Lack of taxes, ring-fencing shorten Guyana’s profits from oil sector – former Ambassador

Sep 27, 2022 News

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Kaieteur News – As the Government of Guyana (GoG) maintains its position of non-renegotiation of the 2016 Production Sharing Agreement (PSA) with US oil major ExxonMobil, former Guyana Ambassador, Dr. Kenrick Hunte said the country would be worse off when the resource is exhausted.

In one of his recent writings, Dr. Hunte, a Professor of Economics at Howard University, Washington, D.C., and former Adjunct Professor at Johns Hopkins University, Bowie State University who holds a PhD in Economics from the Ohio State University, USA pointed to a number of gaps in the contract which he believes currently leaves none but “a hole in the ground and crumbs in the bank”.

Dr. Hunte is also a former High Commissioner of the Cooperative Republic of Guyana to the Republic of South Africa and is also the Non-Resident High Commissioner to the Republic of Namibia, High Commissioner of the Republic of Zambia, and Non-Resident Ambassador to the Republic of Zimbabwe. He has published numerous scholarly articles in peer-reviewed journals, book chapters, and letters to the editors on various issues; as well as participated in radio and television discussion programmes; and conducted consultancies in India and the Caribbean for the World Bank and the Food and Agriculture Organization. In Guyana, he was the Chief Executive Officer/Director of the Guyana Development Bank (GAIBANK).

The Professor is adamant that by not renegotiating the deal before the end of the period outlined in the contract (2036), Guyana will essentially have “nothing to get”.  He explained, “Given this non-interference by Guyana; and in light of the fact that (Esso Exploration and Production Guyana Limited- Exxon’s subsidiary) EEPGL will be accelerating the extraction of Guyana’s oil by introducing several new floating production storage and offloading (FPSO) ships, it is conceivable that come 2036, EEPGL will be ready to shut-shop and leave, as all the commercially viable oil would have been extracted and Guyana will have nothing to get. We have seen similar behaviour in the extraction of other non-renewable resources when the impending tax payment date is imminent.”

More importantly, the scholar said that Guyana’s current share of profits from the oil and gas resource shows how the country is being robbed. Dr. Hunte pointed out that this year the country is poised to receive 12 lifts of profit oil, however “This distribution of the oil between Guyana and EEPGL is a constant reminder of the inequity that Guyana is experiencing. These twelve lifts at one million barrels each will yield 12 million barrels for the year, with the largest share collected by EEPGL of 81.6 million barrels of oil; and being captured at a rate of approximately 7 barrels of oil for EEPGL tonne barrel of oil for Guyana”.

The Professor was keen to note that the approximate seven to one ratio that Guyana suffers is not the final distribution of oil between the two parties since Guyana is forced to pay from its 12 million barrels of oil, the cost for environmental insurance and oil spills; the cost related to no ring-fencing provision; taxes due for fake receipts; the loss of fishermen income due to smaller landed catches; and the loss of the price differential between a medium to light sweet oil called Liza and an even lighter grade called Unity Gold.  To this end, Dr. Hunte argues that the total cost for these additional expenses that Guyana must pay will reduce its already miniscule share. Not only that, but he believes these costs “further penalize Guyana.”

He reasoned, “In fact, if we, the owner of the resource, already feel that we are being robbed at 7 to 1; the case will become much worse when these other costs are subtracted from the 12 million barrels that we receive. Consequently, EEPGL has done an excellent job of maximizing shareholder earnings from the 83.6 million barrels they will receive, given that we will struggle to reject any expenses EEPGL submits; and, therefore, Guyana’s share will be miniscule.”

Professor Hunte is of the firm view that ramping up oil production should trigger a renegotiation of the 2016 oil contract. Insisting on its importance, the former UG Lecturer said, “a hole in the ground and crumbs in the bank represent perpetual damage that future generations will forever bemoan the loss of our non-renewable resources and inter-generational wealth.”

The People’s Progressive Party in the lead up to the 2020 General and Regional Elections had stated publicly its intent to renegotiate the lopsided deal. However, soon after taking office, the party changed its tune to “better contract management” only assuring that better terms will be attached in future oil contracts. Vice President, Bharrat Jagdeo who is the General Secretary of the party has said several times that government must honour the agreement to maintain “sanctity of contracts” and protect future investments in Guyana.

In the meantime, citizens have been protesting for a fairer share of their resources. They believe that the present agreement only favours the oil company as Guyana receives a mere two percent royalty for its sweet light crude and settled for 50 percent profit sharing, after Exxon takes 75 percent of the earnings to clear its expenses. The deal that the oil company often brags about to its shareholders, also forces Guyanese to pay their share of taxes, amounting to millions of US dollars each year. This figure is likely to further balloon as more operations come on stream. In addition, the country is allowing ExxonMobil to operate offshore without full liability coverage in the event of an oil spill, which means that the risk is borne by Guyana. Another key provision that is lacking in the document is ring-fencing provision, which would avoid the oil company from using the petroleum revenue in one field to cover for expenses in another.

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