New PSA will have public input – Jagdeo

Dec 04, 2022 News

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Kaieteur News – The new Production Sharing Agreement (PSA) being crafted by the People’s Progressive Party (PPP) Government will be scrutinized by the public before being finalized and signed with any oil company.

This assurance was given by Vice President, Bharrat Jagdeo on Friday at the sidelines of an event at State House.

The former President, in response to a question from Kaieteur News on whether the government will honour the calls from civil society for the document to be released prior to it being signed, said this will be done.

He explained that presently, “we are working on a rewrite” of the PSA and “once that draft is available to us, we will share it with the oil companies, with the local private sector and then we will work to finalize it to get comments through a public process.”

At a press conference on November 3, Jagdeo announced some of the terms to be included in the new deal that will only govern future contracts.

As part of the new model, government will be seeking a 10 percent royalty rate (up from the existing two percent), a 10 percent corporation tax and ring-fencing provision among others. Ring-fencing would allow for the earnings from one project to cover the expenses in that specific development only, which would allow the country to see more annual revenue.

In the absence of this key clause in the Stabroek Block PSA, oil major ExxonMobil is allowed to recover expenses from multiple projects from the revenue earned by one oil producing project.

The new PSA will also cap the recovery of expenses at 65 percent of earnings annually. Presently, the Stabroek Block operator is allowed to deduct 75 percent of costs from Guyana’s earnings upfront to cover its expenses.

Jagdeo was keen to point out that the 14 oil blocks to go on auction soon will be governed by these new fiscal arrangements, while Exxon, will continue to enjoy the lopsided 2016 deal.

In the meantime, Shadow Minister of Natural Resources David Patterson said the new contract must not yet be given a passing grade as the entire deal must be scrutinized in-depth, before Guyanese laud the contract a ‘better deal’ compared to the 2016 contract signed by the APNU+AFC Coalition government.

Patterson was keen to point out that while 10 percent royalty for instance may sound exciting for the country, Guyana could be losing out big in other areas.

In an invited comment, the Member of Parliament (MP) explained, “It is a step in the right direction but as I said before the devil is in the details. You have to look at everything holistically. Somebody may shout 10 percent is a good number but then when you do actually award the PSA, there is no clause in there for unlimited liability insurance, there is no clause for studies, for waste water management and those things like that.”

Patterson has been the Coalition’s key spokesperson on natural resources issues in Parliament, and has been arguing the need for those provisions to be included, to guide the ongoing production of oil by ExxonMobil in the Stabroek Block.

He reasoned, “You may just look at the number, 10 percent, and people might shout that they have done a good job… (but) you could be charging them 10 percent, and you be giving away 50, 60, 70 percent with loose regulations and policies, so don’t be caught up with the number.”

The former Minister believes that a proper PSA should specifically address full liability coverage in the event of an oil spill, and a clear no-flaring policy or a hefty fine around $3M per ton or carbon dioxide emissions, to deter operators from this dangerous activity offshore. Additionally, the new deal should also insist that there is no dumping of waste into the country’s waters, as well as outline specific local content targets to ensure more money “stays locally”.

Meanwhile, Economist Elson Low in an exclusive interview recently with this publication said he believes the new PSA should be published before Guyana approaches the auction of its oil blocks.

This is especially important as this contract is set to govern all future oil blocks. Moreover, Jagdeo 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.

According to Low, “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.”

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