurate.
But even with such an immense team of auditors, the country could not keep up and later opted to abandon PSAs and adopted the Gross Spilt method, which rules make contractors bear all the costs in turn for a higher share of the output.
Anticorruption advocates in Indonesia are of the firm view that given its limited audit resources and benchmarks to evaluate cost claims, the Government’s response to move away from cost recovery as a basis for production sharing is, perhaps, a sensible move.
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