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ExxonMobil incorrectly bills Guyana for inflated salaries for expats
Kaieteur News – Over several years, Esso Exploration and Production Guyana Limited (EEPGL) has been inaccurately invoicing Guyana for expatriate workers, resulting in millions of dollars being incorrectly charged to the country.
President of ExxonMobil Guyana, Alistair Routledge
Auditors have flagged these billing discrepancies, noting that they do not align with the requirements outlined in the Production Sharing Agreement. Notably, these claims include profits attributed to Affiliate Employees of the company. The audit, conducted by Martindale Consultants, Inc. and VHE Consulting, was commissioned by the government to review cost recovery statements submitted by Exxon Mobil Guyana Limited (EMGPL) for the period between 2018 and 2020.
According to the auditors, EMGPL included not only the actual costs of Affiliate employees working for Stabroek but also a profit margin on these costs, totaling approximately US$3,314,007.73. However, auditors approved only US$2.2 million of these charges, disputing the inclusion of the profit margin. Consequently, they assert that Guyana is owed US$1.1 million. The audit findings reveal that EMGPL justified these profit margins as necessary “transfer pricing” adjustments to comply with the tax laws of various countries, allowing the Affiliates to demonstrate a taxable profit. However, the auditors assert that these profit margins are not recoverable under the terms of the agreement, as they result in undue financial gain for the Affiliates.
Furthermore, the audit pointed to discrepancies in the allocation of these “gross-ups,” which are intended to meet transfer pricing requirements but are not directly linked to taxes assessed by the respective countries. With this in mind, the auditors emphasise that the language of the agreement is clear: Affiliate costs should be charged without any added profit margin. “For example, in the case of Brazil, the 15% gross-up amount is not remitted to the Brazilian government; it is the mechanism for the Contractor’s Brazil Affiliate to record a profit upon which the government will assess a corporate tax. Without profit, there would be no tax, so the gross-up is the profit that serves as the tax base above the at-cost amounts billed to the Contractor’s Guyana operations,” the auditor said.
Singapore, China and the Netherlands were the other countries identified by the auditors in flagging the discrepancy. Additionally, it was discovered that EMGL included on the Cost Recovery Statement April 2019 through January 2020 EEPGL payroll costs for three in-country Guyanese engineers charged to the Stabroek Support Cost Object. According to the Auditors however, the engineers were charged at ExxonMobil Production Co. Affiliate (EPC) rates during these months and concluded “they should have been charged at their actual salaries, resulting in excess Cost Recovery Account charges.”
According to the auditors, these engineers are in-country Guyanese locals working for EEPGL—Except for April 2019 through January 2020, they were properly and contractually billed into the Local Pool Costs EMGL had told the auditors that from April 2019, through January 2020, all three temporarily relocated to Houston, Texas to train at ExxonMobil’s headquarters so they could return to Guyana as more experienced engineers.
To this end, the auditors were adamant the concept of training these three Guyanese nationals is accepted and encouraged, but billing them as an Affiliate employee at EPC rates is neither correct nor contractual. “The Contractor explained its internal accounting in these situations is that during the training period, an EEPGL employee’s salary is credited to the Local Pool Costs Cost Object and billed to the EPC Affiliate; The EPC Affiliate then bills the employee back to EEPGL at the EPC Affiliate rates based on time writing hours.” This explanation did not fly with the auditors however, who contends that “while such may be the Contractor’s internal procedure to account for employee payroll, such a billing procedure is not compliant” with Annex C of the June 27, 2016, Petroleum Agreement, which outlines the parameters for what expenses can be recovered by EMGL.
- discrepancies, Esso Exploration and Production Guyana Limited (EEPGL), expats, Inc., Martindale Consultants, VHE Consulting
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