Guyana’s reaction to ExxonMobil’s “bullying” with contract sanctity

Dec 20, 2019 News

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One commentator said that ExxonMobil has a dark history of bullying countries with “contract sanctity” especially when it comes to renegotiation.

He even stated that this “Giant Oil Company” is willing to go “all out” in arbitration courts to penalize nations for dishonoring Contract Sanctity.
But what is contract Sanctity?
Sanctity of contracts is a general idea that once parties duly enter into a contract they must honour their obligations under the contract.
A US Legal article states that if a party fails to honour “contract sanctity” then it must follow the “efficient breach theory”.
“The efficient breach theory” means that the party that wishes to breach a contract must pay significant damages.
The Production Sharing Agreement (PSA) signed by Guyana and ExxonMobil’s subsidiary, Esso Exploration Production Guyana Limited (EEPGL), has been criticized by many.

This PSA has and still is being described as a one-sided deal that only benefits Exxon.
It was discovered by experts that the contract includes a low royalty standard, lacks ring fencing provisions and is riddled with gaping loopholes that allow for Guyana to lose billions of dollars.
Numerous commentators, who are not in favour of this deal, have called for a renegotiation of the “mind boggling” agreement.
Even a few political parties that have recently sprung up in Guyana are now promising an immediate renegotiation of the PSA if elected in the upcoming elections.
But the two main parties, A Partnership for National Unity + Alliance for Change (APNU+AFC) and the Peoples Progressive party (PPP) appear to be reluctant.
In a recent radio interview Minister of Natural resource Rafael Trotman admitted that his government has no one else to blame but itself for a “lopsided” deal Guyana signed on to.When asked about his government aversions for a renegotiation of contract, he responded by saying that “context must be given and carefully digested”.

He then said that a favourable agreement was made to keep ExxonMobil in Guyana’s waters because of a treat from neighbouring Venezuela.
The minister explained that Guyana “needed a big friend” because of its “limited military powers”.
It seems as though Exxon took advantage of Guyana’s situation in making a profitable deal for itself and instilled a “frightening” clause in the PSA to “bully” its leaders.This scary provision in the PSA states, “Except as may be expressly provided herein, the Government shall not amend, modify, rescind, terminate, declare invalid or unenforceable, require renegotiation of, compel replacement or substitution, or otherwise seek to avoid, alter, or limit this agreement without the prior written consent of contractor.”

PPP General Secretary Jagdeo was recently bombarded with questions at recent press conferences about renegotiating oil contracts.
In his response he was positive in renegotiating other oil contracts but refuses to renegotiate that one contract with ExxonMobil that governs Guyana’s lucrative Stabroek Block.
Attorney-at-law Charles Ramson, who is a firm member of the PPP, also said that he will not advice his party to renegotiate the Stabroek PSA because of “contract Sanctity”.
However, he was strong on the renegotiation of the Orinduik PSA with Tullow.
This has left Commentators baffled as to why the PPP is willing to renegotiate the Orinduik agreement but refuses to do so for the Stabroek PSA.
On the other hand, there are a few Guyanese who are refusing to be bullied by Exxon.
This optimistic few are led by Political Activist Ramon Gaskin who was able to convince his audience at a recent fair deal forum that the Stabroek PSA is riddled with illegalities.
Gaskin was supported by environmentalist and Attorney-at law, Melinda Janki who said that even though Guyana may not be able renegotiate the contract, it can be brought into conformity with the Law.
One of the illegalities identified is the difference between the royalty provision of the PSA and that of the Petroleum (Exploration and Production) Act.
Another was that the operator of the Stabroek block EEGPL was granted more blocks than the law allows.
After discussing the illegalities in the PSA Gaskin and his audience pledged to challenge Exxon’s illegal contract in court.
They were motivated by the fact the law takes precedence over any contract signed.
In support of the idea is Petroleum Advisor and Local Content Expert, Anthony Paul who iterated that no contract is bigger than the laws of any country.
In Fact, a Thompson Reuters article stated that before drafting or entering a contract it is very important to note if it is legally enforceable.
There is also a provision in the Stabroek PSA under article 27 which states, “This agreement shall be governed by, interpreted and construed in accordance with the laws of the Cooperative Republic of Guyana”.

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