VP Jagdeo admits that citizens forced Govts. in US, UK and Canada to get more benefits from oil companies

May 31, 2022 News

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– says doing same in Guyana would breach contract with Exxon

By Gary Eleazar

Kaieteur News – Vice President Bharrat Jagdeo on Monday conceded that it was the agitation of citizens of countries such as the United States and Canada that forced those governments to increase their royalties charged to oil operators and the one-off tax slapped on those companies in the UK.

This publication has in recent days reported on the changes in the fiscal regime for oil operators in those countries. It was reported that Canada recently moved to increase its royalty charged to between five and 40 percent, the US in December last raised its royalty rate higher than the 18.75 it had been receiving while the UK slapped a one-off 25 percent tax on the oil companies there.
Speaking at a press engagement at Office of the President on Monday, the Vice President told members of the local media corps that the windfall tax that some countries are exploring only came after intense pressure from their populations.
He quipped that in some cases this was not being done willingly but was the government bowing to the demands of its citizenry.
The Vice President went on to explain, however, why this could not be replicated in Guyana since, “we are bound by a PSA (Production Sharing Agreement) with very specific terms on the taxation side.”
To this end, he suggested “if you change the taxation here, it’s considered a breach of the contract.”
Seeking to draw a distinction between Guyana and the ABC countries, Jagdeo suggested that those companies would have been operating for decades in those jurisdictions and as such would have come under the standard tax regime for the respective countries within which they operate.
According to the Vice President, under such a situation the parliaments of those countries could by way of legislation easily make the changes to institute for example a windfall tax.
He was adamant, this is the key reason the same cannot be done in Guyana if the administration did in fact go ahead and make the legislative changes; it would be considered a breach of the contract, “we would run afoul of the agreement.”
Under the present PSA, with the only operator currently producing from Offshore Guyana, Esso Exploration and Production Guyana Limited (EEPGL)—ExxonMobil, the country is paid a two percent royalty along with a 50/50 profit sharing split but not before 75 percent of earnings is deducted as cost oil.
This publication reported on Monday that the UK government announced that it will introduce a windfall tax on oil and gas operators which could raise US$6.3B in the first six months which will then be used to alleviate the cost-of-living crisis in the country.
A windfall tax is a one-off tax imposed by a government on a company, specifically targeting those that benefit from something they were not responsible for.
In this instance, the huge profits gained by oil and gas companies in the UK is due to a sharp increase in oil and gas prices following Russia’s invasion of Ukraine.
The UK government said the purpose of this tax is to distribute excess profits made by oil companies for the greater social good.
The windfall tax comes as oil and gas giants, like Shell and BP, booked record profits in the first quarter of this year, driven by a spike in oil and gas prices. BP had also revealed it would invest up to £18 billion in the UK’s energy system by the end of 2030 due to significant profits gained.
It was UK Chancellor, Rishi Sunak, who on Thursday last announced that the government is introducing a temporary, targeted Energy Profits Levy charged on profits of oil and gas companies at a rate of 25 percent.
Kaieteur News understands that this is the highest rate seen in 40 years in the UK. Stating that the oil and gas sector is making extraordinary profits not as the result of recent changes to risk-taking, innovation or efficiency but as the result of surging global commodity prices driven in part by Russia’s war, the Chancellor said, “For that reason, I am sympathetic to the argument to tax those profits fairly.”
As it relates to Canada, at the time of the announcement, it was pointed out that British Columbia (B.C.), that country’s westernmost province, appears to be following in the footsteps of the United States of America (USA) as it has announced that it will be increasing royalty rates to raise additional money annually for its people.
That revelation was made by Premier John Horgan. The official recently said that for too long, “a broken system of fossil-fuel subsidies” has failed to ensure citizens “fully benefit” from their resources.
Under the royalty system, Horgan explained that companies will have to pay top dollar to get access to British Columbia’s natural gas resource and share their revenue with the provincial owner.

 

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