Latest update January 1st, 2025 1:00 AM
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Guyana yet to begin auditing ExxonMobil development costs
Chartered Accountant, Chris Ram
Audits are a fundamental part of any oil industry. But waiting too late to execute them can result in terrible consequences for host countries. The World Bank and the International Monetary Fund (IMF) are just two of the many agencies which have strongly advocated for this.
However, local authorities are yet to commence auditing the proposed costs for the development stage of ExxonMobil’s oil project which will see Guyana becoming an oil producer by 2020.
The need for early audits has not only been underscored by international agencies but also by concerned commentators here. Chartered Accountant, Chris Ram, is one who has spoken at length about the troubles nations have faced in relation to inflated costs being submitted by oil companies.
Ram said, “This is why you need proper audits. You need competent auditors so that these things can be caught. Additionally, when these oil companies come here and they are finished exploring, they are supposed to say what they are going to be spending in the development plan.
“Even that should be scrutinized and very thoroughly at that. (Government) should say who is doing that. (Minister of Natural Resources, Raphael) Trotman is lost and that is the reality.”
COST RECOVERY
Oil production is expected to get into to full swing by March 2020. That is just about two years away. But even at this point, the government is yet to point out what ‘specific’ measures are in place to ensure that it can authenticate cost recovery claims by USA oil giant, ExxonMobil.
Kaieteur News had asked President David Granger to provide some details in this regard and he was unable to. The said question was also put to the nation’s point man on oil and gas, Natural Resources Minister, Raphael Trotman. He too is yet to list just two things that are in place to ensure Guyana is not robbed through such claims.
At a recent Press Conference, Trotman said that the authenticity of cost recovery claims was one of the main discussions he and others had with the International Monetary Fund (IMF) and its experts.
Trotman acknowledged that indeed, several countries around the world including Kenya, Ghana, the USA and Great Britain, have had struggles with ensuring cost recovery is precise and transparent .
The Natural Resources Minister said, “We have turned to some of the best financial experts in the world and they have come, they have done their assessments and they will be guiding us. It is a work in progress and we are doing better by the day.”
When Kaieteur News still insisted on him outlining a few provisions in this regard, he pointed out that the Guyana Revenue Authority was able to garner $900M in taxes due to its attentiveness in this regard.
TANZANIA AND INDONESIA
Minister of State, Joseph Harmon
Kaieteur News had carried an article on the Tanzanian experience with ExxonMobil in which it was stated that the country had serious difficulty in verifying how the figure of “cost oil” was arrived at.
Upon examination of the leaked contract with ExxonMobil, the Chairman of the Public Accounts Committee disclosed that there was no “ring fencing” of blocks and that the Production Sharing Agreement contained no provision to guard against the incurrence of costs in one block and recovering them from another profitable block.
The Chairman referred to the writings of Nobel Laureate Joseph Stiglitz who asserted, “The fact that the typical contract allows the oil companies to walk away with the windfall profits suggests that something is wrong with the way these contracts are designed.”
This newspaper also reported Indonesia’s switch from the profit-sharing model to a revenue-sharing one. This was because each passing year has seen a dwindling of the country’s share of profits in the belief that oil companies were inflating their costs.
This was despite the fact that the government-owned entity that manages the oil sector has a staff of 750 professionals. Approximately 80% of that staff is involved in the verification of cost recovery claims by oil companies to ensure that they are fair and accurate.
The Chartered Accountant insisted that there are limited resources available in Guyana to enable the independent verification of the accuracy and reasonableness of the costs that are chargeable to revenue.
He said it is mainly for this reason that the Government of Guyana should re-negotiate the contract with ExxonMobil to allow for a revenue-sharing model to be in place.
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