Govt. ignores IMF’s advice to close fiscal loopholes in existing oil contracts

Apr 18, 2018 ExxonMobil, News

By Abena Rockcliffe-Campbell

The Government of Guyana has chosen to ignore a prudent recommendation from the International Monetary Fund (IMF) that would secure greater revenues for Guyana from its oil resource.
The IMF told government to close fiscal loopholes in existing Production Sharing Agreements (PSAs) that may be a source of base erosion and profit-shifting activities. The Fund advised the government that this should be done in consultation with oil companies that have already entered into an agreement with Guyana.
This recommendation was made in a November 2017 report that the IMF handed to the government. The report details the findings of an IMF team that perused the PSA Guyana signed with ExxonMobil in 2016.
The IMF reported that the ExxonMobil PSA has the lowest Average Effective Tax Rate (AETR) of all the fiscal regimes evaluated.
The Fund said this result confirms that the terms offered in the agreement are generous to the investor, “but were probably required to attract investment at a time in which little was known about the geological prospects of the country. Moreover, some of the countries with the highest AETRs in the sample, such as Norway and Trinidad and Tobago, are mature and well-established producers that have had the opportunity to fine tune their fiscal regimes over time.”
The IMF recommended that Guyana move in the direction of those countries that have fine tuned their fiscal regimes. The Fund said that Guyana’s tax framework needs to be improved. While the government reportedly has intentions to review Guyana’s tax framework, it remains firm that it will not be troubling the ExxonMobil contract.
Local critics of the ExxonMobil contract have called for a full-blown renegotiation of the contract. But the IMF did not advocate for such a course of action to be taken. The Fund only wants government to close the fiscal loopholes that could reduce Guyana’s share of profit oil.
But the APNU+AFC government, which has been deemed “generous” to ExxonMobil, decided against closing these loopholes. Several officials said that the government has absolutely no intention troubling the ExxonMobil contract. These officials include Minister of Business, Dominic Gaskin; Minister of Finance, Winston Jordan; Minister of Natural Resources, Raphael Trotman and Minister of State, Joseph Harmon. In fact, Harmon told the media that the government is just looking forward, and will try to have a better financial regime reflected in future contracts.
The ExxonMobil PSA has provisions that can allow the companies to pass on the cost of unsuccessful wells to those that have proven quantities of commercial oil. This and other provisions will reduce government’s share of cost oil.