Dec 07, 2022 News
…insists Govt. must ensure prices charged are reasonable, competitive
Kaieteur News – The A Partnership for National Unity + Alliance For Change (APNU+AFC) Opposition is arguing the need for a comprehensive audit to be conducted into the expenses of American oil giant, ExxonMobil as Guyana stands to lose billions of United States dollars.
The Production Sharing Agreement (PSA) that governs the Stabroek Block, in which Exxon is the key shareholder, allows for an audit or a review to be conducted of the monies the oil company spent to develop the resource. This process is usually done across the World by oil producing states to ensure they were not over charged for items and that they received the quantity they paid for, among other things.
On Tuesday, Economist Elson Low who is also the Opposition’s Spokesperson on oil and gas matters told Reporters at a Press Conference that there are more questions than answers as it relates to the type of audit being conducted by VHE Consulting.
Low said if the team hired will merely be verifying or checking the costs Exxon’s subsidiary, Esso Exploration and Production Guyana Limited (EEPGL) for the years 2018, 2019 and 2020 then, “This raises a question as to whether the cost themselves are being interrogated. One of the major concerns that are being raised as Exxon looks to cost recover its expenses are whether these costs have been inflated”.
The Economist said that the Government allowed the two year deadline, in which it can conduct the audit, to elapse and therefore had to request an extension for this timeline from the oil company. This “was a national embarrassment” Low said, adding that this approach was taken only after public pressure from Guyanese Activists.
Now that the review is finally underway, the Opposition believes that the audit is unlikely to meet “even the most basic expectations”, a folly that cannot be allowed to continue.
The Economist reasoned that the People’s Progressive Party (PPP) Administration must release the Terms of Reference for the audit so that Guyanese can determine for themselves whether a thorough review is being paid for.
“Failure to properly audit Exxon is a dereliction of duty of the most heinous form. Hundreds of billions of US-dollars are at stake. Even further, this nation cannot afford to let any company- let alone the one operating the nation’s largest reserves, believe that we Guyanese, out of ignorance or foolhardiness or corrupt , will not closely monitor what we are being charged,” Low posited.
Low continued, “That is a recipe for disaster and no serious Government would receive a bill for over US$7 billion and not check to see whether the prices it is being charged are reasonable and competitive.”
He explained that the Stabroek Block PSA with Exxon allows for a detailed audit. That agreement makes it clear that Guyana has the right to verify if the incurred costs are inflated.
Low reminded that Annex C, Section 3.1 (b) sub-section 1 states, “The actual costs of contracts for technical and other services entered into by the Contractor for the Petroleum Operations, made with third parties other than Affiliated Companies of the Contractor are recoverable and provided that the prices paid by the Contractor are competitive with those generally charged by other international or domestic suppliers for comparable work and services.”
Sub-section 2 continues: “Without prejudice to the charges to be made in accordance with subsection 2.5, in the case of services rendered to the Petroleum Operations by an Affiliated Company, the charges will be based on actual costs without profits. The charges will be no higher than the usual prices charged by the Affiliated Company to third parties for comparable services under similar terms and conditions elsewhere, and will be fair and reasonable in the light of prevailing international oil industry practice and conditions.”
To this end, Lowe urged Guyanese to oppose the PPP Government rather than allow the administration to treat the country’s patrimony with “carelessness, malice and contempt.”
Recently, Kaieteur News reported that the audit team reviewing some US$7.3B in expenses for the oil company is not conducting a forensic audit, but rather a cost recovery audit.
In that article, Financial Analyst and Certified Accountant, Floyd Haynes explained, ““a forensic audit is done with the aim of identifying fraud and embezzlement with the goal of gathering evidence to be used in a court.”
He said, contrarily, a cost recovery audit of ExxonMobil’s bills is being done pursuant to the parameters of the 2016 Production Share Agreement (PSA) governing the Stabroek Block.
“The goal is to verify the accuracy or rather the legitimacy and validity of costs claimed…there is a huge difference…,” he said.
Since the publication of that article on November 27, 2022 several persons argued that the review is not thorough.
Attorney-at-Law and Chartered Accountant, Christopher Ram, believes that Guyana is on a dangerous path if Auditors believe that they are merely required to check the bills handed to it by Exxon.
About the audit
In May, the Government signed a four month contract with VHE Consulting- which is a registered partnership between Ramdihal & Haynes Inc, Eclisar Financial, and Vitality Accounting & Consultancy Inc. – along with international firms SGS and Martindale Consultants for the ‘Cost Recovery Audit and Validation of the Government of Guyana’s Profit Oil Share’.
This includes costs incurred for the Liza One and Liza Two Projects which are currently producing over 360,000 barrels of oil per day. Importantly, the audit will cost Guyanese some US$751,000.
Early last month, President Irfaan Ali told Reporters at the sidelines of an event that the audit process was delayed and the first report is expected to be handed over to government before year-end.
The Head of State said, “They expect the first report before the end of December and the delay was because of coordination issues with the Auditors themselves which is natural in these circumstances so before the end of the year we expect the first report.”
Haynes told Kaieteur News that an Interim Report will be issued in the first week of December to Government.
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