VP Jagdeo boasts of better contract management through passage of Local Content Law, free gas supply from Exxon

Apr 21, 2024 ExxonMobil, News, Oil & Gas

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Kaieteur News – Vice President, Bharrat Jagdeo is confident that the People’s Progressive Party Civic (PPP/C) has kept its campaign promise to engage in better contract management, since the administration has managed to enact Local Content legislation and will be receiving free gas from the offshore, Stabroek Block operations to provide cheaper electricity to Guyanese.

The PPP/C in its 2020 Elections Manifesto promised to not only to renegotiate oil contracts but to engage “immediately” in better contract administration so that the country benefits more from its oil and gas resources.

It has now decided it no longer wants to renegotiate the 2016 oil contract with ExxonMobil and its Co-Venturers, Hess and CNOOC, due to its potential to slow down the industry.

In its evaluation of the government’s performance, the Opposition described the PPP’s management of the Exxon contract abysmal, owing to the glaring lack of transparency and failure to secure more benefits through the recently approved Whiptail development, Exxon’s sixth deep-water project.

The lopsided PSA cleverly outlines in the Stabilization Clause that no new taxes, laws or royalty should be imposed on the Contractor that causes adverse effects on its profits as government would be required to take all actions necessary to ensure the contractor’s benefits are restored.

In light of the foregoing, this newspaper recently asked the Vice President to say what efforts have been made by government to ensure there is better management of the contract to ensure Guyana gains fully from the existing fiscal terms. Kaieteur News also highlighted that Exxon would be required to make 25 helicopter trips per week as a result of the sixth project and asked the politician whether the country has any involvement in the award of those large contracts.

It has been argued that Guyana should have a seat at the table when such large contracts are being approved since the country is footing those costs. The Vice President however appears to be comfortable in the current arrangement which only allows Guyana to verify contracts after they have been awarded.

He explained on Thursday during his weekly press conference at Freedom House, “We are not co-managers of the project. We audit and the auditors have to look at comparable prices…and then they would say its inflated or not. That’s why it is post audited to see whether we are getting value for money.”

Jagdeo pointed out that if the auditors find exorbitant contract costs, compared to rates elsewhere, they can query the cost or recommend it be removed, through the cost recovery audit.

The General Secretary of the PPP/C then switched caps to defend the party’s commitment to better contract management.

He said, “We have insisted that more opportunities, that in the past, before we had the Local Content Law that Exxon used to bundle these opportunities and sometimes directly award to a company or award them in a manner that would exclude local people, so we said that the activities have to be un-bundled and tendered so that Guyanese and Guyanese companies can have an opportunity to bid on them.”

Jagdeo pointed out that through the Local Content Act passed in 2021, Exxon is expected to spend US$700M this year to benefit some 2,000 Guyanese companies, outside of the benefits from the PSA.

Furthermore, the Vice President highlighted that the Licences awarded to ExxonMobil by the PPP administration have been significantly evolved to enhance safety, reliability and monitoring.

“If you go through the comprehensive agreements that are put online, you would see how they have evolved into more robust management tools requiring higher levels of accountability on the part of the operators. The same has happened in terms of environmental sustainability. You would see higher standards set and greater compliance requirements,” he said.

Jagdeo then went on to note that mere days after the government was sworn in, he met with Exxon to outline the administration’s plans to enact a Local Content Law and made it clear that the gas from the Liza One and Liza Two projects must be delivered free of cost to support the Gas-to-Energy project. He boasted that the free gas is valued at tens of US-billions over the life of the contract, which will benefit Guyanese through lower electricity costs.

To this end, he told this newspaper, “In a very practical way, we have done better, we created a better framework for managing, we have eked out more benefits significantly, running into the billions of US dollars of benefits for our people and our country without renegotiating.”

However, Kaieteur News asked the Vice President if he does not believe that Guyana can ensure better contract management by simply having a say in the procurement of large contracts, especially since this would not cause “adverse effects” on the profits of the Contractor.

Jagdeo however dismissed this view, arguing that the country is not privy to co-manage the operations, even though it funds the sector in the absence of ring-fencing and through the cost recovery mechanism.

He said, “We don’t have co-management…we are entitled to 50% of the profits and 2% of the royalties so we really don’t have 50% ownership of the company, we are entitled to 50% of the profits and the royalty.”

Further, he noted, “So we have our say in controlling cost because cost determines the extent of profit – if they inflate cost, the profits become lower, and our control is not through the day-to-day management, but it is a post expenditure audit to look at similar cost in the industry and whether these costs approximate those costs.”

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• contract management, gas, Jagdeo, Local Content, PSA

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