Feb 12, 2021 News
By Shikema Dey
Kaieteur News – While his inaugural address to Guyana’s National Assembly yesterday lasted approximately one and half hours, President Irfaan Ali made no mention of two crucial areas relating to the oil and gas sector. These two critical matters relate to securing better terms for the country in the Stabroek Block deal signed with US oil super major, ExxonMobil, and securing comprehensive insurance coverage for any potential disaster from Exxon’s approved projects.
In his address, President Ali stated, “We must also acknowledge that we cannot take advantage of our oil and gas resources without the considerable investment of the companies now operating in the sector.”
Those companies, he added, are entitled to a “fair return on their investment”; therefore, any relationship with those companies should be based on “fairness, on equity and on mutual interest.”
However, the Stabroek Block deal is anything but fair.
In fact, industry experts referred to it as one of the worse contracts in the world.
Over the past five years, Kaieteur News would have reported that Guyana left billions of dollars on the table when it negotiated the 2016 Stabroek Block Production Sharing Agreement (PSA) with ExxonMobil.
To make matters worse, the deal is fraught with numerous provisions, which leave the country open for abuse. These include pre-contract costs discrepancies; taxes that are paid by Guyana on behalf of the oil companies; unspecified interest rates expensed to Guyana for loans taken by the oil entities; and weak provisions on the protection of the environment, etc.
And while there have been a slew of calls for renegotiations, government does not seem to be looking in this direction as President Ali continued that the goal of “fairness and equity” is one which government will work to ensure “future production contracts resound.”
Also notably absent was any mention of ensuring that Guyana is properly protected in the event of an oil spill or related disaster. To date, Guyana has received no guarantee that Stabroek Block operators, ExxonMobil, Hess and CNOOC/NEXEN will be the ones accepting liability for any oil spill that occurs in its territorial waters.
What Guyana does have however, is an agreement with Exxon’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) to handle all disaster related costs. But that company does not have enough assets to secure the kind of insurance coverage Guyana would need to offset the cost of any disaster that could occur in the Stabroek Block area.
Aware of how dangerously exposed this leaves Guyana, agencies like the World Bank had cautioned the authorities of the day to ensure that they demand comprehensive insurance policies from operators, warning that operators have often sought insurance covering only certain activities.
It had said too that emerging oil producers such as Guyana would want to ensure that this is in place especially when one considers how other nations suffered in the absence of this, citing the case of the major oil spill, which occurred in 2010 in the Gulf of Mexico.
During his address, President Ali also made mention of his government’s plans to pursue various legislative and institutional initiatives, along with the updating of Guyana’s Petroleum Act, building capacity to audit cost recovery along with the drafting of new production agreements with international standards under which new production licences will fall.
Added to that, the President touched on the establishment of the Petroleum Commission, the Local Content Policy and improving the Sovereign Wealth Fund.
While those are important matters to be addressed, the President and his Vice President, Dr. Bharrat Jagdeo have made such statements since last year.
Kaieteur News had highlighted in a previous article that there are several key areas for President Ali and his government to focus on to ensure that Guyana’s future as an oil and gas producing nation is a prosperous one.
These are highlighted once again:
1. Putting in place appropriate technology offshore to monitor the measurement of oil remotely.
2. Design a roadmap to use a portion of the oil money to build sustainable industries.
3. Outlining benchmarks for Corporate Social Responsibility.
4. Establish a Decommissioning Policy.
5. Outline a structure for what is to be expected in Field Development Plans.
6. Strengthen key auditing agencies, specifically the Office of the Auditor General.
7. Strengthen institutions that will be responsible for the expenditure of the oil money-including the Ministry of Finance, the Ministry of Public Infrastructure and the Ministry of Health.
8. Improve Guyana’s capacity to monitor and record emissions offshore, particularly in the case of the Environmental Protection Agency (EPA).
9. Provide resources to the EPA so that it can make unannounced visits to the FPSOs while following safety standards.
10. Hire technical experts needed within the Ministries of Natural Resources, EPA, the Guyana Geology and Mines Commission (GGMC), the Guyana Revenue Authority (GRA) etc.
11. Review massive tax concessions/ tax holidays. Example: provisions in oil contracts that allow tax exemptions on capital gains tax, personal income tax and withholding tax.
12. Update policies/laws/regulations regarding direct and indirect transfers of interests in offshore blocks.
13. Implement software solutions for compliance monitoring and for operating requisite controls for expenditure of oil money.
14. Update laws and regulations to address issues of ring-fencing, transfer pricing (and other financial loopholes/issues), health and safety of workers, monitoring of the environment (regarding issues such as flaring and stiffer penalties for such infractions), pre-qualification criteria for oil blocks, etc.
15. Outline a vision for the oil sector following consultation with citizenry.
16. Strengthen and increase systems for reporting on decisions in the oil and gas industry
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