Latest update May 31st, 2023 12:59 AM
Mar 29, 2023 News
…Citizens must demand full disclosure of true interest rate, stop Govt. from approving more projects with same conditions
Kaieteur News – ExxonMobil has to date invested close to US$40 billion to develop the resources discovered in the Stabroek Block and because of the lopsided oil contract it inked with the Government of Guyana in 2016, the company can recover the interest on loans it took without government’s approval.
Vice President (VP) Bharrat Jagdeo is reluctant to disclose the interest rates the country is presently paying but Businessman and Publisher of this newspaper, Mr. Glenn Lall has evaluated that with a 10 percent interest rate on the US$40 billion investment, Guyana could be paying at least US$4 billion annually, without scrutiny.
According to the PSA, the Contractor, ExxonMobil Guyana does not need the approval of the Minister to recover interest on loans it took to produce the oil and gas resources.
To this end, Lall has pointed out that the country could be paying out more on interest rates alone, than it made in profits from the sector.
“Guyana’s 2023 budget and more, is wah Exxon taking out from our oil in interest alone and all jack man silent in this country. The whole year Guyana barely scraping in one and one something billion from our oil, and we giving away US$4B in interest alone,” he said.
At the end of February, 2023 Guyana only had US$1,379,353,505.59 in its Natural Resource Fund (NRF).
In this regard, the businessman reasoned, “Who signs a deal with the most crookish and corrupt contractor to build a house with his money for their son and when he build a $10million house he tell you, you have to pay him $60 million. On top of that, you have to pay the contractor a hefty interest rate on that $60 million that you had no say on. Who agrees to something like that?”
He pointed out that this is the situation Guyana has found itself in with ExxonMobil. The newspaper Publisher explained, “They already invest in four projects out there and hand us a bill of over US40 billion which our leaders didn’t verify, and on top of that, we have to pay an interest rate that Guyana don’t have any say over.”
Lall therefore urged that Guyanese step up to represent their wealth and prevent the country’s leaders from approving another oil project with the same terms and conditions.
Kaieteur News reported on Sunday that the 2016 Production Sharing Agreement (PSA) that the Guyana government inked with oil major, ExxonMobil allows the company to pay back accumulated interest on loans it took to develop the resources in the Stabroek Block, without the prior approval of the Minister in charge.
According to the contract in Annex ‘C’ Section 3.1 (L) “Interest, expenses and related fees incurred on loans raised by the Parties comprising the Contractor for Petroleum Operations and other financing costs provided that such expenses, fees and costs are consistent with market rates” shall be recovered without the further approval of the Minister.
In order to fund their exploration and development projects around the world, oil and gas companies use a mixture of loans and liquid cash. But if the “abusive” conditions are in place, a company may have the right incentive to plug more loans with unreasonable interest rates into their project which could later be recovered.
Guyana has not only allowed loans taken by Exxon to be recovered without the approval of the Minister but considers the costs eligible regardless of the interest rates.
Notably, in the absence of a ring-fencing provision, ExxonMobil is allowed to charge all of its expenses to one project. This means that costs to develop a project that is yet to start producing oil will be billed to the producing field, thereby shortening profits for the country received on that front. This however bodes well for the contractor as 75 percent of the oil is first deducted towards covering expenses. The remainder is then split evenly between the two parties, with Guyana raking in an extra two percent royalty on its sweet light crude.
Despite the inclusion of these provisions and the lack of adequate measures to guard against unfair fiscal practices, the government is unwilling to change the agreement with ExxonMobil. It has however proposed to correct some of the fatal provisions in the new draft PSAs currently open for consultation. The contracts will be applied to the 14 oil blocks presently on auction.
Several stakeholders have called on the administration to subject the Stabroek Block to the new oil contract.
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