Int’l study on 100 corrupt oil contracts reveal… Vague terms, abuse of discretion are worrying warning signs

Apr 11, 2018 ExxonMobil, News

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Contracts which lead to or encourage acts of corruption, often carry a number of red flags. In this regard, the Natural Resource Governance Institute (NRGI), advises that citizens must be on the lookout of contracts with vague terms and those which create conditions for abuse of discretion.
Elaborating further in a special report which examines 100 corrupt oil contracts, the group notes that a worrying red flag is when the contract between the company and intermediary describes the services the intermediary must perform in vague, non-descriptive terms.
The Institute also notes that when the conduct of the award process departs from the government’s established rules, standards or criteria, and/or exhibits a high or unusual degree of discretion and/or secrecy, it is without a doubt, a troubling red flag. It said that this is very common in some countries, but nonetheless creates conditions amenable to influence-peddling, self-dealing, patronage and other abuses of discretion.
ABUSE OF DISCRETION
Minister of Natural Resources, Raphael Trotman, has constantly been accused of abuse of discretion, since ExxonMobil was granted a production licence without its plan for local content being published.
The Coalition Administration was also heavily criticized for approving the company’s production licence when its Environmental Impact Assessment (EIA) was not published.
VAGUE TERMS
There are many examples around the world where the governments of nations ensure that oil companies provide insurance, which would ensure compensation for any impact on communities and neighbouring countries due to the said operations. Unfortunately, Guyana is not one of those nations.

In the Production Sharing Agreement (PSA) signed between the Government of Guyana and USA oil giant, ExxonMobil, there is no provision regarding any adverse impact on fishing grounds and coastal communities or on neighbouring countries.
This alarming observation was recently pointed out by Chartered Accountant, Chris Ram, and political Commentator, Ramon Gaskin. The two have been extremely critical of the vague terms in the contract especially as it relates to environmental protection.
Ram in his recent writings noted that Article 20.2 of Guyana’s 2016 Oil Agreement deals with Insurance in respect of but not limited to assets, pollution, third parties and employees.
The Attorney-at-law said that the Agreement does not require any loss of production insurance as will apply in the case of any major disruption of production or environmental accidents. He said that while this provision is absent from the 2016 Agreement, the 1999 Agreement, which was signed by the Jagan administration, allowed for insurance to be taken out by Esso Exploration and Production Guyana Limited’s affiliate insurance company.
Esso is a subsidiary of ExxonMobil.
Ram stated, “That requirement has been changed and now allows the Contractor to have the right to self-insure against the risks identified. This is a major concession by (Natural Resources Minister, Raphael) Trotman on an issue that only specialist lawyers know about.
“What it means in practice is that anyone seeking to make an insurance claim will have to lodge that claim against Esso, CNOOC/Nexen or Hess, all of which are external companies. Those potential claimants must thank Raphael Trotman for making their chances even more difficult to succeed.”
CASE OF UGANDA
In 2012, the Government of Uganda signed a PSA with British operator, Tullow Oil. That entity is also exploring in Guyana’s deep waters.
In the PSA of that African nation, there are strict provisions for Insurance.
The PSA notes that the Licensee is to provide a Performance Security in the form of Insurance Bond or Bank Guarantee amounting to US$500,000, which shall, inter alia, guarantee the payment by Licensee of the sums, if any, due and payable to the Government pursuant to the paragraphs hereunder.
“To ensure that Licensee, its Contractors and Sub-contractors meet their obligations to third parties, or to the Government, that might arise in the event of damage, loss or injury (including environmental damage or injury, removal of wrecks and cleaning up caused by accidents) caused by Petroleum Operations, Licensee shall maintain in force an insurance policy through an international insurance company of good financial standing covering the activities of itself and its contractors and sub-contractors, sub-licensees and the employees of all such parties…
…To the extent that third party liability insurance is unavailable or is not obtained, or does not cover part or all of any claims for damage, loss or injury caused by or resulting from Petroleum Operations, Licensee shall remain fully responsible and shall defend, indemnify and hold the Government harmless against all such claims by the Government arising from any such damage, loss or injury. Licensee shall indemnify, defend and hold the Government harmless against all third party claims for damage, loss or injury, including, without limitation, claims for loss or damage to property or injury or death to persons, caused by or resulting from any Petroleum Operations conducted by or on behalf of Licensee.”

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