17 in Diaspora demand comprehensive review of oil sector

Aug 07, 2020 News

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– Resolve discrepancies in pre-contract costs
– Probe cost anomalies between Liza 1 & 2
– Review taxes paid by Guyana for oil companies
– Review unspecified interest rates on oil companies’ loans
– Improve weak environmental standards
– Regulate amount of oil being produced

By Kemol King

A group of 17 civil society professionals in the diaspora are calling on President Irfaan Ali to undertake a comprehensive review of the oil sector before it approves the Payara Field Development Plan (FDP) permitting ExxonMobil to produce oil in a third well.
At the top of its list is the renegotiation of the Stabroek Block Production Sharing Agreement (PSA), which has faced widespread condemnation for its lopsided provisions. Canada-based Engineer, Darshanand Khusial heads this list. He told Kaieteur News that the President, whom he congratulated on his assumption of office, should live up to his promises to ensure Guyana’s energy resources are properly managed. The others on the list boast legal, economic and education portfolios, among others.
ExxonMobil has been producing oil in the Liza field since December, 2019. It is on track to produce from Liza Phase 2 in 2022, and has been campaigning vigorously for the swift approval of the Payara project. Its claims are that any delay in approval would result in billions of losses for Guyana.
Experts like Former Advisor to President David Granger, Dr. Jan Mangal, believe otherwise, and have advised Guyana not to fall for Exxon’s ploy.
The infrastructure necessary for Government to prudently manage the oil sector is severely under-developed. That much was expressed by newly sworn in Attorney General, Anil Nandlall. He said on Wednesday that the former Government did not sufficiently prepare the country for the sector.
First and foremost, the group held that the Stabroek PSA has to be renegotiated in order to regain the losses its current provisions are set to incur. Global Witness projects the losses to be to the tune of US$55B over the life of the contract. Recent revelations that Suriname is set to reap 36 percent of the revenue share if oil is produced in its lucrative Block 58 have exacerbated concerns, as Guyana is set to reap a 14.5 percent revenue share from production in the Stabroek Block – a concession much more lucrative than Suriname’s Block 58.
The civil society group pointed to an interview had by the Guyanese Critic with Ali just days before the March 2 election, during which Ali said that all deals would be on the table for review. This newspaper has asked the People’s Progressive Party Civic (PPP/C)’s General Secretary, Bharrat Jagdeo, on many occasions whether the public could expect the controversial contract to be renegotiated under a PPP/C Government. He has made it clear that all contracts, save and except for the Stabroek PSA, are up for review. ExxonMobil’s Senior Vice President even reported during the company’s earnings call, last Friday, that it was given assurances by both major parties of their support of and confidence in the contract. Notably, if changes are made, such as new legislation, which affect the economics of the agreement with ExxonMobil and its partners, the contract mandates that Guyana would have to compensate the companies for whatever losses they would incur. However, the contract may be renegotiated if the Government and contractor(s) agree to do so.
The civil society group also pointed to several issues with the contract and other oil sector management related to ExxonMobil and the agreement, which have been well ventilated by this newspaper over the years.
ExxonMobil is looking to recover US$460M in pre-contract costs. Those costs are currently being audited by UK firm, IHS Markit in concert with a local multi-agency team. Attorney-at-Law and Chartered Account, Christopher Ram, had said that the figure represents an overstatement of US$92M. It is unclear when the audit will be completed. The deadline for the completion of the audit had been extended due to COVID-19.
The joint civil society letter also includes concerns about payments of taxes. Oil companies and their contractors have been given a range of tax exemptions set to amount to billions of dollars, where the life of the Stabroek PSA is concerned. In addition to exempting taxes, the Government is also expected to give ExxonMobil and its partners tax certificates to take to their home countries, to exempt them from payments there. The International Monetary Fund (IMF) has said that if Guyana is paying oil companies’ taxes, then its share of profit oil should be higher, but no move has been made to provide for Guyana to get a higher share.
Unspecified interest rates expensed to Guyana for loans taken by oil companies, is also a concern of the civil society group. To put it simply, the Exxon agreement allows the company to recover all of its expenditures to operate on the block. If those funds are used from loans taken by the contractor, Guyana is also expected to repay the interest incurred on those loans at unspecified and uncapped rates. Khusial himself had noted in previous writings to Kaieteur News that Guyana could lose up to US$16B. Khusial had stated, “Why Guyana would agree to pay interest on loans that the oil companies negotiated with their bankers is puzzling.”
Following this newspaper’s reporting on this matter, Kaieteur News saw a government document noting that, “interests would no longer be a recoverable/deductible expense” by oil companies. However, the issue still remains for the Stabroek PSA.
Next on the list of concerns raised by Khusial and other signatories to the joint statement is the state of Guyana’s environmental management infrastructure. ExxonMobil has been flaring gas for months, instead of re-injecting into the reservoir, resulting in emissions of billions of cubic feet. The issue was caused by mechanical issues experienced with its gas compressor system for the Liza Destiny vessel. In addition to that, Environmental Protection Agency (EPA) Head, Dr. Vincent Adams, reported on ExxonMobil’s opposition to paying paltry fines for fuel spills, explaining that the company’s lackadaisical attitude toward an issue of that magnitude could spell disaster for Guyana, in the event that the company commits graver environmental infractions. AG Nandlall has committed to refining the legal framework to ensure oil companies respect Guyana’s natural environment.
The rate of oil production ExxonMobil intends to pursue is also a matter of concern. Energy Department Head, Dr. Mark Bynoe, had said that the guidelines for a Depletion Policy, which would mandate oil companies’ production levels, were completed since last December and submitted to the Inter-American Development Bank (IDB) which funded the exercise. Discourse on the need for a depletion policy has gone on for years, as Exxon ramps up its plans to have as many as five Floating, Production, Storage and Offloading (FPSO) vessels offshore Guyana in the next five years. The IMF has called this “unprecedented” and has explained that if Guyana does realize those plans, it would reach one of the highest ratios of daily oil production per capita in the world.
The group is also of the view that mathematical anomalies observed between Liza Phase One and Two are to be sorted out. The Liza Phase One project initially was projected to cost US$4.4B in 2017, was reduced to US$3.7B in 2018, then to US$3.5B in 2019 – a total reduction of US$0.9B. Liza Phase Two is now projected to cost US$6B. Judging from the cost of Liza Phase One, Khusial and his associates are skeptical. Both of these projects have been approved already.
“Rushing approvals and lack of high-quality analyses have resulted in US billion-dollar benefits to the oil companies and to equivalent losses for the Guyanese people,” Khusial had stated in a letter.
These concerns form part of many, raised over the years by local and international civil society, and industry experts.
“There are generations to be born that will prosper or suffer based on the actions he takes with respect to the oil contracts over the next few weeks and months,” the statement noted. “The past 5 months leading up to the Declaration have made it abundantly clear that there are tens of thousands in the Diaspora who are paying keen attention to events in Guyana. Consistent with the manifesto for inclusive government it would be wise to use some of the experts who reside abroad and who are always willing to contribute.”
The group said that practices employed in the past, such as hurried contracts and refusal of expert advice should not be repeated.
“A New Deal,” they added, “can result in Guyana becoming independent economically returning to the days it was the bread basket of the Caribbean.”
Apart from Khusial, the signatories are Baytoram Ramharack, John Peters, Dhanpaul Narine, Ramnarine Sahadeo, Rajendra Singh, Jerry Jailall, Joe Persaud, Mike Persaud, Kris Dindial, Steve Kishore, Harold Ragnauth, Hari Singh, Bhowanie Benimadhu, Singh Bernard, Ravin Sankar and Charles Sugrim.

 

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