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Exxon, partners will walk away with US$653M in waived taxes by 2025
Kaieteur News – Instead of allowing ExxonMobil and its partners, Hess Corporation and CNOOC/NEXEN to pay their fair share of Corporate Income Taxes (CIT), Guyana has agreed to pay same on behalf of the contractor from its share of oil profits. In other words, if Guyana gets $50 in profits and the taxes to be paid to the Guyana Revenue Authority (GRA) amount to $20, it means that Guyana has only gained $30 in profits. If Guyana did not agree to such a provision in the Production Sharing Agreement to begin with, it would have walked away with a total of $70.
Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis
Upon taking note of this, Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis, told Kaieteur News that the public is essentially being shortchanged when the government pays the income taxes for the company. Sanzillo also expanded on the net effect of this provision to Guyana in a damning report titled, “Guyana’s Oil Deal: Promise of Quick Cash Will Leave Country Shortchanged.” In the report, he sought to show just how much Guyana is losing by opting to pay the taxes for the Stabroek Block consortium.
Sanzillo who has 30 years of experience in public and private finance, noted that in a five-year-period, ExxonMobil would be walking away with US$653M which it should have paid in taxes. He said that based on his calculations, this is what Guyana would be paying from its share of the profits.
Sanzillo said, “As a revenue matter for Guyana, a tax owed by a taxpayer is not being paid by the taxpayer but by the government of Guyana. The taxpayer is therefore not adding to Guyana’s annual revenue, but the liability instead is being satisfied by a diversion of resources from one Guyanese account to another.”
The Director added, “The purpose of the tax—to support the Guyanese government through payments from its third-party taxpayers—is compromised in favor of this contractual obligation. Stated another way: If this contract provision did not exist, Guyana would receive a separate, US$653 million payment from (Exxon and partners) over the five-year period.”
A simple mathematical extrapolation of this figure over the 40-year life of the agreement, considering Exxon’s plan for five oil vessels by 2026, would see Guyana losing US$40B in taxes throughout the deal. However, the US$653M projection is based on the early years of Exxon’s oil production in the Stabroek block, when it is recovering most of its investment in the development of the fields. Exxon’s profit will increase substantially after it has recouped those investments, hence, higher taxes would be due, and the actual loss of tax revenue for Guyana will likely be much higher than US$40B.
Several industry analysts as well as global organizations such as the Inter-American Development Bank and the International Monetary Fund (IMF) have said that Guyana should have taken more than a 50 percent split of the profits made from the Stabroek Block since it is satisfying the tax obligations of the oil companies. Both institutions have acknowledged that Guyana is shortchanging itself by opting to pay the oil companies’ taxes without increasing its take.
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