Guyana gets zero Corporation tax from oil operators

Oct 16, 2017 News

---

 – Ram makes urgent call for review of petroleum contracts/agreements

By: Kiana Wilburg

Chartered Accountant and Attorney-at-Law, Chris Ram is calling for the Government to review the use of Production Sharing Agreements as it inhibits the nation from collecting corporation tax from oil operators.

A corporate tax, also called corporation tax or company tax, is a direct tax imposed by a jurisdiction on the income or capital of corporations or legal entities. Many countries impose such taxes at the national level.

According to Ram, “We have to look at our tax system very carefully. Our Minister has said we don’t need to look at our tax system in relation to petroleum, but I disagree with this.”

“We get zero corporation tax under the model petroleum agreement… The Government’s share of profit oil includes the taxes paid or payable by the oil producer so why don’t we move away from Production Sharing Agreements?”

With this in mind, Ram argued that an intelligent approach is really needed to address loopholes in legislation and agreements governing the oil and gas sector.

PROS AND CONS

Government has since taken a decision to review the pros and cons surrounding the continued use of Production Sharing Agreements in the oil and gas sector.

This is according to Minister of Natural Resources, Raphael Trotman.

In an interview with this newspaper, Trotman had said that there are different types of Agreements or Contacts which are entered into between governments and oil and gas companies. He noted, however, that in 1999, when a PSA was signed between the Government of Guyana and US oil giant, ExxonMobil, the Production Sharing Agreement model was considered “avant-garde”.

The Natural Resources Minister said that Production Sharing Agreements were the standard in the industry and so across the world, that was the model that was being utilized.

Trotman sought to remind as well that in 1999, Guyana was seen as a place where no one wanted to do business, and deep water exploration was considered very risky and costly. He emphasized that many companies shied away from it.

Trotman said, too, that Guyana during that time had no known signs of oil in the manner and scale it does today. He said that it was just seen as a possible frontier. Compounding the issue oftentimes was the threat from “next door,” thus investors were often scared away, Trotman expressed.

“So when Guyana began its endeavours around that period to attract companies, Exxon was just one of them. But this government has not given out a single new contract. All of the contracts right now are Profit Sharing Contracts and that is the model this country has used.

“We don’t condemn it. There are different models of course, such as Strict Royalties; some say a Partnership where you get 50 percent of the profits, but what is most important is what you do with the money when you get it. Both (contracts/agreements) will give you a desired outcome, depending on how they are structured—that is that you earn revenue.

“In the case of the profit sharing, you don’t make any investments, the operator comes and takes the risks, because if you miss by 10 feet, in drilling a hole where the oil is, then it could cost you US$6M to US$7M…”

With this in mind, the Minister said that Government will be doing a review of the kind of agreement to be used for future. He said that the review will consider if Guyana should maintain the use of Production Share Agreements or switch to another that might be in the nation’s best interest.

The Leader of the Alliance For Change (AFC) said that one must bear in mind that this kind of arrangement is what the coalition administration inherited. He said that when governments change, it is expected that the incoming party would honour the contracts that existed before, especially when they have to do with firms from international communities.

According to the International Monetary Fund (IMF), a Production Sharing Agreement (PSA) is a contract between one or more investors and the government in which rights to the prospection, exploration and extraction of mineral resources from a specific area over a specified period of time are determined.

As it relates to the terms of a standard PSA, the government hires the investor (-s) as a contractor for the extraction of mineral resources, but the government still retains ownership of the resources.

The investors carry out the works at their own expense and risk-sharing with the government, part of the production output in accordance with the agreement.

Picture saved in Monday as Ram

Caption: Chartered Accountant, Chris Ram

---

---