This petroleum contract is not worth the paper it is written on

Jul 02, 2019 Letters

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DEAR EDITOR,

It is my honest opinion that Kaieteur News should be awarded with the highest honour of the land for their continuous reporting on the massively flawed Petroleum Agreement between the Government and the contractors (Esso/Cnooc/Hess) and by extension Exxon. This petroleum contract, signed by Minister Trotman (his initial RT is on every page of the agreement), is not worth the paper it is written on.
Would the Minister report to the public the names of the negotiators on behalf of the Government? It seems to me that these negotiators were grossly incompetent and they were handsomely rewarded for their incompetence. Or it might be that the more qualified we are, the more incompetent we become.
I, and many other more competent individuals, have had cause to write on the parts of the contract where Guyana was taken for a ride. Finally, the Minister has acknowledged that the absence of “ring fencing” was an error. He has now cast the negotiating team under the bus.
I am asking the Minister to also look at the areas identified by Kaieteur News, Dr. Jan Mangal, Christopher Ram, Professor Tarron Khemraj, Professor Tom Mitro, and so many others who are all interested in getting the best deal for Guyana.
The many shortfalls in this contract need to be addressed now. I would ask the Minister to relook at the following articles:
Article 10 – Annual Licence Rental Charge.
The current contract stipulates an annual rental payment of US$1 million. Based on my calculation, Guyana should receive an annual rental on a percentage of the annual projected production. With an annual production of 90 million barrels (250,000 barrels daily with a 350 day year), the rental should be 225,000 barrels (1/4 of 1%).
Annual rental 225,000 x US$50 per barrel = US$11,250,000
Production is expected to increase to 750,000 barrels per day by 2025. When production reaches this level, the annual rental should be 675,000 barrels of oil.
Annual rental 675,000 x US$50 per barrel = US$33,750,000
Article 15 – Taxation and Royalty
The agreement gives the contractor an indefinite tax holiday on their taxable income. This arrangement will rob Guyana of hundreds of millions of United States dollars in tax revenue. I am appealing to the Minister to correct this anomaly now.
Brazil is receiving up to 10% royalty on their production. Currently, the agreement gives Guyana 2% royalty. With a daily production of 250,000 barrels and one for 750,000 barrels, the following will be the royalty for Guyana:
For 250,000 barrels daily – annual production will be 90,000,000 barrels
Royalty at 2% on 90 million barrels = 1,800,000 barrels = US$90 million
Royalty at 10% on 90 million barrels = 9,000,000 barrels = US$450 million
For 750,000 barrels daily – annual production will be 270,000,000 barrels
Royalty at 2% on 270 million barrels = 5,400,000 barrels = US$270 million
Royalty at 10% on 270 million barrels =27,000,000 barrels = US$1.35 billion
Article 19 – Employment and Training
As Kaieteur News has highlighted over the last week, we will be receiving a mere pittance from our oil resource for training. In this contract, Guyanese will receive a handsome amount of US$300,000 annually. Bearing in mind that we need to train Guyanese in many new fields, this amount is downright shameful.
A decent College in the United States will cost a student an average of $25,000 per year. If one were to go to a more recognized College, the annual tuition will be over $50,000.
What this contract is telling us is that the oil company will continue to recruit their own people for the next 50 years. If the annual College tuition is US$50,000 per year, we can only send 6 students for four (4) years. When these 6 students return, we will then send another 6. So in fifty (50) years we would have trained seventy two (72) Guyanese, provided, of course, that the annual tuition remains the same (which is impossible).
With an annual production of 270 million barrels of oil, a more realistic training assistance would be at least 1/10 of 1% of the annual production. This formula will allocate 27,000 barrels of oil. With a price of US$50 per barrel, the annual training should be US$1,350,000.
Article 33 – Signature Bonus
Guyana received a sign-in bonus of US$18 million. As argued by many scholars, this sum is an insult to the people of Guyana. With knowledge of a reserve of over 4.5 billion barrels, we got .008 of 1% (which is 8/10,000). Does the Minister think that this is a good deal?
With hindsight, the Government must now ask the Contractor for a signature bonus of ½ of 1% of the estimated reserve. With this in mind, the Consolidated Fund should receive an amount of US$1.125 billion.
4,500,000,000 barrels x .005 = 22,500,000 barrels
22,500,000 barrels x US$50 = US$1,125,000,000
With this income, I am suggesting that we cease the exploration of our gold and forest resources. Currently, our environment is being decimated. Our water resources are polluted. This must end in order to save our rich natural resources. We should build our agricultural sector and give farmers the full support they need to enhance their production and exports of all farm products.
Sincerely,
Charles Sugrim, CPA

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