Latest update December 23rd, 2024 3:40 AM
Pay keen attention to possible shell companies supplying Exxon, others- Economist tells auditors
…says oil companies could be giving business to themselves, inflating costs
Kaieteur News – As a US$9.5 billion audit of oil giant ExxonMobil progresses, the scrutinizers of this bill have been urged to pay keen attention to possible shell companies servicing the budding oil and gas sector, as Guyana could be losing billions in such a scheme.
Economist, Elson Low
Economist Elson Low sounded this warning during a recent interview with Kaieteur News. Low, the holder of a Bachelor’s Degree in Political Science and Economics from a United States College, Amherst, said this practice is a well-known trend that international companies implement in their bid to rake in more profits.
In fact, the Economist explained that while attached to the State Assets Recovery Agency (SARA) a few years ago, the Inter-American Development Bank (IDB) facilitated a training which flagged the issue.
“When I was at the Sate Assets Recovery Agency, I was tasked with oil and gas issues and we received training from the IDB which alerted us that one of the major ways that Guyana is likely to lose out from any contract is through transfer pricing or oil companies setting up shell companies that they do business with,” he explained.
To this end, Low noted that the product of these activities see oil companies profit from those businesses and at the same time charge inflated prices. In Guyana’s case, he said, “The auditors need to know that they must identify related parties, that is to say companies which have an ownership structure linked to Exxon, Hess or CNOOC. Those should be flagged and those costs examined more closely.”
The Economist insisted, “It can be done, but it is very difficult to do this.” The Opposition member said this is a key element that the party has recognised must be addressed. As such, Low said mechanisms will be explored to help boost the country’s auditing capacity.
Presently, a review of approximately US$9.5 billion in bills that were handed to Guyana by oil giant ExxonMobil is undergoing. In May of this year, a contract was signed for a four-month review of the expenses between the years 2018 to 2020.
The consultancy was awarded to VHE Consulting which is a registered partnership between Ramdihal & Haynes Inc, Eclisar Financial, and Vitality Accounting & Consultancy Inc. The Local Consortium is supported by International firms – SGS and Martindale Consultants, for the ‘Cost Recovery Audit and Validation of the Government of Guyana’s Profit Oil Share’.
Natural Resources Minister, Vickram Bharrat, at the signing explained that the audit was delayed as the Government was trying to ensure local companies undertake the important task even as it pushes for the inclusion of Guyanese in the oil and gas sector.
However, he pointed to the fact that the former Government did not carry out the important review of the expenses it was billed, hence the belated audits are being conducted. According to him, the Government should have been focusing on the 2020 to 2021 audits but must move the process forward.
At the conclusion of the event, this newspaper questioned the Minister whether the country will be able to make any claims, given that the two-year period allocated for the audits would have elapsed. To this he explained: “we don’t know what the audit will find. I mentioned it in my presentation that there was speculation that the time has elapsed and we cannot do the audit or we cannot make any claims but that is not true. We have been in constant engagement with the operator and they are willing to support and be part of the audit.”
Bharrat was also asked whether he feels the four-month time span was adequate for the audit of the US billion-dollar expenses to which he assured that the Government is quite comfortable with the arrangement. “We consulted with the company before we actually set a timeframe. It wasn’t done by the Ministry in isolation. We would have consulted with them and this is the time that they are comfortable with and it’s a timeframe that we are comfortable with too, as well as the international companies who are involved, and they will be working dedicatedly on the audit for the next four months so we are pretty much comfortable that it can be completed by the consortium and the international partners.”
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