Opposition to take action against Govt.'s illegal funding of Wales pipeline from cost oil

Opposition to take action against Govt.’s illegal funding of Wales pipeline from cost oil

Jan 08, 2023 News

…says a dangerous precedent being set for oil money transparency

Kaieteur News – The Parliamentary Opposition is contemplating action against the Government for what they believe is the illegal funding of the pipeline in the US$2B Wales Gas to Energy project directly from the profits the country earns from the development of its offshore oil and gas resources.

Guyana has agreed to let ExxonMobil construct a pipeline that will capture associated gas from the Liza subsea fields, and transport it to an onshore energy facility that will be constructed at Wales for the production of among other things, dry gas to meet quotas necessary for power here. The Government has proposed that the pipeline will be funded from cost oil. Cost oil is all sums deducted by ExxonMobil and partners for the development of the local oil and gas sector.

Elson Low

Vice President Bharrat Jagdeo had said that the Stabroek Block operator, Exxon affiliate Esso Exploration and Production Guyana Limited (EEPGL), will co-own the intended gas pipeline since that piece of infrastructure will be paid for out of cost oil. This will result in a 50/50 ownership between the operator and Guyana until it is handed over to the Government in 2026, the VP had explained.

Economist and Youth Advisor to the Opposition Leader, Elson Low, has stated however that because the Government has not released the agreement it has with Exxon regarding the transporting of the gas-the Opposition is unable to say exactly the terms by which the project is being funded.

Low said that the A Partnership for National Unity (APNU) believes that the Government’s stated intention to fund the gas to shore pipeline from cost oil is potentially unconstitutional as it constitutes spending on Government infrastructure which bypasses the Consolidated Fund, Parliament and the Natural Resources Fund (NRF).

He said, “the Government must release the agreement it has with ExxonMobil to fund the pipeline so that the nation could evaluate the exact nature of this arrangement and assess its legality. They are spending on a pipeline without parliamentary oversight. This opens the door to spending on other infrastructure projects through cost oil in the absence of oversight and this raises several questions about accountability which are very alarming,” Low opined.

He said “If Exxon is selling us gas (just like if they’re selling us oil) then the pipeline is merely a production cost just like an FPSO. If, on the other hand, the Government of Guyana has ownership and operation of the pipeline separate and apart from Exxon once completed then it would be national infrastructure. That’s why we need to see the nature of the agreement,” he posited.

Low continued that the NRF puts a cap on the amount of money that could be spent in any year, “but this is a way to bypass that restriction, opening up the possibility that all its safeguards -which are limited-will, be rendered irrelevant.” He suggested that if the Government is allowed to utilise the estimated US$1.3B to fund the pipeline in this non-transparent manner, then one is to believe that other projects could be financed in the same way.

He opined that if the Government were to ask Exxon to build another energy related project from cost oil, then this will continue to undermine all Guyana’s institutions for accountability.

“In fact, [Venezuela’s former President Hugo] Chavez similarly bypassed accountability by asking PDVSA [state oil company] to directly fund some of his programs,” Low pointed out.

Article 12 of the 2016 Production Sharing Agreement that Guyana has with the Exxon consortium says that if the excess gas from the offshore oil field is determined to be of commercial value, then the contractor could decide to make a further investment to utilize the Associated Gas, “subject to terms at least as attractive as those established for Crude Oil in Article 11 including but not limited to, cost recovery, as Recoverable Contract Cost for such further investment.”

The Article says that if the contractor believes improved terms are necessary for the development of the associated gas, then the parties will enter negotiations, reach an agreement and put it into writing.

Low said that keeping this arrangement away from the Parliament and the public is not the way transparency works as information regarding these agreements must be in the Parliament for such scrutiny.

Together with the pipeline and onshore processing facilities which will be built by the government, the entire Wales Gas to Energy Project is estimated at nearly US$2B. There have been calls for update studies and financial assessments to be done and submitted to the Parliament to ascertain the feasibility of the project, but these remain outstanding. There were no debates on whether Guyana should expend the sums on such a project or whether it was even necessary for the country. Stakeholders have said that the law does not allow for the Government to spend that kind of money without Parliamentary oversight.

It was reminded that the Government was able to access some US$607M, its first set of income from the NRF. They joined the sums to support last year’s budget which has been the largest Guyana has seen so far.

There had been much criticism against the administration just adding the money to the budget without clearly stating where the oil funds would be utilized. Low indicated that the Government is already ducking NRF transparency and suggested that they are now doing the same where the Wales project is concerned. He said that the Government cannot buy anything for $1.3B without the approval of Parliament.