Share flipping

Oct 29, 2023 Features / Columnists, Peeping Tom

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Kaieteur News – The Vice President of Guyana says that the government is not budging when it comes to the core terms of the draft Production Sharing Agreement (PSA). New investors in Guyana’s oil and gas sector will be subject to these new terms.

However, an issue which does not constitute part of the core terms of the draft PSA is share flipping. Recently developments have seen Chevron announcing that it has an agreement for the buy-out of Hess, a company which partners with ExxonMobil and CNOOC in the Stabroek Block. This sale has raised concerns in Guyana since Chevron is likely to take the place of Hess as a part of the three foreign companies operating in the lucrative Stabroek block.

Share flipping is the practice of an investor selling its shares in a local operation, potentially to a new foreign entity. The practice raises several concerns. Does the new owner automatically assume the rights held by the previous owners? Can these transactions be conducted without the approval and without considering the consequences for the host nation, in this case, Guyana?

What happens when a major investor signs an agreement with the Government of Guyana to exploit Guyana’s resources but later decides to sell its shares in the venture?  Are market transactions going to be respected as part of the principle of the sanctity of contracts?

A few years ago, Scotia Bank wanted to sell its local operations in Guyana. But the government denied that transaction on the grounds that it would give too great a control over the local banking sector to Republic Bank. This remains a highly controversial decision.

In 2007, IAMGOlD sold 70% of its shares in the local bauxite company to a Chinese firm called BOSAI. The government was said to have blessed this deal even though there were concerns that Guyana’s large bauxite reserves were going to be under the control of a Chinese firm.

Another Canadian company Aurora Gold Mines had sold its shares to a Chinese firm Zijin in 2020. The Chinese company is being allowed to assume the rights to mine gold in Guyana.

Years ago, a controversy erupted over the sale of Demerara Woods to Lord Beaverbook. Reports had suggested that not long after acquiring the property, Lord Beaverbrook had flipped it at huge profit, but this was disputed by one former government official.

There have been instances also where locals have acquired rights to property in Guyana and have flipped these to foreign companies.

But all of these issues raise a fundamental concern about whether a foreign investor with rights to exploit Guyana’s natural resources – but it bauxite, gold, timber or oil – can simply sell its shares in the local operations and the new owner will have a legitimate expectation to assume those rights.

It is an issue that should concern Guyana now that a sale has been made of Hess’s shares and which purportedly would allow the new owners, Chevron, to become a partner in the Stabroek Block.

Has the Vice President considered this issue as part of the core terms of the draft PSA? Is Guyana going to make an exception to this transaction as it did with the proposal of Scotia Bank to see its local operations to Republic Bank?

To address this issue, there should be limits imposed on share flipping, ensuring that any changes in ownership are carefully considered and approved in the best interests of Guyana. These limits should be a part of the core terms of any draft PSA.

Any sale of shares in companies operating in Guyana’s natural resource sector should require government approval. This approval process should consider the implications of the sale on the country’s resources and its economic well-being.

All share flipping transactions should be transparent and open to public scrutiny. This will ensure that the public, as stakeholders in the country’s resources, are aware of any changes in ownership and can voice their concerns or support.

To protect Guyana’s interests, profits made from the sale of shares in companies operating in the country’s natural resource sector should be subject to fair taxation. This will ensure that Guyana benefits from any gains resulting from share flipping.

Setting limits to share flipping and imposing fair taxation on profits from these transactions, will help safeguard Guyana’s interests and ensure that foreign investors contribute to the country’s sustainable development. Share flipping should not be a loophole that allows foreign entities to change ownership without considering the broader implications for the nation and its resources.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• Chevron, CNOOC, ExxonMobil, Guyana’s, Peeping Tom

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