Jagdeo laments liberal tax regime in Stabroek agreement but makes no commitment to fix it

Jan 06, 2021 News

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Kaieteur News – Vice President, Dr. Bharrat Jagdeo, is in agreement with criticisms of the tax regime of the Stabroek block Production Sharing Agreement (PSA) granted to ExxonMobil, Hess and CNOOC by former Minister of Natural Resources, Raphael Trotman.
Despite commitments to revising that regime for other petroleum agreements, the Vice President did not commit to improving the Stabroek block tax regime, which governs the handling of Guyana’s nine billion oil-equivalent barrels. Exxon has already received approval to produce 1.5 billion barrels of those reserves under that tax regime, thanks to the current administration, and the immediate former administration.
Dr. Jagdeo appeared on Kaieteur Radio’s Guyana’s Oil & You, hosted by Kaieteur News’ Senior Journalist, Kiana Wilburg. The discussion briefly touched on the uneven application of tax breaks in favour of foreign oil firms, and the Vice President said that they are egregious, especially in cases where, even if tax liabilities fall on the company, the government is responsible for paying the company’s taxes.
The PSA, signed in 2016, states “no tax, value-added tax, excise tax, duty, fee, charge or other impost shall be levied at the date hereof or from time to time thereafter on the Contractor or Affiliated Companies in respect of income derived from Petroleum Operations or in respect of any property held, transactions undertaken or activities performed for any purpose authorized or contemplated hereunder…”
Some exceptions are listed, but in those cases, the PSA explicitly holds the Minister responsible for paying them: “The Minister hereby agrees… that a sum equivalent to the tax assessed… will be paid by the Minister to the Commission General, Guyana Revenue Authority on behalf of the Contractor and that the amount of such sum will be considered income of the Contractor…”
The records would show that the tax liabilities of the company are handled and paid for, though at government’s expense. Effectively, the oil companies pay no taxes, nor do their sub-contractors or affiliates.
Despite being in agreement, the Vice President pointed to former Minister Trotman as the responsible party, as they are enshrined in the PSA he signed on to.
“A lot of the laxity you see in relation to the oil companies derives from the PSA,” he said.
In a report, Global Witness had pointed to Trotman’s lavish ExxonMobil-paid trip to its Texas headquarters in 2016 as a red flag. The non-governmental organization also said that Trotman ignored expert advice on multiple occasions, and signed the agreement away in a short period. Most importantly, the firm said that Guyana left US$55B on the table because of its failure to secure a fair deal.
“The fiscal regime of the PSA is too liberal and it puts us at a disadvantage.” Dr. Jagdeo said.
He referred to advice Guyana has received that the tax regime cannot be changed.
The contract contains a rigid stability clause at Article 32. Attorney-at-Law, Christopher Ram, had said in 2018 that one gets the distinct impression that ExxonMobil went above and beyond to strangle Guyana’s Parliament and future governments with the use of this clause.
It states that: “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 the contractor.”
The contract reads: “After the signing of this agreement and its conformance with Article 15, the Government shall not increase the economic burdens of the contractor under this agreement by applying to this agreement or the operations conducted hereunder any increase of, or any new petroleum related fiscal obligation, including but not limited to any new taxes whatsoever, any new royalty, duties, fees, charges, VAT or other imposts.”
If it does, the government would have to compensate ExxonMobil for any losses caused by the changes made.
The Vice President said that he wants to make it clear that this issue only applies to the Stabroek PSA. He said that if any oil company comes to the government for a production sharing agreement, relative to another block, that they would face an entirely different fiscal regime, “which will correct the deficiencies in this current PSA, and put in additional features that will safeguard the country…”
The contract allows for a renegotiation. However, this must be done with the agreement of all parties. Both major parties have been urged to seek renegotiation, but have rejected those calls. So has ExxonMobil.

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