Oil contracts will not have enormous tax benefits under PPP Govt.- Jagdeo

Jun 14, 2019 News

Under a PPP administration, the enormous tax benefits that are being enjoyed by oil companies now would not make its way into future contracts. This assurance was provided yesterday by Opposition Leader, Bharrat Jagdeo.

Opposition Leader, Bharrat Jagdeo

The PPP General Secretary was at the time, responding to a Kaieteur News question with respect to renegotiating the ExxonMobil-Guyana Production Sharing Agreement (PSA) so that the people and not the operator would get the lion’s share of the oil wealth to come.
Further to this, the Opposition Leader said that a PPP government would not only curtail the benefits that are granted to the companies now, but also ensure that there is transparent auction of the remaining offshore blocks.
Additionally, Jagdeo said that while some folks might be calling for renegotiation to increase the distribution of the share for Guyana, the country can save millions of US dollars without touching the contract.
In this regard, he posited that this could be done through vigilant management of pre-contract and production costs as these are known to be inflated. The Opposition Leader said, too, that he is of the firm view that the lion’s share must go to the people.
FAIR TRADEOFF
University of Houston Instructor, Tom Mitro, in previous interviews, has stressed that governments must demand fair tradeoffs for the concessions granted to oil firms.
In fact, Mitro pointed out that there are various tactics employed by oil companies with the sole aim of getting these exorbitant concessions. Mitro noted that some companies, in particular some American companies, will fly people in for negotiations. He said that ExxonMobil, which is much more centralized in its management, does this.
Mitro said that for a “fly-in” headquarters team, time is of the essence as this type of team typically plans on being in country for a limited amount of time and wants to avoid spending weekends in the country. For this reason, Mitro explained that they will have pressure to achieve results quickly.
The Senior Fellow said that Governments need to be aware of this phenomenon and not yield to time pressure. He said that quite often, delays in meetings or in reaching agreement, can work to the advantage of the government too.
He said, “Some companies will also fly in the CEO with the objective of shortcutting the technical negotiation process through some political outreach, such as meeting the President, the Prime Minister, or Energy Minister.
“With this in mind, the technical teams should prepare the President or the Prime Minister to ensure that undue concessions are not granted or promised without a full understanding of the details.”
He stressed that there must be a proper or fair tradeoff for any concession being granted.
In addition to this, Mitro said that there are tactics which the government could employ to get better tradeoffs.
In this regard, he said that international firms will bring different types of expertise to the table: geologists, engineers, lawyers, tax experts, and economic analysts—all who work in professional silos without any broader perspectives or mandates.
Mitro said that typically, the company would attempt to isolate each issue and to negotiate and settle them individually on a narrow technical basis.
To counter this approach, he said that governments should generally avoid agreeing on issues individually and instead, require all of the relevant issues to be considered as one whole package by focusing on tradeoffs between unrelated issues.
For instance, Mitro said that the government could say: “We won’t agree to accelerate depreciation on your project capital expenditures unless you implement an ambitious local procurement plan,” even though the two issues are quite unrelated.
Mitro said that this type of conversation and linkage of issues could serve to mitigate the often narrowly focused technical strength of the other side.