For every concession given to oil companies, you must get something in return

Sep 01, 2020 News

– University of Houston Instructor

University of Houston instructor, Tom Mitro, said that for every concession granted to oil companies during negotiations, it is imperative on the government’s side to ensure that it gets something in return for the people.

University of Houston instructor, Tom Mitro

Mitro, at the time of making these comments, was in a 2019 interview with the Columbia Center on Sustainable Investment. He had been asked what advice he would give to governments as they negotiate with sophisticated international oil companies (IOCs).
Mitro advises that governments take the time to understand the styles, management orientations, operating philosophies, strategies and home country influences of the IOCs they are dealing with, as it could provide benefits in the long run.
He explained that it is important for governments to come to the negotiating table looking at a contract holistically. Oil companies, he said, exhibit certain typical behaviours in their approach. This would involve bringing a range of technical expertise to the table to zero-in on various aspects of the contract: “geologists, engineers, lawyers, tax experts, and economic analysts—all who work in professional silos without any broader perspectives or mandates.”
The company, he explained, would seek to isolate each issue and negotiate it on a technical basis, something that could put the government side at a disadvantage.
“The Americans are very much focused on the technical data and are led by an engineering culture; they will often try to convince governments with technical data, and argue that certain negotiating proposals are inconsistent with “standard” or “best” practices,” Mitro stated.
This can place the government at a position of disadvantage, as Mitro explained “These assertions can be difficult for the government to dispute without analyzing comparative deals in other jurisdictions…”
The instructor advises that governments not agree on issues individually, but try to see all issues as one whole package, with “tradeoffs” between unrelated issues.
“For instance, the government could say: ‘We won’t agree to accelerate depreciation on your project expenditures unless you implement an ambitious local procurement plan,’ even though the two issues are quite unrelated. This type of conversation and linkage of issues could serve to mitigate the often narrowly focused technical strength of the other side.”
Guyana has had an unfortunate history with contract negotiations where the oil sector is concerned. All of the contracts signed bear provisions that have been adjudged to be gravely flawed in the context of the modern oil industry, and have been subject to discourse about the prospect of renegotiation.
The government has noted that, moving forward, its negotiations will be informed by a model Production Sharing Agreement (PSA) that reflects the dignity of Guyana’s patrimony.

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