Govt. still ‘refining’ project scope as World Bank loan for ‘cost oil’ audit capacity remains untapped

Jul 10, 2022 News

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By Zena Henry

Kaieteur News – A consortium of local companies will complete the second set of cost audits for ExxonMobil’s oil and gas production activities offshore Guyana come September despite, in some cases, the verifications are taking place several years past the due date.

The Guyana government was “disappointed”, according to Vice President Bharrat Jagdeo, that it was unable to source in particular, local teams within a timely manner to conduct the audits and therefore missed the two-year time span stipulated in the Production Sharing Agreement (PSA) between Guyana and the Stabroek Block operator. The government has repeated, however, that it has commitment from Exxon and team to be supportive of the audits although they are not legally required to, and although, it is not clear whether this commitment is in writing. Natural Resources Minister, Vickram Bharrat has claimed, however, that Exxon will pay over cost oil excessive, once justified by the audits.

But much of this set back might have been avoided with the utilisation of the loan since some specifics of the 2019 World Bank ‘Guyana Petroleum Resources Governance and Management Project’ document say that assistance would be rendered in building local cost audit capacity. The project appraisal document, Component B, which speaks to building important institutions and has a US$10.7M line of credit, highlighted, inter alia, assistance in two key areas aimed at protecting oil and gas revenues; cost audits and economic and fiscal modelling that monitor funds generated from the lucrative sector.

Of the total sum, US$4.5 million supports the immediate technical needs at key institutions. It was reported at the time, that Guyana lacked the necessary human resources to address critical and immediate technical needs within prime institutions responsible for the sector. As such, the sub-component sought to address gaps “through the direct engagement of external expertise to support the Department of Energy, Guyana Geology and Mines Commission, Ministry of Finance, the Guyana Revenue Authority, the Attorney General’s Chambers and the Petroleum Commission,” which is yet to be established. The Bank said that given its experience in oil and gas projects, it found that capacity building is most effective when it is based on tangible on-the-job training and learning by doing approach. “Therefore, this activity will allow for the hiring of oil and gas experts as advisors to provide general technical opinions, commercial advice, policy analysis, review of key documents, and other contributions, but more importantly, to deliver on-the-job training and peer mentoring, working closely with the government staff to transfer knowledge and build long-term capacity to manage the oil and gas sector.”

The areas of focus would include, therefore, capacity building to monitor, regulate, and review, among other things, studies on reservoir engineering and geology which would provide the government “with independent third-party technical expertise needed to analyse estimates of Guyana’s oil and gas resources. Assess and conduct economic and fiscal modelling to help forecast oil and gas revenues, support revenue administration and taxation, and evaluate options for future modifications to Guyana’s oil and gas fiscal regime and support the cost audit of existing Production Sharing Agreements.”

On the legal end, this aspect of the project would also assist government in addressing upstream legal issues associated with oversight of the oil and gas resource. At a cost of US$1million, another aspect of the B component aims to provide the critical hands on training. It said, “To complement the injection of immediate technical capacity that will be provided through B.1…, this sub-component will provide training to strategic staff of the main governmental agencies directly involved in oil and gas.” Other aspects of the component covering the total budget are data and environmental management.

Vice President Jagdeo had said during a press conference last year that the government was “very disappointed” that it was unable to push through with the critical audits covering over US$9B in expenditure for the Stabroek Block’s Liza Phase One and Two Projects. He said, “We want to build the capacity in Guyana to do this audit.” Apart from not using the World Bank loan to help build that local capacity, prominent accountant Christopher Ram had also chastised the Vice President for his “misleading and unfortunate” statement in lamenting the absence of local capacity to audit the costs reported by the oil companies. He had said too that the government’s statement was inconsistent with their advertisement for the related services since he said it seemed directed to “internationally recognised accounting and audit firms with extensive experience in…auditing petroleum costs under production sharing contracts and other petroleum agreements and its (sic) fiscal implications. Were firms expected to lie about their status and capacity, or was it a condition of the World Bank’s US$20 million for a project which includes the audit?” he had questioned.

Guyana has nonetheless received a downgraded score from moderately satisfactory to moderately unsatisfactory on progress toward achieving the project development objective and the same was attained for the overall project implementation. The project’s overall risk remained substantial. The loan was approved by the World Bank on March 29, 2019 and is set to close on March 30, 2024. The government has said so far that it wants to “refine the scope of the project to bring it in line with current government priorities.”

The Institute for Energy Economics and Financial Analysis (IEEFA) has been providing pro bono to Guyana, advice on areas where the country is losing money and needs to tighten up. The agency in its writing indicated that the country’s failure to utilise the World Bank loan meant it was further exposing itself to losing money from the PSA. It argued that not only is Guyana receiving “too small a portion of the (oil) project revenue but also is at risk due to weak environmental and fiscal contract requirements.”

Former Finance Minister, Winston Jordan, who was APNU+AFC finance point man when the loan was taken, also questioned why the World Bank loan was not being utilised. He questioned whether the loan was not being used because it was an initiative of the last government. He added, however, that if the government is refusing to use the loan then it should be returned to the Bank. Last June, Jagdeo said that government was looking to complete its 1999-2017 cost audits in a matter of weeks. The 2018-2020 audits are expected to conclude by the third quarter.

 

 

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