Govt. yet to strengthen audit provisions in PSA

Jun 02, 2024 News

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After four years in office…

Kaieteur News – After four years in government, the People’s Progressive Party Civic (PPP/C) has failed to strengthen its management of the oil and gas sector when it comes to the perturbing provisions in the Production Sharing Agreement (PSA) for audits.

Numerous flaws in the deal continue to govern the US-multi-billion sector although the incumbent government, while in Opposition, committed in its 2020 Elections Manifesto to engage oil and gas companies for better contract administration/ renegotiation.

One of the major deficiencies in the deal is that it allows ExxonMobil, the operator of the oil rich Stabroek Block, to deduct questionable costs flagged in an audit of the company’s expenses.

The PSA at Annex ‘C’ Section 1.5 (b) outlines the procedures of an audit and rights of the government; it is explained: “…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…”

Previous audits conducted of Exxon’s expenses to date have revealed startling abuse of the country’s oil money. The PSA makes it clear that revenues generated from the Stabroek Block can only be spent to develop the resources in that block; however, Exxon was caught using the profits for works in the Kaieteur and Canje oil blocks.

Although this was brought to the attention of the Chief Policymaker for the oil and gas sector, Vice President Bharrat Jagdeo, he maintains that the company will face no penalty for its actions. Instead, Exxon will simply be required to return the sum to the profit bank, as explained by the VP.

During a press conference in October 2023, he told reporters, “I maintain my position that it would be illegal and I repeat that. The audits would have revealed that now and as I said before there will be consequences. If you did unauthorized work you don’t go to jail according to PSA, it just doesn’t form part of the cost bank.”

Furthermore, it should be noted that if ExxonMobil disagrees with the findings of the audit team and fails to convince the government of Guyana, the dispute between the two parties will be settled via arbitration.

Guyana has agreed to submit its dispute to the International Centre for the Settlement of Investment Disputes (ICSID) for arbitration before three arbitrators – pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Research by this newspaper found that the institution was established in 1966 for legal dispute resolution and conciliation between international investors and States. It is parented by the World Bank Group.

Biased PSA

While Guyana may have settled for its monies to be deducted by the oil companies and only be reclaimed through international arbitration, Trinidadian Energy Strategist, Anthony Paul in a previous interview with Kaieteur News last year 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.”

To further strengthen the process, the expert noted that there are clear rules that guide the Ministers decision. He said, “The point I am making here is that there needs to be a series of things to complete the governance system, beyond laws, regulations and contracts, to include guideline, rules, procedures and so on. Trinidad has some but not all. The most significant gap in T&T is the lack of mechanisms for holding the regulators to account.”

To this end, Paul said where contracts leave room for ambiguity; clear regulations will close those gaps. He therefore urged, “So what should happen is that the Minister is the final arbitrator but there must be clear rules guiding him in making his decision and in how he reports to the people, who are owners of the resource he manages on their behalf.”

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 avoid it, even at a loss.

 

 

 

 

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• Audit, Contract, Elections, Jagdeo, PSA

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