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Overtaken by naïve optimism, Govt. fails to build capacity to get every cent due – Ramson
Charles Ramson sees it as important for the Guyana Revenue Authority (GRA) to establish a department to be guided by a transitional team of experienced oil and gas auditing and financial experts with the objective of transitioning to native operational command.
He said that this mechanism is necessary for Guyana to get its right share of revenue from the oil industry.
Ramson is an Attorney at law and Chevening Scholar with a Masters in Oil and Gas from the University of Aberdeen.
During a recent interview, Ramson said that Guyana shot itself in the foot when it failed to re-negotiate a good deal with ExxonMobil and again when it signed a “give-away” deal with Eco Atlantic. He said, however, that the nation can now try to at least ensure that it is not robbed of the crumbs it settled for.
Ramson said that it is obvious that the government’s “starry-eyed hope about large revenue inflows is distracting it from taking the necessary preparatory steps to build the institutional system and capacity so that Guyana can get every dollar it is due.”
Oil and Gas consultant, Charles Ramson
Ramson noted that a government’s first responsibility is to protect the country and people which also means protecting its resources. “In commercial terms this means the effective management of those resources.”
The consultant said that getting a good deal, though crucial, is only one of the pillars of a government’s responsibility to effectively manage resources.
“Getting the agreed share of revenue is another critical but often overlooked pillar especially in the early stage of a country’s resource production. To get your agreed share in the oil sector, you need sophisticated and highly specialized accounting and financial expert to determine the total or full costs of capital investments, appropriate recovery and depreciation periods.”
Ramson said that Guyana is no way near being prepared to deal with transfer mispricing and gold plating which is just two of the tricks of oil companies.
He said that he is surprised that the government does not see the need to get prepared urgently.
The current contracts with Guyana and the oil companies have a 75% cost recovery and a production split on profit oil (then those costs need to be verified and audited. This means Guyana needs to have a very strong auditing department.
Ramson said, “If our tax agency is unable to get the right taxes from imports on basic goods and there is some scandal ever so often about alcohol importation or known bribery; then how will Guyana be able to audit the claimed costs for international oil companies with the asymmetry of expertise and sophisticated accounting practices?”
Ramson continued, “Think about this also – if big oil companies attempt to cheat developed oil countries like Norway, United States, Canada and Australia, then what will happen with Guyana?”
He pointed to Indonesia as a good example of what Guyana needs to guard against. Ramson said that Indonesia did an audit of cost recovery claims between 2010 and 2012 which identified US$212M in ineligible expenses.
“We have already heard that Guyana was handed a bill of over US$400m and that this first phase is going to cost US$4.4B but that is only the beginning – Those cost claims are going to roll in, we need to get prepared.”
Ramson said that the cockishness of cost recovery is the reason why oil companies do not like royalties. “Yes, it is a regressive tax but at least it is far easier to monitor – monitoring deductible costs is far harder than monitoring gross revenues.
“It was a huge mistake by the government to give Eco Atlantic a 1% royalty and a 75% cost recovery on a production sharing agreement and that mistake will cost us billions once Eco Atlantic discovers oil in the Orinduik Block.”
The Attorney said if you are going to agree to those terms then you have to have the capacity to deal with monitoring production and auditing costs. Guyana does not have that and oil companies have the financial clout to pay the best lawyers and accountants.
Ramson said that Christopher Ram already pointed out that the government agreed that Guyana must give the international oil companies 90-days’ notice if it wants to carry out an audit. The consultant said that worst than that would be if after the 90 days of wait, Guyana still does not have the capacity to carry out a good and proper audit.
He said that that is why it is necessary for GRA to build capacity so that Guyana can at least get the right share of the crumbs it settled for.
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