NY-based lawyer says... Refusal to renegotiate ExxonMobil 2016 deal an economic mistake

NY-based lawyer says… Refusal to renegotiate ExxonMobil 2016 deal an economic mistake

Oct 01, 2022 News

– signals to investors that country will roll over and accept unscrupulous conduct

By Kiana Wilburg

Kaieteur News – The Guyana Government has remained resolute in its position to not renegotiate the 2016 Stabroek Block Production Sharing Agreement (PSA). It has argued that it respects the sanctity of contract.

Vice President, Dr. Bharrat Jagdeo has, in recent times, said while the government agrees that there are clear weaknesses within the agreement, it would remain untouched. The official who has responsibility for policies within the oil sector said government would instead seek to claw back value through the improvement of provisions within permits and production licences, and ensure enforcement of other mechanisms such as the Local Content Legislation.

Though the government holds this view, several stakeholders remain unconvinced that a renegotiation is not possible or plausible. In fact, New-York based Attorney-at-Law Dr. Vivian Williams believes the government is making an economic mistake by not renegotiating the 2016 deal that was signed with ExxonMobil affiliate, Esso Exploration and Production Guyana Limited (EEPGL).

Attorney-at-Law, Dr. Vivian Williams

In an invited comment, Dr. Williams said reaching consensus to modify a contract with a powerful global player like ExxonMobil could be a daunting endeavour for a newcomer like Guyana. However, the lawyer is of the firm conviction that governments are elected to take up challenges for their people. “Heroes are born in such moments,” the lawyer expressed.

Expounding further, he said experts on negotiations have identified specific conditions when negotiation should be avoided. These are as follows: (a) when the costs of negotiation exceed the benefits; (b) when negotiation would send the wrong signal; (c) when potential harm to the relationship exceeds expected value from negotiation; and (d) when the best alternative to a negotiated agreement is more valuable than the best possible offer from negotiation.

Dr. Williams asserted that the Government of Guyana has not adequately shown that any of the foregoing conditions informed its decision not to seek renegotiation of the contract. At best, he said the administration’s position is premised in condition (b) in that, renegotiation would send the wrong signal to investors as regards the stability of contracts.

The Guyana-born lawyer sought to shed light on a different side of the government’s argument. Dr. Williams said the refusal to pursue renegotiation sends the wrong signal, to the extent that the government would quietly accept poorly negotiated deals.

While the Guyana government has often invoked the sanctity of contract doctrine as its premise for not renegotiating the deal, the lawyer categorically stated that it is not absolute. Dr. Williams said it is tamed by “fairness and conscionability.” Expounding further, he said courts commonly go behind the protective wall of sanctity of contract in the absence of provisions of contracts that are patently unconscionable.

Vice President, Dr. Bharrat Jagdeo

“For example, though the U.S. Federal Energy Regulatory Commission (FERC) recognises the sanctity of contract as a general policy, (but) the Natural Gas Act gives it the authority to modify contracts within it remit that are unjust, unreasonable, unduly discriminatory, or preferential. In the case of the PSA between ExxonMobil and Guyana, there is a head-on collision between the sanctity of contract doctrine and the principle of unconscionability if one accepts the position articulated by the ruling party when in opposition,” noted Dr. Williams.

Further, he said the consensus from global experts is that the contract is lopsided and grossly unfair to Guyana. Dr. Williams recalled that the current government agreed with this characterization while in opposition. He said too that the players in the former APNU+AFC administration initially pushed back on this characterization but now seems to join the call for renegotiation.

Overall, he posited that, “A country that has persistently encountered exploitation of its natural resources by foreign actors, should not elevate sanctity of contract above conscionability and fair dealing. In doing so, the government is escalating the error of its predecessor.”

At a time when the country is a magnet for foreign investment, Dr. Williams said he agrees that the government must send the right message. He said that message should not be that investors who obtain unconscionable and unfair contract terms, whether through corruption or power asymmetry will be able to get away with it.

Furthermore, Dr. Williams said the current narrative about sanctity of contract sends the wrong message. “It is saying to foreign investors – if you succeed in duping us, we will roll over and accept your unscrupulous and unconscionable conduct.”

Dr. Williams said this is likely to invite enterprising foreign investors to extract unconscionable deals either through corrupt practices or power and information asymmetry. He reiterated that is not the message the government should be sending.