Latest update May 28th, 2023 12:59 AM
Mar 22, 2023 News
…PSA waives need for Ministerial approval
Kaieteur News – The oil contract that Guyana entered into with US oil major, ExxonMobil is infamous globally for the favourable fiscal terms it extends to the oil producer, in which it benefits from paying a mere two percent royalty and no taxes.
But in addition to these glaring lopsided provisions, the agreement also features a number of other gaps that allow for possible exploitation of the nation; one such provision in the contract outlines that Guyana’s oil must pay the salaries of employees hired by the Contractor, whether they are assigned permanently abroad or locally.
Notably, these expenses are not subjected to prior approval by the government.
According to Section 3.1 in Annex ‘C’ of the PSA, which specifically outlines costs recoverable without approval of the Minister, “…The salaries, wages and related costs of employees of an Affiliated Company that are temporarily or permanently assigned in Guyana and are directly engaged in Petroleum Operations shall be chargeable to the project at their actual documented cost.”
This provision also extends to affiliated companies of ExxonMobil that are based overseas. “The salaries, wages and related costs of employees of an Affiliated Company that are temporarily or permanently outside of Guyana and are directly engaged in Petroleum Operations shall be chargeable to the project at their actual documented cost.”
The PSA states that the costs for salaries, wages and related costs shall be charged to the project on an actual basis or at a rate based upon the average cost in accordance with the Affiliated Company’s usual practice.
It points out that the methodology of determining rates based on average cost shall be provided to the Government upon their request. These rates “may be” reviewed by the Minister annually, however these salaries must be paid even without his approval.
In addition to the wages and salaries for the employees stationed locally and overseas, these workers will also enjoy paid travel expenses through Guyana’s oil.
According to the contract at Section 3.1 (d) (ii) “…Reasonable actual documented expenses (including travel costs) of those employees whose salaries and wages are chargeable to the project and are reimbursed by the Contractor under their usual practice shall also be charged to the project.”
This newspaper reported last Sunday that ExxonMobil Corporation and its partners can take as much of Guyana’s oil that they may need to cover US billions worth of purchases. The sweetest part of this arrangement is that for much of its expenditure, there is no need for ministerial approval.
The oil contract allows for up to 75 percent of the oil to be deducted towards cost recovery for the contractor’s investment to develop the offshore resources in the prolific Stabroek Block where more than 11 billion barrels of oil has already been discovered.
The remainder (25 percent) is then split evenly between the government and its corporate partners. Notably, in the absence of ring-fencing, ExxonMobil is allowed to extract all of its expenses from a single project, rather than use the resource in that field to pay back its investments.
The Institute of Energy Economics and Financial Analysis (IEEFA) in a report titled ‘Lack of Ring-Fencing Provision Means Guyana Won’t Realize Oil Gains Before 2030s, if at All – Loophole Allows ExxonMobil-Led Development Team To Use Profits To Pay for More Oil Exploration in Guyana’ details that Guyana’s failure to implement a “ring fence” provision has provided Exxon an opportunity to reduce the country’s share of profits.
It has concluded that Guyana may never see the promised annual revenues from its oil sector. Tom Sanzillo, a director of financial analysis for IEEFA noted, “Our findings are worrisome. The oil and gas industry is facing stiff competition and lower growth expectations…selling more oil into an overcrowded market is risky business for Guyana. The country may never see the promised annual revenues in the billions of dollars.”
No contracts cast in stone, except Norton and Jagdeo own!
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