Two-year deadline too short for auditing cost recoverable items – Oxfam America – Even USA, other countries have longer periods

Nov 24, 2018 News

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By Kiana Wilburg

In the Production Sharing Agreement (PSA) signed with oil giant, ExxonMobil, Guyana only has a two-year deadline within which to do cost audits.

But given the nation’s capacity deficiencies, international transparency bodies contend that this timeline should be extended. Specifically making this point is Oxfam America.
The entity is a confederation of 20 independent charitable organizations, which seek to fight some of the factors that lead to poverty, one of them being the poor governance of extractive wealth.
Oxfam America noted that the expiration periods for audit rights are set out in petroleum contracts and tax laws. It stressed, however, that these deadlines differ from one country to the next. It noted that in Ghana and Kenya for example, the authorities there retain the right to complete audit companies within seven years. In Peru, the limit for audits is four years. Even in the USA, the transparency body highlighted that audits are completed within three years.
Oxfam warned that even a three-year deadline is not advisable for developing countries such as Guyana given the limited financial and human resources that are likely to delay the audit process.
Further to this, the organization said that it is equally important to keep an eye on record-keeping provisions in the petroleum contracts and tax laws.
It said, “Oil companies should be required to keep all their records in country for easy access by the auditors during the audit period. But once that period expires, it becomes very costly to access records and therefore practically impossible to audit them…”

AUDIT OF PRECONTRACT COSTS
The Guyana Revenue Authority (GRA) was able to make it within the stipulated two-year deadline to initiate the audit process for the controversial US$900M pre-contract costs.
According to GRA’s Commissioner General, Godfrey Statia, the entity made an official request to ExxonMobil for a series of financial documents which would show costs incurred from 1999 to 2016. But the GRA would be alone in this process since the Government has already advertised for an international firm or consultant to lead the audit.
Statia 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 – some- time in October 2016 – could range anywhere between G$75B and G$100B or roughly US$375 and 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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