Jun 13, 2021 Letters
Prof J.C. Bhagwandin defending the Guyana oil contract writes:
“. . . ordinary companies in the other sectors are required to pay corporate taxes of 25% or 35% but are not required to share 50% profit with the government neither are they subjected to paying royalties. This needs to be acknowledged and put into the correct context – rather than misleading an entire nation with flawed arguments”(SN June 5th).
I was stunned when I read the above sentence in Prof JC’s defense of the Oil Contract. Prof Bhagwandin seeks to compare mining companies (usually foreign Multinationals, MNCs) with ordinary companies (domestic).
MNCs exploit the nation’s natural resources (gold, bauxite, oil); regular companies that Prof Bhagwandin had in mind do not operate in natural resources. Prof Bhagwandin is making an argument for ExxonMobil to be treated like Guyana’s “regular companies” – that is to say, ExxonMobil should not have to pay royalties and share pure profits 50/50 with government. Is Prof Bhagwandin serious about what he argues for?
PSAs (Productions Sharing Agreements) are a particular type of contract involving a foreign company and host country. It operates in natural resources – gold, oil, bauxite. Standard PSA’s provide for three streams of revenue.
It is universally accepted for foreign companies (FC) to pay royalties on each unit of gold or oil to the host country in exchange for the right to exploit the natural resource. The FC provides all the startup and working capital, technology, etc. and they are allowed to deduct all their expenses; what remains is pure profit. Pure profit is split 50/50 between FC and host country. Why 50/50? Because host country owns the precious resource. On pure profit, so earned by the FCs, they are required to pay profit’s tax to the host country.
The Surinamese oil contract provides for all three streams of revenues to the host country: (a) Royalty of 6.25%; (b) profit-share 50/50; (c) profits’ tax of 36%. Guyana’s oil contract pays a miserly 2% royalty and profits’ tax is waived for the entire life of the contract, 30 or more years.
This is a rip-off of the Guyanese nation. This simple comparison should make it clear that Guyana is stuck with a very lopsided contract. Prof Bhagwandin’s arguments, if realised would make it even more lopsided.
Prof Bhagwandin goes further. He accuses folks like Dr. Jerry Jailall and Prof Ganga Ramdas of “misleading an entire nation with flawed arguments.” This is a heavy charge. Prof Bhagwandin should be more specific: Tell us which of our arguments is flawed.
If Prof Bhagwandin does not recognise the value of our nation’s natural resource – and continues to believe ExxonMobil should be treated on the same level as say, a company producing milk, or rice, or sugar for export, then it is a waste of time to debate this gentleman on anything to do with economics or finance.
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