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Energy Dept.’s intention to release oil sale details an excellent start to transparency – University of Houston Instructor
By Kiana Wilburg
University of Houston Instructor, Tom Mitro
The announcement by the Energy Department that it would be collaborating with the local chapter of the Extractive Industries Transparency Initiative (GY-EITI) to release details on oil sales is an excellent start on the road to transparency.
Making these and other remarks was University of Houston Instructor, Tom Mitro.
The Senior Fellow at the Columbia Center on Sustainable Investment (CCSI) said that this decision by the Energy Department helps to provide confidence that the oil is being sold at competitive market rates.
Mitro said, “Overtime, I would think that under typical EITI membership, more information than this would be required, such as: royalty and tax payments received from the concession holders, oil entitlement splits between the companies and the government.”
The official, who has over 35 years experience in the industry, was keen to note that these disclosures by the government would also be subject to independent verification and reconciliation with what the companies themselves disclose.
Mitro also noted that evolving trends within EITI are for more public disclosures of the text of the production sharing contracts themselves plus any side agreements with the companies.
The University of Houston Instructor said, “If you think about it, the production sharing contracts are very similar to tax laws in that they establish the actual tax rules for the companies, and in addition, agree on the rules for computing the quantum of oil in lieu of taxes (the ‘production sharing’) that the companies must pay for the rights to produce and sell the oil of Guyana.”
He added, “I’m sure all would agree that tax laws should be published in full. The same should be true of any agreement that have the same effect as a tax law.”
IMF’S ADVICE
The Energy Department’s decision to make public, all records in relation to how, when, and for how much the country’s crude oil is being sold, is in keeping with a key piece of advice that was offered to the government by the International Monetary Fund (IMF).
The financial institution had said that the sale of the Stabroek Block oil will require significant decisions to be made, all of which must be “transparent” and “undertaken in the public’s interest.” Its advice in this regard was outlined in a special report prepared mere months ago.
In that document seen by this newspaper, the IMF’s Fiscal Affairs Department said that since the sale of crude could bring significant revenue, establishing an optimal selling price is key. It noted, however, that this requires professional expertise, careful understanding of the process, and oversight.
Expounding further, the Fund’s Department said that crude oil sales are made through a network of buyers who are known to the trader. The trader then reaches out to potential buyers whom they have identified and are familiar with.
The Fund was keen to note that the government must be vigilant and monitor as well as control the selection of buyers, terms of sale, and the transfer of revenues to ensure that those decisions and activities are transparent.
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