Jagdeo needs to either get his act together or go!

Sep 08, 2022 Features / Columnists, Peeping Tom

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Kaieteur News – Guyana does not need co-management to more scrupulously monitor the expenses which the oil companies are throwing its way. If Guyana is to avoid having to paying padded, inflated and non-recoverable expenses, then it needs to establish a unit to monitor the monthly expenses of the oil companies.

The agreement which Guyana signed with the oil companies makes provision for the Minister responsible to demand monthly statements of expenditure. Instead therefore of Vice President Jagdeo worrying about the absence of co-management, he should recognise the urgent need to demand monthly statements of expenditure and to establish a unit to scrutinise such expenses.

There is no need to wait on a quarterly or annual audit. Audits have a different purpose than expenditure management.  Audits are concerned with the representativeness of the financial statements and are an inadequate tool to scrutinise the expenses.

The Vice President therefore needs to be explaining to the Guyana people if the Government has been demanding monthly statements of expenditure from the oil companies, and if not why not. He also needs to inform the nation as to whether there is an established unit, in his Ministry, devoted to monitoring the expenses.

This is one of the many areas in which the country can claw back benefits from the oil companies. The country has been shafted in many aspects of the Production Sharing Agreement. It has been shortchanged including respect to the royalties, the concessions which it has to dole out to the oil companies, the lack of ring fencing and the dubious claim that royalties are tax recoverable.

Guyana has reason to complain. Earlier this year, Somalia was embroiled in a dispute with a US oil exploration company. The agreement signed provided for 5% royalties, a 50-50 profit split and 30% taxes. This is far superior agreement to what Guyana has and yet the Somalis want the contract invalidated.

The Guyana Government has already made it clear that it is not going to renegotiate the existing Production Sharing Agreement (PSA) for the Stabroek Block. It says it will develop a new PSA for future agreements.

However, Exxon and its partners do not need a new agreement. They can expand their operations through buy-ins under the existing agreement and thus avoid having to offer Guyana better terms in the future.

Given this inflexible and unreasonable position which the Government of Guyana has adopted, the best which can be done in the circumstances is to try to ensure that the country is not shortchanged through a reduction in profits  as a result of being saddled with padded, inflated and non-recoverable expenses.

The oil companies operating in Guyana can deduct as much as 75% of production as expenses each month as cost recovery. In Egypt there is a ceiling of between 25-40%. Indonesia has begun to move away from cost recovery ceilings. At one time, it had set these as low as 20%.

With a staggering 75% cost recovery ceiling, Guyana has to pay greater attention to the expenses which the oil companies claim to be incurring. The greater the expenses, the less will be Guyana’s profits.

One of the areas in which Guyana can ensure that its share of profits is not reduced is to ensure that expense submitted by the oil companies are not padded, inflated or non-recoverable. The quicker any illegitimate expenses are captured the better for the country and the greater will be its share of profits.

In this regard, Jagdeo’s arguments are mind-boggling. Guyana does not need co-management to go to real time monitoring. This can be achieved by regulations. It is quite possible and even desirable for regulations to be passed which would allow for real time monitoring of both production and expenses.

Real time monitoring does not prejudice the oil companies’ rights under the contract. As such, while the Stability Clause of the PSA protects the oil companies from actions which add to their economic burdens, the demand for real time monitoring of production and expenses do not add to these burdens. There is nothing therefore which can prevent Guyana from instituting regulations for real time monitoring of both production and expenses.

But do tell this to Jagdeo. He is settled in his belief that real time monitoring can only take place where there is co-management. Not only is this position misinformed but it is detrimental to Guyana’s national interest.

Jagdeo has to get his act together. Either this or get out!

(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

 

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