Natural Resource Fund balance overstated by tens of billions – Chris Ram  

Sep 05, 2022 News

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By Kiana Wilburg

Kaieteur News – Chartered Accountant and Attorney-at-Law, Christopher Ram is of the view that the Natural Resource Fund (NRF) which at the end of July 2022 held a balance of US$845,608,207.58, is inflated by a huge amount of taxes attributed to the oil companies operating in the Stabroek Block. These tax revenues he insists belong to the Consolidated Fund via the Guyana Revenue Authority (GRA).

Ram drew attention to the 2016 Petroleum Agreement which provides for ExxonMobil’s affiliate and Stabroek Block operator, Esso Exploration and Production Guyana Limited (EEPGL) and its partners – Hess Corporation and CNOOC Petroleum Limited – to be free of any burden of paying taxes. That task he noted is left to the Minister of Natural Resources, Vickram Bharrat, or rather, the taxpayers of Guyana. Ram explained that the agreement requires taxpayers to pay the taxes which would normally be paid by the oil companies. Such payments come from the country’s share of profit oil.

The proceeds of profit oil and royalties have been deposited into the NRF as required by law, and it is out of that Fund that the Minister must pay the taxes of the oil companies. Ram said only after he has done so, can the GRA issue receipts and proper certificates in the names of the oil companies, “fictionally confirming that the oil companies have paid taxes in Guyana.”

According to Ram, under Article 15.5 of the Agreement, the oil companies provide their tax returns to the Minister who then goes to GRA and say, “Here is a cheque for the taxes legally due by the oil companies. Please let me have receipts and tax certificates for the payments in their names.” Ram said the purpose of this shenanigan is to enable the oil companies to use the certificates in their home countries to claim credit for taxes they never paid. This, according to Ram, is as close to a tax fraud one can get. He added that a review of the Estimates and other public records, including the Natural Resource Fund statement, suggests that the Minister has not been complying with the law and, significantly, also raises the question why the GRA issues receipts for moneys it has not received.

More egregiously, Ram pointed out, Article 15.4 of the Agreement does not limit the tax purported to be paid only to Corporation Tax only but also to other taxes set out under 15.4, so as to maximise the fake payment for which the oil companies can claim credit in their home countries.

As a matter of transparency, Ram said both the GRA and the minister ought to disclose the full sum for which certificates and receipts have been issued. The lawyer added that the agreement does not suggest some paper shuffling or taking money out of one pocket and paying it into the other. Ram said taxes go into the Consolidated Fund while oil revenues go into the Natural Resource Fund. Ram explained that the two are subject to different laws and unlike the Consolidated Fund, the use of the NRF is strictly circumscribed.

Last year, Ram had highlighted that Minister Bharrat must find over $5B to pay the 2020 Income Tax for two Stabroek Block partners, Hess Guyana Exploration Limited and CNOOC Petroleum Guyana Limited (formerly CNOOC/NEXEN). He noted that for Hess, Bharrat has to pay $2.3B to the Guyana Revenue Authority. For CNOOC, he must pay GRA, Corporation tax totalling $3.1B. The total to be paid for the two companies out of the government’s portion of its revenue is $5.4B. It therefore means that Hess and CNOOC walked away with $16.2B in profits in 2020 tax free.

The situation is more striking in 2021 when for Corporation Tax alone, the amount which should have been taken out of the NRF and paid to the GRA was computed by Ram at around $78 billion, representing a not so insignificant portion of the amount in the NRF at the end of 2021. While not the responsibility of the recently appointed Directors of the NRF, Ram said this is still a challenge which confronts them.

To date, there has been no investment mandate for the Fund and all petroleum revenues are held as cash deposits in the Natural Resource Fund account. A revised Natural Resource Fund Act was passed in the National Assembly and assented to by the President on December 30, 2021. This revised Act assigns the responsibility for the preparation of the investment mandate to a Board of Directors.

Since 2015, 34 discoveries have been made offshore Guyana. Thirty of those discoveries were made at the Stabroek Block, 2 at the Orinduik Block, 1 at the Kanuku Block, and 1 at the Corentyne Block.

In the Stabroek Block, the Liza Phase 1 Development began production in late 2019 and reached its peak capacity of 120,000 barrels per day (bpd) in December 2020. Production from Liza Phase 2 began in February 2022 and is expected to reach its capacity of 220,000 bpd later this year.

On September 30, 2020, the Government of Guyana announced their approval of the Payara Offshore Development Project. With an estimated resource base of approximately 600 million oil-equivalent barrels, production of up to 220,000 bpd is expected to begin in 2024.

Plans are in order for ExxonMobil’s 4th project – the Yellowtail Development project – which is expected to start production of 250,000 bpd in 2025 taking Guyana to a production level of 810,000 bpd. It is projected that by 2027, 6 to 7 projects will be in operation and that by the end of the decade, Guyana’s oil production will increase to more than 1 million bpd.

The Stabroek Block is estimated to contain resources of approximately 11 billion oil-equivalent barrels and is operated by ExxonMobil affiliate Esso Exploration and Production Guyana Limited. It holds a 45% interest in the block, Hess Guyana Exploration Ltd. holds 30% interest while CNOOC Petroleum Guyana Limited holds the remaining 25%. As at June 30, 2022 Guyana received revenue for 12 lifts of 1-million-barrel (approximate) oil cargoes as its share of profit oil with two being received this quarter. It is expected that revenue from an additional 10 oil cargoes will be received in 2022.

 

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