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Resolution of audit disputes to be addressed in new oil contracts
Kaieteur News – The 2016 Production Sharing Agreement (PSA) Guyana signed with oil major ExxonMobil not only allows for disputed costs flagged in an audit to be recovered by the contractor, but if the nation wishes to reclaim these expenses it must be prepared to head to an international arbitration process and pay all associated fees for both parties.
Recognizing this loophole in the existing agreement, Vice President Bharrat Jagdeo said this is one of the provisions the government will seek to address in the new Deep and Shallow Water PSAs being finalized currently.
Vice President, Bharrat Jagdeo
During a recent press conference at the Arthur Chung Conference Center, Liliendaal, East Coast Demerara, Jagdeo while responding to a question from this newspaper addressed the issue.
He said, “So what happens if you have a dispute, you have to go to arbitration process. The PSA allows them (ExxonMobil and partners) to basically not to make any adjustment until that process is completed but if you have a dispute you have to break the deadlock and that is why there is a process through which that is done. We may have to strengthen that process but right now you would always have to have a dispute resolution process.”
The VP explained that it is standard for contracts which involve international companies to include a dispute resolution clause where the parties’ concerns can be heard before the International Centre for the Settlement of Investment Disputes (ICSID) or before three arbitrators or a sole arbitrator. ICSID is an organization established by the World Bank to aid in resolving such matters.
While Jagdeo believes the arbitration process is critical to the resolution of disputes with international companies, he nonetheless conceded, “Dispute resolutions have to be strengthened…we are gonna review it in the new PSA to see if we can strengthen (it) but you may not be able to eliminate the international dispute resolution clauses.”
Kaieteur News recently reported that the lopsided oil contract allows for costs that have been flagged in an audit, and deemed unacceptable; to be recovered by the Contractor until the dispute is resolved.
Annex ‘C’ of the PSA at Section 1.5 (b) states “…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…”
The agreement also states that Exxon can provide reasons justifying the costs, but government would have to head to international arbitration to reclaim these sums. Upon the resolution of the issue, Guyana would be repaid with interest, if the country is successful in its challenge. However, all the legal fees incurred for both parties would be borne by the state.
While Guyana has settled for its monies to be deducted by the oil companies operating in the Stabroek Block and only be reclaimed through international arbitration, Trinidadian Energy Strategist, Anthony Paul in an exclusive interview with this newspaper said the recovery of costs in dispute are in keeping with the one-sided nature of the 2016 oil contract.
He explained that contracts generally allow for costs to be recovered only after the dispute has been settled. On the other hand, he also shared that the twin island has 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.”
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 they avoid it, even at a loss.
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