‘Audit must say whether oil companies cheating on uncapped interest loans’ - Opposition demands

‘Audit must say whether oil companies cheating on uncapped interest loans’ – Opposition demands

Dec 29, 2022 News

…calls out Government on overdue financials

Kaieteur News – Economist and Advisor to the Leader of the Opposition, Elson Low has again raised concerns over the delay in the long overdue oil cost audit of oil majors operating in the offshore Stabroek Block. Low restated his position as he explained that a comprehensive audit of expenses is an important avenue for the country to monitor its oil income. Low was also making this point as he delved into the matter of loan interest being paid by Guyana on behalf of the oil companies.

Economist and Advisor to the Opposition Leader, Elson Low

This is provided for in the 2016 Production Sharing Agreement (PSA) which Guyana has signed with ExxonMobil and HESS, and Chinese state company, CNOOC. The oil companies are allowed to access massive loans to conduct the oil operations in Guyanese waters. Apart from the loan repayment, all interest earned as a result, will also be reclaimed by the oil companies. This cuts the amount of revenue coming to Guyana and protects oil company capital since they have no need to invest their own revenue into the projects, industry experts have explained. While this matter has been highlighted before, it resurfaced last week in an International Monetary Fund (IMF) report warning Guyana that the provision leaves room for the oil companies to take advantage.

Low said that according to the PSA, Exxon can only reclaim interest if it is consistent with market rates. “This implies that the audit must verify whether the interest Exxon is attempting to recover has been accrued at the market rate. The Government must therefore ensure this is covered by the current cost recovery audit. Failure to do so could cost Guyana billions of US dollars over time, depending on the size and duration of any loans Exxon has taken on.”

Low has been monitoring the urgency with which the audits have been handled and has described it as criminal. “We haven’t noticed it (audits) but perhaps that’s because of the Christmas season. If indeed it has not been released then it is again overdue, even by the extended timeline set out by the Government.” As I’ve mentioned previously, concealing the audit of an oil company should be a criminal offense, just as failing to audit Exxon should be a criminal offense,” Low said.

He told the newspaper that when the new timeline for the audits were set in September, it was already overdue, and then it was set for early December. Just days away from the New Year, there has been no update on the position of the work being done. The Opposition Advisor said that the Government must release the audits and tell Guyanese what is happening with the oil money.

Financial partner, IMF, has advised that industry norm is that the Government does not allow oil companies to recover interests on loans taken. And even if that ends up being the case, the Administration sets a cap or limit to prevent the full interest amount from being recovered. The IMF pointed out however, that apart from allowing the uncapped interest to be recovered, Guyana has also waived its right to tax such interest amounts.

The Fund highlighted that the benefit, therefore, provide enough incentive for the Contractors to finance their projects with loans instead of revenues from their accounts.

In an invited comment, Project Management Specialist and Public Commentator, Mark Weeks had told Kaieteur News that it is a matter of “professional responsibility” to their clients that Financial Auditors keep an eye out for any wrongdoing or inconsistencies when ensuring the truth of the books. He was commenting on whether Guyana needed a forensic audit of its oil sector when he explained that Guyana would be ‘disingenuous’ to initiate such an audit against its oil partners without the necessary evidence. He said however that Auditors must be able to pick up on triggers that may warrant a deeper look into the company’s financials. He said too that while the Auditor may not set out to detect fraud or may not have been instructed by the client, “the Auditor must be skilled enough to recognize triggers that may bring cause to a forensic audit.”

Financial Analyst and Certified Accountant, Floyd Haynes had stated in a Kaieteur Radio presentation that Auditors of the US$7B bill from ExxonMobil affiliate Esso Exploration and Production Guyana Limited (EEPGLP), are only tasked with reviewing the sums provided; that they are not engaged in a forensic audit, and that the audit is being conducted according to the terms of the Stabroek Block Production Sharing Agreement (PSA).

Guyana has been warned that even if interest on loans is reclaimed, a cap on the rate of interest is necessary to avoid oil companies pushing their corporate debt at inflated rates into the local projects in order to obtain cost recovery benefit at the expense of the Government. The Government has also been asked about the cost and amount of loans oil companies are taking in the name of the Stabroek projects. Low insisted however that the cost oil audit must confirm whether the recovery is consistent with the terms of the PSA. When asked whether the loophole is an area that both the Government and the Opposition could mend together, he said, “We are always reviewing the situation but for now what we want to say is that the audit needs to be the focus as it is the most immediate issue.”