Int’l firms shortlisted for audit of Exxon’s US$900M pre-contract cost – Energy Dept Head

Dec 29, 2018 News

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By Kiana Wilburg

The Energy Department has received several Expressions Of Interest (EOI) from international firms for the ExxonMobil cost recovery audit. This was confirmed yesterday by Energy Department Head, Dr. Mark Bynoe.
During an interview with Kaieteur News, the official said, “We did receive quite a few Expressions Of Interest. As I indicated, you know how these things go. The procurement process takes quite a while, because you have the EOI then the RST (Request for Proposal), in terms of persons being asked to submit a financial proposal…We are going through that. But there is no issue of us being held on the line. What the contract requires us to do is to write to Exxon indicating that we intend to start this process, which we did within the requisite time, and we are now going through the process of getting a firm to help us complete that…”
Dr. Bynoe refrained from stating how many companies sent in proposals, as well as how many were shortlisted. The official said he does not want to compromise the process in any way. All he would divulge at this time is, “…I am aware they have already shortlisted (some companies).”

The Department of Energy had tendered in November last for an international firm to assist Guyana in completing cost recovery audit covering the hefty pre-contract cost that ExxonMobil handed to the government. Dr. Bynoe said that the plan is to apply a collaborative institutional and capacity-building approach during the conduct of this audit.
Along with the foreign firm, the International Monetary Fund (IMF) will be lending its expertise to help Guyana audit the controversial pre-contract costs, which is believed to be some US$900M.
According to Commissioner-General of the Guyana Revenue Authority (GRA), Godfrey Statia, the IMF and the World Bank would be training GRA officers in the areas of petroleum accounting, cost recovery audits and other tax-related matters. He said that help would also be provided to develop a risk assessment strategy for the sector. In fact, this training has already started.
Statia said that the support from the IMF will be financed through the Managing Natural Resource Wealth (MNRW) trust fund, which has also funded the technical assistance received so far on petroleum taxation and revenue management.
Kaieteur News understands that the Fund and other institutions will be tasked with auditing, examining and verifying all available documentation and records necessary for charges and credits relating to the contractor’s activities under the Petroleum Agreement.
This means all books of accounts, accounting entries; material records and inventories, vouchers, payrolls, invoices and any other documents, and correspondence will be requested and checked thoroughly.
The international bodies will also determine if any required documents are yet to be submitted.
The global financial bodies will also assess the impact of the audit on future Profit Oil and Profit Gas, its subsequent petroleum tax implications, and if relevant tax entitlements are optimized in the interest of the Government of Guyana.
US$900M PRE-CONTRACT COSTS
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:

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$500M, has been subject to any verification, let alone audit.

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