Latest update November 14th, 2024 1:00 AM
Apr 13, 2023 News
…Guyana needs to vigorously pursue available options to restore parity and reclaim sovereignty – T&T expert
Kaieteur News – Trinidadian Energy Strategist, Anthony Paul believes the provisions in the 2016 Production Sharing Agreement (PSA) Guyana signed with ExxonMobil as it regards the recovery of costs in dispute are in keeping with the one-sided nature of the contract.
The PSA, as was reported in a previous article, allows Exxon to recover sums flagged by an audit that are deemed unacceptable, until the dispute is resolved between the parties. Upon the resolution of the dispute through arbitration by an international body, Guyana can be repaid with interest, according to the agreement.
In an invited comment, the T&T expert said that contracts generally make provisions for finalisation for disagreement, by allowing for such individual areas of disagreement to be set aside, until they are later resolved. In the meanwhile, those areas that are agreed upon are dispensed with. Good contract management and oversight should require clear terms for determining what is and isn’t recoverable, the mechanisms by which such expenditure is determined, approved and committed, evidence that such expenditure was in fact made and that the good or service procured was delivered in a satisfactory manner.
This is what partners in the operations, such as Hess and CNOOC in the Stabroek Block, demand of the operator and which process is documented in agreements between the partners, such as the Joint Operating Agreement and Accounting Procedures.
As the Client who pays all the bills, Paul said the Government has the right to access these and to audit the procedures as well as the expenditure of the operator, which is its contractor.
He told Kaieteur News, “It appears that there is a concern in Guyana of particularly odious clauses in the agreement that put the onus of payment for any deviation from the contract on the people of Guyana. Although I am of the view these conditions can be successfully challenged or set aside without broaching the current contracts, the government, as is its right, seems to have made a determination that it will live with these clauses.”
He said on the other hand, the government has decided to pursue additional value through local content. “They are to be credited for installing the legislative and administrative mechanisms to address this. In my mind local content, as currently being pursued, while being an excellent start, only scratches the surface of the in-country value addition that is available to the government and people of Guyana within the current legal and contractual frameworks. More fully implemented, the local content law will go a long way to reducing cost recovery disputes and manipulation and tax evasion.”
The T&T Energy Strategist advised that these are just two of the mechanisms the government has available to it to reduce such disputes and claw back value from the sale of the Guyana’s oil and gas. In a report commissioned by the United Nations Development Programme (UNDP) in 2016, Paul made several other recommendations to address the mechanisms for governing the sector, with a view to recovering from some of the issues that would have arisen out of the weak contract existing at the time.
Paul pointed out that Trinidad and Tobago asserted its sovereignty in cost recovery by assigning the Minister responsible for Finance as the final arbiter in all matters related to taxation, including cost recovery.
As such, he noted, “The notion of having foreign courts of jurisdiction and arbitration is a slap in the face for sovereign nations, indicating that we are not to be trusted in making such decisions, even though they involve our own property. This is consistent with the way our people and resources have been seen and treated for centuries.”
To further strengthen the process, the expert noted that there are clear rules that guide the Ministers decision. He said, “The point I am making here is that there needs to be a series of things to complete the governance system, beyond laws, regulations and contracts, to include guideline, rules, procedures and so on. Trinidad has some but not all. The most significant gap in T&T is the lack of mechanisms for holding the regulators to account.”
To this end, Paul said where contracts leave room for ambiguity; clear regulations will close those gaps. He therefore urged, “So what should happen is that the Minister is the final arbitrator but there must be clear rules guiding him in making his decision and in how he reports to the people, who are owners of the resource he manages on their behalf.”
The specialist explained that oil companies very frequently attempt to force countries into international arbitration, fully cognizant of the fact that governments- like those in the Caribbean- cannot afford the process, so avoid it, even at a loss.
On Wednesday, Kaieteur News reported that the findings and recommendations of an audit may not be enough to ensure Guyana is not cheated by the Stabroek Block partners- ExxonMobil, Hess and CNOOC- during production activities.
This is so as the 2016 Production Sharing Agreement (PSA) states that while the Contractor will be allowed to recover costs in dispute, the matter will only be resolved through arbitration, if the two sides fail to reach an agreement within 60 days after the disagreement is flagged.
This process can go on for over one year, after the tribunal is fully constituted.
Notably, Guyana has agreed to submit its dispute to the International Centre for the Settlement of Investment Disputes (ICSID) for arbitration before three arbitrators- pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Research by this newspaper found that the institution was established in 1966 for legal dispute resolution and conciliation between international investors and States. It is parented by the World Bank Group.
As it relates to payment for the arbitral services, Article 26.8 of the contract explains that the arbitrators shall assess the expenses and any other costs related to the arbitration and shall decide by whom such costs shall be paid in their award.
It must be noted that the same PSA makes all legal expenses for the oil company recoverable- this therefore means that the costs for the process will ultimately be borne by Guyana.
The decision of a majority of the arbitrators shall be final and binding on all parties according to the contract. It also states “…judgment on the award may be entered by any court of competent jurisdiction.”
This is clearly outlined in the 2016 agreement the country signed with ExxonMobil and its partners, Hess and CNOOC. Annex ‘C’ of the PSA at Section 1.5 (b) outlines the procedures of an audit and rights of the government; it is explained: “…In the event that an audit claim by the Minister is not settled to the Minister’s satisfaction by the Contractor’s reply as provided for above, the Contractor shall be entitled to recover any disputed amounts pending final resolution of the claim…”
It must be noted that the PSA makes it clear at Section 1.5 (b) that: “…If within sixty (60) days of the Minister’s further investigation, the Parties are unable to agree to the disposition of the Minister’s audit claim, the claim shall be submitted to the sole expert in accordance with Article 26 of the Agreement.”
Article 26 of the contract sets out the conditions as it relates to arbitration.
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