Kaieteur News – In the absence of ring-fencing provisions, ExxonMobil and the Stabroek Block Co-Venturers have been splurging Guyana’s revenues to explore the 26,800 square kilometer deepwater block.
Once discoveries have been made, the company can then develop those and pursue production under the lopsided terms of the 2016 Production Sharing Agreement (PSA). Flagging what he described as “short-sightedness” on the part of the government for failing to ring-fence the Stabroek Block projects, prominent Attorney-at-Law and Chartered Accountant, Christopher Ram said Guyana is haemorrhaging US millions.
Ram during a radio appearance on Kaieteur Radio 99.1/ 99.5 FM last week argued that no competent leader would allow such an abysmal act to continue. A ring-fencing provision would mandate that each oil project pay for itself only. In this manner, once the project has been repaid, Guyana would benefit from 50 percent of the earnings there. Ram during the radio programme however argued that Guyana has failed to ring-fence the Stabroek Block projects, allowing the currently producing projects to pay for a number of other costs in the Stabroek Block, such as exploration activities for instance.
The lawyer was keen to point out that Guyana not only allows for one project to pay for other costs, but these payments are also unrestricted or unlimited. Ram told listeners, “Now nobody in their right mind, nobody who understands the concept of a production sharing agreement would allow that but our government does, so we lose millions and millions of US-dollars in money that should have come to us, helping Exxon and their friends to explore for oil so that by the time they have to relinquish anything, they have already used up the entire area.”
The lawyer concluded that Guyana is being “conned” by the multinational oil corporation. According to the lopsided PSA Guyana signed with ExxonMobil, Hess and CNOOC, the Contractor can deduct up to 75 percent of the revenues generated each month towards the recovery of cost while the remaining proceeds are split as profits equally with Guyana.
The incumbent administration while in Opposition had hammered the then Coalition government for failing to implement a ring-fencing provision. It was Vice President Bharrat Jagdeo who assured that when the People’s Progressive Party Civic (PPP/C) returned to office, this would be a priority when the contract is renegotiated. “They sold us out to the foreigners. The oil companies, every time there is a find out there, our people should be sad because nothing comes our way. We are gonna renegotiate those contracts because that’s not what we had in mind,” Jagdeo said back then. He added: “When we were in the early days, we were coaxing the people (ExxonMobil) to go along. They (Coalition) came into office – three billion barrels of proven reserves and they gave up zero royalties, no taxes, no ring-fencing.”
Soon after taking office in 2020, the now Vice President has not only changed his tune but also his tone when it comes to the renegotiation of the Exxon contract and securing greater benefits for Guyanese. He now believes that Guyana will benefit in the future from the lack of this provision. His most recent position on the matter was adumbrated at a press conference in October this year. Jagdeo said: “We admitted that we are foregoing revenue now in exchange for massive future income because it’s going into new projects that will increase production, and so even with the same share of the 50/50, plus the two percent royalty that the future income, because of the bigger scale will be massive in Guyana’s case and we are deliberately foregoing that in this period for that purpose and then trying to grab this bone now could cause you to lose all the bones, the bigger bones too in the future.”
Jagdeo continued, “If there is no ring-fencing, therefore it would take a bit longer to get revenue, so it comes back in the end, more revenue but it comes from a larger production so the revenue increases dramatically if the money that would have come in earlier gets re-invested…because if you end at one project and you ring-fence and you collect and there is no new investment well then you will not get any additional resources in the future.”
Guyana has been repeatedly advised by independent international experts to ring-fence its oil projects to ensure the country benefits from its resources early on, as this would help to improve the nation’s education, infrastructure and health services among others. This is particularly important for Guyana, a new-comer to the sector, as the world transitions to cleaner sources of energy, causing a decline in oil prices. Government in its Half-Year Report has already indicated that the country is likely to earn lower revenue from the industry this year than earlier projected. It said this is as a result of declining oil prices on the global market triggered by a slide in demand for supplies.
AUBREY NORTON FRIGHTEN RENEGOTIATION AND RING-FENCING
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