2016 Exxon Contract to blame for shortage of foreign currency in Guyana – Ram

Mar 19, 2023 News

…situation made worse by fractured, unenforced legislative regime

Kaieteur News – Eminent Chartered Accountant and Attorney-at-Law, Christopher Ram, has in light of the growing concerns over a reported shortage of available foreign currency locally—namely the US Dollar—laid the blame, squarely at the feet of a fractured and oftentimes unenforced legislative regime, together with the 2016 Production Sharing Agreement for the Stabroek Block.

Chartered Accountant and Attorney-at-Law, Christopher Ram.

Ram gave his views in his most recent public missive on the state of affairs of Guyana’s still nascent oil and gas industry where he observed the “contradiction that even as Guyana has the fastest growing economy in the world, and amid a phenomenal expansion in oil production and export, the issue of the availability of foreign exchange is now a major topic.”

This situation he said has led to a running debate on facts between the Government, the Bank of Guyana (BoG), segments of the Private Sector Commission (PSC) and of the banking sector and privately owned businesses.

Before delving into the now infamous 2016 Contract that was inked by the Coalition Administration under the hand of then Substantive Minister, Raphael Trotman, he sought to address the provisions legislative and contractual regime under which the oil companies have been taking advantage of.

That contract was signed between then Minister Trotman and representatives for Esso Exploration and Production Guyana Limited (EEPGL)—ExxonMobil Guyana—Hess Guyana Exploration and China National Offshore Oil Company.

Prefacing his analysis, Ram noted that contrary to popular belief while the ‘Exchange Control Act’ was repealed in 1996 by then Head of State, the Late Cheddi Jagan, there still remains a number of controls in place under other existing laws.

He cited as example, the Customs Act, the Foreign Exchange Miscellaneous Provisions Act and “tangentially the Bank of Guyana.”

With this in mind, he noted that the latter, Foreign Exchange Miscellaneous Provisions Act which repealed the Exchange Control Act, seeks to regulate foreign borrowings by requiring the permission of BoG for foreign borrowings by domestic operators or borrowing in Guyana by companies controlled by non-resident companies.

Against this backdrop coupled with what he described as “our weak Local Content Act, meant that the companies, (which have paid their way into buying Guyanese status, have paid their way into buying Guyanese status, have as a direct consequence, also bought their way around this Act as well.”

Against the foregoing, Ram pointed to the provisions in the 2016 PSA which has since been universally maligned, “shows an abominable lack of or interest in ensuring compliance with the law.”

Expanding further, he pointed to the specific Provisions in the PSA that allows the oil companies and their expatriate employees to essentially retain foreign currency outside of Guyana.

He noted that under the PSA, the beneficiaries of those provisions enjoy the right to retain abroad all foreign exchange obtained from the export sales of the contractor’s petroleum and to remit and to retain abroad, all foreign exchange earned from the sales of petroleum or assets in Guyana.”

Additionally, the contract allows the beneficiaries to open and maintain bank accounts in any foreign currency outside Guyana and to dispose of any sums deposited, without any obligation to convert into Guyana currency any part of it.

He noted further that the oil contract also allows for the right to finance the petroleum operations in any currency through any combination of equity, inter-affiliate or third-party loans, inter-company bank accounts or production payments.

The right to place foreign currency into both Guyanese and United States dollars bank accounts in Guyana and to dispose of the sums deposited there without any restriction is also guaranteed under the arrangement.

Additional provisions also provide for the right of the oil companies to buy and sell Guyanese currency through the banks in order to raise foreign currency in addition to giving their employees the right to not only remit, any or all of their salaries to a country of their choosing but can also be paid directly in their home countries.

It also provides for oil companies to maintain accounts in both Guyana and US dollar and that the US dollar accounts would prevail should there be conflicts.

This, taken together with the tax provisions, which sees Guyana, paying any applicable taxes, or taxes not already waived for those companies or employees, out of its share of profit.

Cumulatively the effects, according to Ram is that no foreign currency is required to be brought back to pay taxes for the any of oil companies and other stakeholders encapsulated under the provisions.

With this in mind, he cited as an example, a direct implication outside of the shortage of foreign currency and pointed to the recent donation by CNOOC, to be used as part of outfitting the soon to be rebuilt Christ Church Secondary School.

In light of the fact that CNOOC would have saved in in excess of $21B alone, through those tax and other provisions.

With this in mind, he postulated, “it is like giving back to Guyana $1 out of every few thousands of dollars of the taxes we pay for them. What a Deal!”

• Attorney-at-Law, Chartered Accountant, Christopher Ram, Production Sharing Agreement, Stabroek Block