Chris Ram reveals: Belize imposes ring-fencing provisions on oil companies through its tax legislation

Nov 26, 2023 ExxonMobil, News, Oil & Gas

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…But Guyana allows abuse on Exxon’s US$41B projects

Kaieteur News – Chartered Accountant and Attorney-at-Law, Christopher Ram recently brought to the attention of the nation, a most damning and embarrassing revelation—Belize, one of the world’s smallest oil producers, imposes ring-fencing provisions on its oil companies.

In stark contrast, Guyanese authorities have refused to arm the nation’s oil resources with similar protection. In fact, the current administration has refused for three years, calls to ring-fence ExxonMobil’s five oil projects in the Stabroek Block which are worth a whopping US$41.4 billion. Those projects are expected to produce a total of 3.4 billion barrels of oil over the next 20 years. Currently, Guyana is producing about 400,000 barrels of oil per day from two projects. With a third project in start-up mode, Guyana’s output will jump to 620,000 barrels per day by the first quarter of 2024.

In his most recent column in the Stabroek News, Ram outlined that Belize which produces about 5000 barrels of oil per day, imposes ring-fencing through its tax legislation. For context, ring-fencing is an important protective clause as it ensures oil companies only deduct from a project’s profits, those expenses which are related to that project. When ring-fencing is in place, companies cannot take the profits of one project and use it to cover the expenses of an entirely different project.

Ram in his column, showed how a Belizean court dealt with an oil company that tried to use the income earned from one oil-producing project to cover the exploration expenses of another project.

According to Ram’s column, here is what the Belizean court had to say in that matter: “When a contractor enters into a contract, he is taking a risk as there may not be any production. The expenses incurred for taking such risk cannot be imposed on other Production Sharing Agreements where there is Initial Commercial Production without specific provisions in the Act.”

The Court added: “The Legislature would have been specific if it had intended for contractors to recover expenses from Production Sharing Agreement where there was no ….Production.”

Ram said that the company (Chx Belize Lp), in conceding the logic of the court, agreed to make quarterly payments to the country’s Commissioner of Income Tax without including exploration costs for another project. “Sadly, that would be unheard of in Guyana under these administrations,” said the Chartered Accountant.

OTHER TROUBLING DIFFERENCES

Ram was also keen to bring to his readers’ attention, other critical aspects of the regime governing Belize’s oil industry. Ram highlighted for example that while Guyana accepts a mere two percent royalty on its oil resources, Belize has demanded way more for its people. Ram revealed that under Belizean law, royalty is set at a minimum of 7.5% for oil and 5% for natural gas. Additionally, Ram highlighted that the country charges an extra tax when oil prices are high. Critically, the profits made by the oil companies are charged at the rate of 40%, all of which were negotiated under a pre-discovery contract.

Highlighting other critical aspects, Ram said oil companies in Belize have up to eight years to explore for oil. If a commercial discovery is made, the company is given 25 years for production. If no oil is found within eight years of exploration, Ram said the contract “self-terminates,” meaning that they have to go. No ifs, no buts and no Bridging Deed.

When compared to Guyana where the world’s largest oil find of the decade has been unlocked, oil companies enjoy a more lax regime. Ram said companies have up to 10 years for exploration and 30 years for production of any commercial find. Ram also noted that the terms are even more generous when looking at the relinquishment provisions. “For good measure, our politicians think they have to plead with oil companies to give us back what represents our patrimony, and what the law requires them to relinquish, anyway,” Ram said.

Guyana’s generosity does not end there. Ram notes that instead of Guyana collecting taxes from the oil companies on the billions they make, Guyana actually pays to the Guyana Revenue Authority (GRA) the taxes payable by the oil companies, out of Guyana’s share of profit oil. The most incredible part of this whole concocted arrangement is that when Guyana pays the taxes for ExxonMobil and its partners, the GRA issues to the companies a certificate stating that they have paid taxes here. The companies then use that fictitious certificate to fraudulently claim a rebate on their worldwide tax liability in their home country.

CHART SHOWING DIFFERENCES BETWEEN GUYANA AND BELIZE

A WARNING FROM KAIETEUR NEWS PUBLISHER, GLENN LALL

While Guyana has already paid off for the Liza One and Liza Two Projects, the country’s share of profits has not increased because our leaders have refused to ring-fence these projects. As a result, Guyana is losing US$4B annually.

This state of affairs gets even worse as there are no ring-fencing provisions for the third, fourth and fifth oil projects. The consequence is that Guyana will lose at minimum, an additional US$6B annually. This is a total of US$10B at minimum annually, from those five projects.

In the meantime, Guyana sits with a US$4B national debt that also attracts interest and the government is about to grant the sixth oil project without ring-fencing provision, to lose even more billions.

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• Attorney-at-Law, Chartered Accountant, Christopher Ram, Guyanese, legislation

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