Concessions for oil companies should be dictated by law not Govt. discretion – Dr. David Hinds

May 04, 2018 ExxonMobil, News

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The shadow of corruption has always followed the award of concessions to companies in Guyana. But if the coalition government has any desire to not repeat the mistakes of its predecessors in this regard, it would do what is necessary to ensure concessions for oil companies are dictated by law and not mere discretion.
This perspective was provided yesterday by Executive Member of the Working People’s Alliance (WPA), Dr. David Hinds.
In an exclusive interview with this newspaper, Dr. Hinds said that given how important the oil and gas sector is going to be to the country’s future, concessions granted to those involved should not be left to the whims and fancies of an individual. The WPA Executive Member said it should be the subject of very broad deliberations. The political commentator stated that this is what the Parliament is there for.
“Parliament is the elected body for this and it should have the last say on matters of that nature. It would also ensure that the political opposition is part of the process. One of my disappointments in the way in which decisions were made as far as the contract is concerned is that these decisions were taken by one party, and in a democracy, matters that are so important should have the sanction of all political forces.”
TRINIDAD’S EXPERIENCE
Chatham House Advisor on Energy, Anthony E. Paul is also in agreement that concessions for oil companies should be dictated by law not Government discretion.

In a recent interview, this newspaper asked Paul to share the Trinidadian experience where these matters are concerned.
The Energy and Strategy Consultant said that in his homeland, concessions to oil companies are fixed in law.
He said that this is not uncommon or unknown but rather, accepted as an international best practice in the oil and gas industry. Paul emphasized that having concessions fixed in law is a great advantage for any country since in some jurisdictions; corrupt officials would give away the crown jewels.
Paul said, “The concessions are put into law and not during one-on-one negotiations because it creates a level playing field for all companies coming in. It also means that contracts are easier to administer because the terms are consistent.”
Paul noted that there are some cases in Trinidad and Tobago where the Minister has some discretion, but even in that area, he must be transparent.
He added, “Our concessions are fixed in the Petroleum Taxes Act. But I must say to you that while having the law in place is necessary, it is not sufficient. Legislators must be monitored and held accountable.”
In this regard, Paul explained that the failure of Trinidadian policy leaders to rigourously abide by the law in the past, resulted in loopholes in oil contracts. He said that these were subsequently abused by the operating companies.
The Trinidadian noted that even though laws were in place, the failure of the nation’s leaders to abide by it, led to the loss of billions of dollars in revenue.
PUBLISH WHAT YOU PAY
There are several international organizations which also call for governments with proven oil reserves, to establish tax benefits and concessions in law.
One such entity is the Canada based, Publish What You Pay (PWYP).
In one of its reports, the anti-corruption agency said that there are many different pathways through which government extractive sector revenues are lost. It stressed that closing off one pathway is of little benefit if other pathways remain unchecked. It stressed that protecting revenues that should ultimately provide benefits to citizens therefore requires a comprehensive approach.
In this regard, PWYP said that countries are advised to adopt the now standard principle of embedding all fiscal terms in national legislation rather than project-specific contracts. It said that this will reduce the discretion left to government negotiators.
PWYP said that there is great benefit to the citizenry when this is done, since it can be assured there is room for someone to be held accountable should the laws not be followed.
PWYP emphasized, too, that having fiscal concessions be dictated by law removes opportunity for government to favour one company over another or for the said company to benefit from “generous concessions”.
GENEROUS CONCESSIONS
The International Monetary Fund (IMF) has indicated in its November 2017 report that Guyana’s Production Sharing Agreement (PSA) is “generous” to the contractor, ExxonMobil.
Local critics and the IMF have bemoaned the fact that ExxonMobil’s subcontractors can benefit from tax breaks galore. The company pays no excise tax and withholding tax, with the exception of an outrageously low 10 percent tax payment on imported fuel.
The coalition government was also criticised for allowing ExxonMobil and all its affiliates engaged in Petroleum Operations to import, free of duty, VAT or all or any other duties, taxes, levies or imposts, all equipment and supplies required for Petroleum Operations.
There is a list of all these items which can be imported by ExxonMobil in Annex D of the contract it has with Guyana.

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