A lesson for Guyana...French Oil company sends auditors on fishing expedition in Mozambique

A lesson for Guyana…French Oil company sends auditors on fishing expedition in Mozambique

Nov 29, 2021 News

– as hundreds of millions in ineligible costs detected
– Guyana still to scrutinise billions of US dollars expended by Exxon

By Kiana Wilburg

Kaieteur News – Natural gas discoveries in the Rovuma Basin off the coast of northern Mozambique are among the most significant in the world. The discoveries are of such massive quantities that their development can easily catapult the African nation to being a top gas exporting powerhouse.

President, Irfaan Ali

In light of this, French multinational, Total S.A, Italy’s ENI and other oil companies have spent billions behind the development of the gas resources, which are spread across two concessions Area 1 and Area 4.
Mozambique’s government estimates that it will receive as much as US$64 billion from the gas projects. It is crucial to note however that these projected revenues are heavily influenced by both capital and operating costs incurred by Total and its partners. Given that there has been limited public oversight of the said costs, civil society groups in Mozambique have been calling for its government to conduct cost recovery audits and ensure the subsequent disclosure of their results. These calls were made since 2014 but it was only in 2018 that the government caved to the requests.
In 2018, the country’s National Petroleum Institute started the audit process of the recoverable costs of the Concession Contracts for Exploration and Production (EPCC) of Areas 1 and 4 offshore of the Rovuma Basin. These costs, which are still under review, pertained to the years 2015, 2016 and 2017.
Three years after that process commenced, the auditors have found that the fears of the people of Mozambique were valid. According to the reports that were made public and seen by Kaieteur News, it was found that out of the approximately US$2 billion declared by the concessionaires in the two areas, US$33M was not considered eligible for recovery. The reasons for the non-eligibility of these costs as recoverable include: non-compliance with the accounting and financial procedures established in the EPCC, the non-submission of supporting documents for the costs incurred, etc.

Vice President, Dr. Bharrat Jagdeo

In addition, regarding Area 4, US$ 676 million of the recoverable costs (corresponding to 34% of the total costs declared by Area 4 concessionaires) were classified incorrectly, contrary to the accounting and financial procedures of the contract. At the moment, the audit of recoverable costs for Area 4 is in the process of finalisation.
The auditors also noted that they faced several challenges when carrying out their work. In the report seen by this newspaper, it was noted that it took Total several weeks to successfully deliver access to its online document database while several documents were not available to support some of the costs claimed for recovery.
What was also frustrating to the auditors was that the data provided included unnecessary financial transactions, which had nothing to do with the project and therefore “wasted significant time in processing this redundant data.”
They said too that resources were wasted in processing or numbering documents that were not related to the target transactions. “The overall effect of these challenges has resulted in a huge amount of our time and resources,” the auditors noted.
Over in Guyana, there have been incessant calls for the PPP/C Government to complete the audit of close to US$10B in costs incurred by ExxonMobil’s affiliate, Esso Exploration and Production Guyana Limited (EEPGL) for its Liza Phase One and Two Projects as well as for expenditure that occurred prior to the 2015 oil discoveries. The government, specifically Vice President, Dr. Bharrat Jagdeo, has said that the audits are delayed by the lack of strong local content. He had said locals ought to have a leading role in the audit process but it was not evident enough when bids for the audits were submitted this year. President Irfaan Ali and Jagdeo have nonetheless pledged to ensure the audits are done. They did not say when this would be done.
In the meantime, local and regional stakeholders are concerned that Guyana will not be able to challenge any ineligible costs found since the two-year time frame prescribed in the contract to scrutinise annual costs has elapsed.
There have also been calls for Guyana to withhold the approval of Exxon’s $1.8 trillion Yellowtail project until the previous cost audits have been completed. Ali and Jagdeo have not responded to this request by some sections of the citizenry.