What about the PSA, Jagdeo?

Aug 04, 2023 Features / Columnists, Peeping Tom

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Kaieteur News – Jagdeo wants us to believe that his government has strengthened the legislative and environmental frameworks governing the petroleum sector. In his most recent press conference, he belabored the point that these frameworks have been improved. But he said nothing about what is being done about the Production Sharing Agreement (PSA) for the Stabroek Block.

Jagdeo’s government stubbornly refuses to renegotiate the Production Sharing Agreement (PSA). This agreement is the overarching agreement used for the development of the Stabroek block and which contains an estimated 12 billion barrels of oil.

By not doing this, the government is giving the oil companies a free pass. And this is unacceptable. Jagdeo therefore cannot have it both ways. On the one hand, he claims that the legislative and environmental frameworks have been improved and that the permits for the field development plans have been strengthened. On the other hand, his government has failed to strengthen the overarching PSA with the oil companies.

By negotiating favorable terms within the PSA, the government can secure a larger share of revenues, royalties, and taxes, which can then be invested in critical areas such as infrastructure, education, healthcare, and social development. Jagdeo, however, seems satisfied that Guyana’s revenue take will increase as production increases. Instead, he could have ensured that as production increases and unit costs decline that Guyana would gain much more than the 12.5% profit sharing. There is no reason why this could not have been added as an amendment to the contract. This is basic Economics 101.

At present, Guyana has no Petroleum Depletion Policy.  Guyana is perhaps one of the few petroleum-producing countries in the world which give exclusive jurisdiction to the oil companies to determine the rate of resource extraction. What is the use therefore of having a governance framework when one of the most fundamental requirements of governance – a depletion policy – is not in place. We might as well  sign over the transport of the Stabroek Block to the oil companies because this is effectively what they have at present. One of the foremost objectives of government is to maximize benefits from its oil industry. But this does not necessarily mean that it has to adopt the position of increasing production as much as it can and as fast as it can.  But even if this is the philosophy of the government, it still has an obligation to ensure that depletion is done in a manner and at a rate that does not present risks. Yet, there is no such policy in Guyana.

While the government contends that environment protections are being strengthened, it is the said government which opposed a decision of the High Court to force the oil companies to provide for full liability coverage. What, however, is of equal concern are the waivers for environmental; impact assessments which are being granted for some projects. What Jagdeo has not addressed as yet is the pace at which his government has been approving field development plans. When you hear the Opposition complains about the slothfulness of certain areas of government you have to ask why this is so when compared with the alacrity with which field development plans are being approved. Someone should check to see if Guyana has not entered into the Guinness Book of World Records in terms of the speed with which it is approving these plans. There has also been slothfulness in terms of transparency and accountability. Key questions concerning permits and interest rates relating to the oil and gas sector has not yet been answered. And the inordinate delays in conducting audits of the recoverable expenses of the oil companies. No one is fooled by the prevarication on these issues.

But in the same way that the government claims to be strengthening regulations and conditions in the permits, why cannot it press for improvements in the PSA?  What is so difficult in demanding regular and comprehensive reporting on production volumes, revenues, and operational activities and making this information publicly available? The government has developed local content laws. But this was too late in coming since the major procurement contracts were already sealed by the oil companies and most of these contracts are long-term in nature. Just as the government has taken steps to strengthen permits granted to oil companies, it has the opportunity to enhance the Production Sharing Agreement governing the Stabroek oil block. By negotiating improved terms, the government can ensure that the country gets a better deal.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• environmental, frameworks, Government, legislative, Production Sharing Agreement

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