GRA fought British Auditor on failure to flag US$40M with no transparency

Apr 11, 2023 News

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Exxon’s US$1.6B cost recovery bills …

Kaieteur News – A key report by the Guyana Revenue Authority (GRA) has revealed the extent to which technical officers are going to protect the interest of the State in the audit of US$1.6B incurred by ExxonMobil and partners in the Stabroek Block from 1999 to 2017.

That audit which commenced in November 2019 is being undertaken by UK firm, IHS Markit. In the almost 40-page long document seen by Kaieteur News, officials at GRA outlined a number of deficiencies that ought to have been captured in preliminary reports by IHS. One of the matters raised, pointed to the failure of IHS to flag US$40.4M Exxon claimed to have spent on materials for use in the Stabroek Block. GRA said this sum could not be accounted for due to lack of vendor details. In the absence of transparency, GRA urged IHS to not overlook this sum and to ensure it is part of the pool of costs to be disallowed.

In response to GRA’s contention, IHS stated in its professional opinion that ‘these material costs lie in a category where they are covered by the cost recovery mechanism, the costs did occur (or the wells would not exist and no production would ever be achieved), and the value of the material costs are within industry norms. “The IHS recommendation is that these costs should be allowable for inclusion in the Cost Bank. (The Government of the Cooperative Republic of Guyana) can decide if in its view, these costs should be denied from inclusion in the cost bank based on lack of transparency of the expenditure even though the evidence points to the fact that these costs were actually spent.”

The Guyana auditing team, which includes the revenue authority, fought back as it noted that the aforementioned matter strikes at the heart of transparency. The team said that while “a cost can be valid, nonetheless, it can still be disallowed premised on there being no transparency.” Importantly, GRA highlighted that this US$1.6B audit sets a precedent for future audits of its kind, adding that Guyana “must highlight, as far as practical, all deficiencies, irregularities and unsound practices etc. to avert the risk of future occurrences.”

In a March 2021 report produced by IHS and which remains under critical review, the company highlighted upon GRA’s instruction that EEPGL recorded expenditure of approximately US$40.4 million on materials where the vendor details are not recorded in the General Ledger for the Exxon subsidiary.  IHS said, “This means that individual material entries in the General Ledger cannot be traced back to specific material purchase contracts. These costs relate to material issued from the shore base for use in Petroleum Operations. Although general material purchase contracts for similar materials were provided and reviewed, no evidence was provided to justify the costs of these materials. This amount should be removed from the Cost Bank.”

It was further noted that the Guyana Government was not invited to witness material counts during the audit period, despite this being a specific requirement in the 2016 Stabroek Block Production Sharing Agreement (PSA). IHS further noted that EEPGL does not charge for the inventory whilst it is held at shore base facilities. However, a total of US$349,098 related to inventory adjustments has been recorded in the General Ledger but no supporting evidence has been provided to show that the materials arrived at the shorebase or how much they cost. It said this too should be removed from the cost bank.

It is now more than three years since the audit of US$1.6B in expenses for the oil-rich Stabroek Block is yet to be completed. Confirming the status of the audit was Commissioner General of the Guyana Revenue Authority, Godfrey Steven Statia. His clarification came on the heels of two articles published by the Stabroek News on IHS Markit’s report that it provided to the PPP/C regime. Stabroek News comprehensively, and clearly, outlined that there were some US$214M in costs that could be contested by State authorities. GRA’s boss did not denounce these figures as inaccurate. He did note however that IHS’ report, as is being quoted, is not the final document, adding that government is now at the stage of awaiting feedback from Exxon’s subsidiary. He also did not provide a timeline on when this process would be completed. Statia also noted that the government will make the report public at the appropriate time. A second audit is currently underway for costs totalling US$7.3B which were incurred from 2018 to 2020. That contract was awarded last year May. That too is still ongoing.

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• Commissioner General, Cost Bank, Godfrey Steven Statia, Guyana Revenue Authority, Transparency

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