Latest update April 17th, 2025 8:13 AM
Get clear definitions of eligible costs, conduct regular audits to maximize oil revenue –IMF
By Kiana Wilburg
In order for the government to maximize its revenue, it must have clear definitions of eligible costs in Production Sharing Agreements (PSAs), and of any other specific tax rules.
It must also have “regular” control and audit of costs being incurred by the oil operator. This is according to the International Monetary Fund, one of the institutions helping Guyana prepare for its oil sector.
The Fund has advised the government that the Guyana Revenue Authority (GRA) and the Ministry of Finance have to define how to efficiently cooperate on the aforementioned issue. The financial organization said, too, that this includes the sharing of data of a fiscal nature, which are regularly submitted by the oil operator to the sector ministry, such as, but not limited to, the statements of costs and cost recovery.
Other organizations such as Oxfam America have also called on the government to urgently modify in the PSAs, those costs which oil companies are allowed to deduct.
The transparency body emphasized that there are certain costs which present a greater risk to Government revenue, and their eligibility may merit review. In this regard, it sought to warn Guyana’s authorities that the payment of interest on a loan that an oil company takes from a related party is one such cost.
The company explained, “Oil and gas projects require significant capital outlays over their life, including the costs of drilling the well and constructing infrastructure to pump and refine the oil. Often, a related party will provide an oil operator with a loan for its project. But the interest rate on that loan is often highly unreasonable…”
Oxfam then cited a case involving Chevron Australia highlighting how companies may use such loan arrangements as a means of shifting profits offshore.
Oxfam noted that in 2017, the Federal Court of Australia upheld a US$340 million tax adjustment levied on Chevron Australia by the Australian Tax Office (ATO). This decision came about after the ATO discovered that a Chevron affiliate in the U.S. state of Delaware set an unreasonable interest rate for a loan to Chevron’s Australian arm. 
And that was not the worse part. The court found that the loan was not even a genuine transaction. It was simply used by Chevron Australia to artificially reduce its profits and tax payments in Australia, thereby shifting billions in revenue to its affiliate in Delaware.
Because of the scrutiny meted out by the Australian Tax Office, taxes were adjusted for 2004 to 2008, and the additional revenue of US$340M was recovered from Chevron.
With this as its premise, Oxfam warned that Guyana should not hesitate to review the costs which are eligible for recovery by oil operators.
Oxfam America has also called for the Government to amend the two-year deadline it has given itself in PSAs to cost audits for the petroleum sector. The transparency body said given the nation’s capacity deficiencies, this should be extended.
Oxfam America noted that auditing 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, however, 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.
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, “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…”
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