GRA begins audit process for US$900M pre-contract costs

Sep 02, 2018 News

GRA Commissioner General, Godfrey Statia

By Kiana Wilburg

The Guyana Revenue Authority (GRA) has initiated the audit process for the controversial US$900M pre-contract costs. This was confirmed yesterday by GRA’s Commissioner General, Godfrey Statia.
The tax chief said that he officially wrote to ExxonMobil for a series of financial documents which would show costs incurred from 1999 to 2016.
He said, “Pre-contract costs are not something that is unusual to the oil industry. These are costs which were incurred and our Production Sharing Agreement (PSA) would have allowed for the operator to recover it. I am confident in the ability of our agency to get this job done. Our audit will help to determine if costs were inflated, among other things.”
International lawyer, Melinda Janki, was one of the first persons to note that the country is neck-deep in US$900M worth of pre-contract costs.
During a panel discussion on Guyana’s oil contract with ExxonMobil at Moray House, Janki reminded that the country has to pay US$460M in pre-contract costs. This covers the period 1999 to 2015. But there is a second lot.
Janki noted that the contract specifically states that Guyana is to pay contract costs from January 2016 to when the deal was signed on October 7, 2016.
The international lawyer said, “The costs for the whole of 2016 were about US$583M and if you apportion it to October, you get roughly US$400M. Again, Minister of Natural Resources, Raphael Trotman has agreed for Guyana to pay this. As at October 7, 2016, Government’s attempt to sell our oil costs us US$900M. I have found no law which gives the minister the authority to burden the nation with this, so it is quite possible that he acted illegally.” (See link for more details: https://www.facebook.com/jerome.edwards.925/videos/2144978259094356/)
In his earlier writings on the petroleum sector, Chartered Accountant Christopher Ram had also pointed out that there was a second set of pre-contract costs specified in the 2016 Agreement signed by Minister Trotman.
Speaking with Kaieteur News on the matter, Ram said his examination of the financial statements of ExxonMobil’s partners (Esso and CNOOC/NEXEN and Hess), the second element of pre-contract cost for the period January 1, 2016 to the execution date of the 2016 Contract – sometime in October 2016 – could range anywhere between G$75B to G$100B or roughly US$375 to US$500M. He noted therefore that Janki’s estimates are within reason and that it is up to Exxon as the Operator to disprove these amounts.
Significantly, Ram pointed out that the Government ought to have been aware of the exact amount for the second set of pre-contract costs since Annex C to the 2016 Agreement required that those costs be provided to Trotman before October 31, 2016 and agreed on or before April 30, 2017.
Ram expressed fear that neither the US$460 million – which in his opinion is substantially and improperly inflated – nor the additional US$375M to US$500 M, has been subject to any verification, let alone audit.

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