Failure of leaders to get better deal for Guyana’s 11B barrels of oil raises serious questions

Apr 23, 2023 News

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Wholesale sellout of Stabroek Block Pt. 1…

Kaieteur News – Vice President, Dr. Bharrat Jagdeo has some serious explaining to do. The chief government official for the oil industry has been in his post for three years, but the internationally disgraceful Stabroek block production sharing agreement (PSA) given to Exxon by the last government is still in place. Even Jagdeo himself has said the contract is among the worst of its kind.

The fiscal terms have been the subject of criticism from various stakeholders in Guyana ever since they were published.

The 2% royalty of this deal is undoubtedly among the lowest in the industry. Many critics have argued that given the potential value of the Stabroek Block at the time of negotiations, the government of Guyana should have negotiated a higher royalty. Now, Guyana has 11 billion oil-equivalent barrels, which means the value of the Stabroek Block has skyrocketed. Hence, the urgency to get a better deal is even more pronounced.

With cost recovery set at 75%, the upfront revenue to Guyana is severely limited. Economist Dr. Tarron Khemraj has said that the cost recovery ceiling should be reduced to 50%. If this single change is made, it would increase Guyana’s share from a measly 14.5% to 27%.

Proper managers of their petroleum sectors, such as Norway, have managed to use taxation as a mechanism to attract billions of revenues for their country. Today, Norway stands proud as an oil country that got it right. But the A Partnership for National Unity + Alliance For Change (APNU+AFC) decided not to impose any taxes and the People’s Progressive Party Civic (PPP/C) has decided to leave the stain.

Many Guyanese have also raised concerns about the lack of transparency surrounding the negotiation of the PSA. There was no consultation with stakeholders, including civil society organizations and the media, on the terms of this contract. Even after signing it away, the then government hid it from the public and only released it after mounting calls for its release.

As ExxonMobil continues to reap exponential profits from Guyana’s lucrative Stabroek Block and the lopsided contract it signed with Government in 2016, Jagdeo expects the people of Guyana to be contented with the new terms the government announced for blocks that no one is even sure has oil.

The new terms include 10% royalty, a 65% cost recovery cap, a new 10% corporate tax, and the same half-and-half profit share. These better terms, as of today, are pointless because there have been no discoveries at other blocks to be produced. However, the lopsided deal will remain for the 11 billion barrels that are worth hundreds of billions of US dollars.

 

 

 

 

 

 

 

 

 

These criticisms highlight the importance of ensuring that the fiscal terms of the Stabroek Block PSA are fair and equitable for the people of Guyana. It is important for the government and Exxon to work together to address these concerns so that the benefits of the sector are felt in the country.

Over the years, the government continues to deflect from the issue by giving reason after reason that often fails to hold up against scrutiny. President Irfaan Ali said the private sector should speak out and defend the contract because they are profiting from contracts awarded by ExxonMobil and its sub-contractors. He also said that Guyana would have to face off against Exxon’s lawyers, and would be at a disadvantage in such a scenario.  From the Department of Public Information, the government published a missive in November 2021 explaining why the contract is not up for renegotiation. (Stabroek block oil

contract not up for renegotiation – Department of Public Information, Guyana (dpi.gov.gy))

Among these was the restrictive, burdensome stability agreement which forbids Guyana from unilaterally changing the terms of the deal. The stability clause would require Guyana to compensate Exxon for any losses incurred as a result of changed terms. It is this term that would put Guyana in trouble with Exxon’s lawyers. This and other terms demonstrate how lopsided the Stabroek PSA is.

The government also, at the time, said ExxonMobil suffered financially as a result of the pandemic. However, now that ExxonMobil is in a much better financial position, having made a record-breaking profit of US$56 billion in 2022, the government continues to defend the deal. Jagdeo refused calls to impose a windfall tax on ExxonMobil. This would have provided revenues for the Guyanese public to weather the economic storm that the Russian war in Ukraine wreaked on their livelihoods and their food security.

Somehow, no matter Exxon’s financial position, the VP finds a way to defend the oil company. He continues to repeat that if Guyana pursues renegotiation, it would kill the momentum of the industry because it would ruin Guyana’s reputation with investors. The PPP is adamant that Guyana needs 10 floating production, storage, and offloading (FPSO) vessels to keep the economic growth of the country at a desirable pace. Jagdeo also wants Exxon to extract the oil from the ground as quickly as possible.

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• Dr. Bharrat Jagdeo, Dr. Tarron Khemraj, Economist, Guyana, Stabroek Block

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