New PSA must be published before Govt. auctions new oil Blocks - Economist

New PSA must be published before Govt. auctions new oil Blocks – Economist

Nov 18, 2022 News

Kaieteur News – As the government prepares to auction 14 new oil blocks offshore Guyana that will be governed by a new Production Sharing Agreement (PSA), Economist Elson Low said the agreement must be made public before the process starts to allow for public scrutiny and comments.

In an exclusive interview with this publication earlier in the week, Low pointed out that only a few terms have been announced so far by the country’s Vice President, Bharrat Jagdeo. As such, he noted, “it is not acceptable that only some of the terms would be released. Instead, we need to see the entire document so that the nation can have a better perspective as to what exactly these terms will finally be because of course there are many ways to manipulate elements of the terms so that the return to the nation would be what it appears to be. We need to see the full terms of any new PSA before it is signed. I think it is a matter of serious urgency even as we approach the auction. It is unacceptable for them to enter into any agreement with any oil company before the full PSA is public.”

Low believes that there should be time for public consultation and comments regarding the final terms Guyana demands from oil companies. This is especially important even as this PSA is set to govern all future oil blocks. Moreover, the VP had said it will feature a Stability Clause, the said provision that both the Opposition and the PPP have said must not be violated in the process of seeking renegotiations where needed. The Economist said once the auction is completed, before any agreements are signed, any variance to the terms of the PSA should also be publicized so the nation is aware of any changes.

According to him, key provisions must be clearly outlined such as whether Royalty will be recoverable and the ceiling for cost recovery. On November 3, the Vice President called a press conference where he told media operatives that some of the key provisions that will be featured in the new deal include a 10 percent royalty, 10 percent corporation tax and ring-fencing provision.

In making the announcement, the VP also clarified that the 14 blocks range from about 1000 square kilometres to 3000 square kilometres, with the majority of them being close to 2000 square kilometers. Meanwhile, the Stabroek Block that covers approximately 26,800 square kilometres and is operated by Exxon and its partners – Hess and CNOOC – remains bound to a separate arrangement in which it pays a mere two percent royalty, no taxes and also recovers expenses from multiple projects from the revenue earned by development, in the absence of ring-fencing provisions. It must also be noted that Exxon is allowed to deduct 75 percent of costs from Guyana’s earnings upfront to cover its expenses while the new PSA would cap cost recovery at 65 percent of earnings annually.

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