Civil society can play big role in helping govt verify Exxon expenses – Oxfam report

Apr 14, 2022 News

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Kaieteur News – As Guyana continues to build capacity to audit and verify expenses provided to the country for its oil and gas developments, civil society could play a major role in monitoring government’s response to handling multi-billion dollar sums that are recoverable from Guyana’s share of profit oil.

A 2018 report from the British founded Oxfam confederation which focuses on the alleviation of global poverty, provided that while many developing countries face great difficulty when dealing with oil companies, there are several basic questions citizens may ask of their governments to understand how they are managing costs audits.
The report, Examining the crude details: Government audits of Oil & Gas Project Costs to Maximize Revenue Collection, was conducted by Lead professionals attached to the International Institute for Sustainable Development to highlight challenges faced by developing countries in the case study involving: Republic of Congo, Uganda, Ghana, Kenya, and Peru, where they lost millions of US dollars in overstated sums.
The report explained that the extractive industries-oil, gas, and mining—present an enormous opportunity to mobilise greater domestic revenues that could close the gap between rich and poor. The petroleum sector in particular often generates enormous profits, and governments, as custodians of the resource, are entitled to the lion’s share. Even where oil and gas companies contribute considerably to government revenues, the report noted that it is possible that they should be contributing more.
“However, it is far from simple for developing-country governments to adequately administer their petroleum fiscal regimes and collect all that is due.” The Authorities may lack the necessary legal and regulatory tools, expertise, or information; furthermore, conflicting incentives or political pressures may complicate their mandate to maximize revenue collection.
Inflated company expenditures are a major threat to government revenues from oil and gas as the more costs that companies report, the less profits for government. Developing countries stand to lose the most from cost overstatement, the report indicated. As a result, “petroleum-producing countries must ensure they capture an appropriate share of the value of their oil and gas if they are to meet domestic revenue mobilisation (DRM) targets.
As part of a check list, experts say citizens and civil society should pay attention to their government’s legal right to audit cost and whether it is adequate and whether there is a clearly defined list of expenditures eligible for cost recovery and/or tax deduction. Citizens must know where the responsibility for cost auditing is assigned, and the number of agencies involved. If audit rights are dispersed, the report said that citizens must be aware as to whether there is an overarching coordination mechanism and whether there are systems for sharing information and expertise that may be relevant to cost audits?
As it relates to auditors, citizens must know whether there are enough auditors with the requisite industry knowledge and expertise. They must also be aware of regular risk assessment and demand adequate information and reporting requirements. The report went on to highlight that civil society must inquire about government’s access to information held in other jurisdictions as well as how often audits happen in accordance with time limits and recordkeeping requirements. Citizens must insist of their governments to publish information on auditing activities and results, and on whether the audit findings resulted in adjustments to production share due. Additionally, citizens must inquire about oversight bodies monitoring the use of cost-auditing rights and demand transparency in this regard.
Stakeholders continue to express dissatisfaction regarding the slow pace of capacity building with regards to verification and auditing since Guyana has so far been unable to confirm almost US$10B in cost for the Liza 1 and 2 developments due to the expiration of the stipulated two year auditing timeframe. The timeframe for Guyana’s third development, Payara, will be up this year, while the government continues to look at a US$460M sum in pre-contract costs.
Civil society and other sections have called it criminal that after seven years since Guyana first announced finding oil, none of its governments was able to put adequate measures in place to ensure proper checks of oil development expenses. Based on past studies, it has been highlighted that well performed audits could save countries large sums of money in overstated cost. It has been said that being able to audit Guyana’s oil expenses could see the country saving almost a billion US dollars due to ineligible cost items being removed.

 

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