Sep 20, 2022 News
…but Jagdeo sticking rigidly to ‘sanctity of contract’ position
Kaieteur News – As supply stocks become limited in Europe and the price for oil predicted to spike further, the A Partnership for National Unity + Alliance for Change (APNU + AFC) Opposition believes now is the time to tax the excessive profits being raked in by the petroleum companies presently operating in Guyana’s rich Stabroek Block.
A member of the Opposition’s Oil and Gas Committee, Elson Low on Monday told this newspaper that the political group holds the view that the PPP Government should specifically achieve this objective by increasing its royalty rate when Brent Crude (the benchmark prices for oil) moves pass the determined rate. He said, “Guyana must move to a variable royalty regime which increases royalty levels when Brent Crude is above a determined price. This should apply both to the existing Production Sharing Agreement (PSA) and the new model PSA.”
Previously, the Opposition made it clear that they believe in the “sanctity of contracts”. However, when questioned about its new position, Low explained, “It’s essentially a windfall tax…this change will only be due if we see abnormal circumstances in the oil market, which no one could have reasonably predicted when the contract was signed.”
Moreover, he said that the exciting oil prices mean that the share of the oil companies would not be lessened, which makes it safe to implement. To this end, Low noted that Guyana too should be enjoying the increased profits rather than allow the oil companies to reap these benefits alone from the nation’s resources. In arguing his case, the Opposition member explained, “We are monitoring the situation in Europe where tensions have continued to escalate, the potentially permanent closure of the Nord Stream 1 pipeline being the latest example. There is a risk that Russia will similarly cease to supply petroleum to Western countries when further sanctions take effect later this year. This may result in a severe, abnormal and prolonged price spike. We witnessed an example of what could happen when earlier this year the war in Ukraine resulted in a very significant increase in prices, peaking at almost US$140 a barrel.”
To this end, the Opposition said Guyana must tap the benefits of increased oil prices.
Back in June, this newspaper had questioned the Leader of the Opposition, Aubrey Norton on his position on the matter of windfall taxes. At the time, he could not definitely say whether he agrees with this policy for the oil companies as he wanted to first consult with the AFC. Vice President Bharrat Jagdeo has confirmed that it is the citizens that forced other countries to slap the one-off taxes on those companies, arguing that this could not be replicated in Guyana since, “we are bound by a PSA with very specific terms on the taxation side.”
The United Kingdom recently slapped its oil companies with a one-off windfall tax of 25 percent on all oil companies operating in that jurisdiction in order to also partake in the sweeping profits being had by the operators as a result of the escalating oil price.
Notably, the US is seeking to move in this direction as well, having already hiked its royalty payable by oil companies there to above the 18.75 percent in December last.
Meanwhile, British Columbia (B.C.), Canada’s western most province, appears to be following in the footsteps of the United States of America (USA) as it has announced that it will be increasing royalty rates to raise additional money annually for its people.
Only last week, this publication reported that the International Monetary Fund (IMF) published a free advisory for countries to look at areas where they can implement additional mechanisms to allow for benefits from the unexpected cash. The United Nations Secretary-General, Antonio Guterres also strongly urged oil producing nations to implement windfall taxes to not only benefit from the surge in income, but to also break the energy sector’s hold on commodity prices in a bid to force them into producing more.
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