US$100M unrelated oil expenses ends up into Mozambique oil books - Int’l watchdog urges Guyana to take note

US$100M unrelated oil expenses ends up into Mozambique oil books – Int’l watchdog urges Guyana to take note

Aug 26, 2021 News

– Int’l watchdog urges Guyana to take note

By Kiana Wilburg

Kaieteur News – New oil producing states such as Guyana are often warned by international transparency groups to be wary of cost recovery bills that are submitted by oil companies. Their analytical work over the years has found that these bills, in many instances, contain costs for legitimate goods and services that are intentionally inflated by the millions. However, this is not the only area of concern Guyana is being urged to keep an eye on. The sweet crude producer is also being warned to pay attention to another area of massive value loss—bills containing unrelated or ineligible costs.
Pointing this out was the Centre for Public Integrity (CPI). To underscore the significance of its advice, the American watchdog noted that just last year; it was found that Sasol Limited, a South African petrochemical giant, recovered US$99.8M in ineligible costs from Mozambique.
Expounding further, CPI noted that an audit ordered by the Mozambican government showed that Sasol declared recoverable costs of US$148.7M for its operations in the southern province of Inhambane in the 2017 financial year. But the audit found that of this sum, US$50.5 million was not eligible for cost recovery.
The same trend was uncovered when an audit was done for cost recovery claims made by the company in 2018. The government said the oil company claimed recoverable costs of US$114.4M but auditors calculated that US$49.3M was not eligible. Taking the two years together, Sasol had overstated its recoverable costs by US$99.8M. This has had a significant impact on revenue that should have gone to the State, government auditors said.
Sasol did not contest the findings but said it has since submitted feedback to the government to explain the expenditure in question.
It said, “…Sasol ensures that all costs are correctly accounted for, under the terms of the agreement between the shareholders and the Mozambican government.”
Sasol also maintained that it is “an ethical corporate citizen” and that it is “committed to continue developing Mozambican hydrocarbon resources for the benefit of the country, its people and all stakeholders.”
OTHER EXAMPLES
CPI was keen to note as well, the experiences of other resource rich countries that lost billions of dollars due to international oil companies routinely claiming billions of dollars in ineligible costs.
In the 40 plus cases it examined in Indonesia, Alaska, Ghana, Kenya and Timor-Leste, CPI said many of the expenses claimed by oil companies were simply ineligible. It said examples of such unrelated costs came in the form of: expenses incurred prior to the signing of the “host government agreement” contract; expenses associated with unrelated projects; expenses for personal interests of executives, expatriate employees and families; expenses for the technical training of expatriates; duplicate invoice for a good or service that has already been expensed; and inclusion of expenses such as oil and gas marketing fees, or expenses related to mergers, acquisitions, or transfers in participating interests that are normally deemed ineligible according to the contract.
To ensure Guyana and other oil producing States do not fall victim to the same abuses that hurt the government’s share of the profits, CPI said rigorous audits must be done annually.
Thus far, Guyana has pursued the audit of over US$460M ExxonMobil claimed was expended prior to the discovery of oil in 2015 in the Stabroek Block. Another audit was undertaken for over US$1B in costs racked up for the 2015 to 2017 period. Those findings also remain undisclosed despite the government’s promise to be as transparent as possible with details on the sector.