Every cent must be verified

Sep 13, 2018 Features / Columnists, Peeping Tom

The government must explain to the people the reasons for its reluctance to hire an experienced and capable auditing firm to audit what is known as the pre-contract and post- contracts costs of ExxonMobil.
The government has a duty to ensure that whatever costs are presented to Guyana are verified before payments are made. This is not matter to be treated lightly. It is responsibility which the government must approach with all seriousness.
The oil company has already saddled the government with a massive US$460 M pre-contract costs (also known as pre-final investment decision costs). And there have been questions as to why these pre-contract costs are so high? This is all the more reason why these costs should have been subject to verification by auditors who have the experience in undertaking such an audit.
The pre-contracts costs relate to those costs before Exxon took the decision to begin production. It is a staggering amount which will exceed that which Guyana will earn in the first year of production. And this does not include the costs associated with cost of first year oil production. Guyana is therefore starting out from deficit position.
Having being presented with such a massive bill, Guyana needs to take steps to verify that every cent which Exxon says it spent on seismic surveys and exploratory costs are counted and verified.
Guyana can be taken to the cleaners by the oil companies. It is important that for every cent which Exxon Mobil and its affiliates say that it spent that these can be verified and a determination made as to whether these are reasonable.
The Guyana Revenue Authority cannot undertake such an audit. It does not have the capacity to undertake such an audit. It has never audited a major oil company. It is entering unchartered territory.
There is a world of difference between a tax audit and the sort of audit which is required to verify pre and post contract costs. As former petroleum adviser to the President, Dr. Jan Mangal pointed out, there are three main sets of costs to be audited – pre-contract costs, capital costs and operating costs.
The public hardly needs convincing that the GRA cannot undertake such specialized audit. But since the GRA believes that it does, it would be in the interest of transparency for it to announce the names, qualifications and experience of those persons who will form part of its audit team, so that the public can judge for themselves whether these persons has the capability, as Dr. Mangal said, to understand and review these costs.
Exxon is going to chew the GRA up and spit it out in any audit. The GRA will be at sea in any such audit.
The proposal for the GRA to undertake the audit is the biggest joke in town. It is tantamount to giving Exxon a free pass. The GRA simply does not have the capacity to undertake such an audit.
This column has already pointed out that the GRA’s mandate as a tax collection agency excludes it from performing such an audit. The question therefore is why is the government unwilling to do what is expected of it and that is to hire a competent auditor to audit pre-contract and contracts costs of ExxonMobil?
So why is the government being so reckless with this audit? Why is it not doing what is to be expected? Why has it not gone out to tender to recruit a firm to undertake the audit?
There has to be good reason why the government would wish to delegate the GRA to undertake the audit. There has to be good reason why the GRA which is tax agency would want to do so.
What are the reasons of the government and the GRA? The public needs to be told. The oil industry is too important for it to be managed in such an irresponsible manner.

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