PNC not interested in windfall taxes from oil companies

Dec 06, 2024 News

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—says circumstances in industry not ‘bizarre’ enough to demand such

Kaieteur News- The People’s National Congress Reform (PNC) has said that the current circumstances within the oil industry are not bizarre enough to have the issue of windfall taxes included in their oil model.

The disclosure was made last Friday by Advisor on Oil and Gas to the PNC and Economist Elson Low. He was asked to comment on Vice President Bharrat Jagdeo telling reporters at his press conference, last Thursday, that the government is not looking to institute windfall taxes at this time, and his position that this will affect the sanctity of the 2016 Production Sharing Agreement (PSA). Low told reporters that, “We have looked at the issue of windfall taxes and a couple of years ago we made some remarks on this. The critical issue is that these oil agreements are based on some base assumptions, if those assumptions are violated then it will raise a question.”

He explained that the whole discussion of windfall taxes came about when the PNC was looking at the possibility of oil being sold at $170 per barrel, which would have brought about a substantive change to the entire industry. “So, I would say that given that we are not looking at such a substantial change to the industry it’s not something that we are looking at. It is not something that we have raised in our oil policies. However, looking at our previous statements it is only in a very bizarre scenario that we would incorporate that into the model, but I would say that windfall taxes are a bit beside the point,” Low reasoned.

He reminded reporters that the PNC had said in the past that once they get into office, they will be engaging Exxon to discuss how better can be secured for the citizen of Guyana. Therefore, the issue of windfall taxes would only come up if there are “unexpected and bizarre circumstances”.

On November 29^th this publication reported Jagdeo saying that windfall taxes will not be instituted at this time. Windfall tax is a tax levied by governments against certain industries when economic conditions allow those industries to experience above average or projected profits.

Jagdeo, in response to a question posed by Kaieteur News on why the government is not implementing windfall taxes since it does not breach the existing Production Sharing Agreement (PSA) with ExxonMobil and its partners, said, “I have dealt with windfall profits in the past, and why we believe that windfall taxation should not be pursued at this time. I dealt with it in the past, if you go back and read.”

In May 2022, Kaieteur News had questioned the Vice President on the issue and at that time he admitted that citizens in Canada, and the United States had forced their governments to increase their royalties charged to oil operators. In the United Kingdom, the government had increased the one-off tax slapped on oil companies.

At that time, this publication reported extensively on the changes in the fiscal regimes for the oil operators in those countries. Canada had moved its royalty charged between five and 40%, the US, in December of 2021, raised its royalty rate higher than the 18.75% it had been receiving, while the UK slapped a one-off 25 per cent tax on the oil companies there.

Jagdeo had told the media that the windfall tax that some countries are exploring only came after intense pressure from their populations. However, he explained why the institution of the tax could not be replicated in Guyana.  “We are bound by a PSA (Production Sharing Agreement) with very specific terms on the taxation side.”  To this end, he suggested, “if you change the taxation here, it’s considered a breach of the contract.”

According to the Vice President, under such a situation the parliaments of those countries could, by way of legislation, easily make the changes to institute, for example, a windfall tax. He was adamant that this is the key reason the same cannot be done in Guyana. If the administration did in fact go ahead and make the legislative changes, it would be considered a breach of the contract and “we would run afoul of the agreement”.

Trinidadian Energy Expert and International Consultant, Anthony Paul recently shared his perspective with Kaieteur News. Paul’s view is that “Since all contracts must abide by national law and since such an instrument does not violate existing contracts, Windfall Profits Taxes provide a simple and fair mechanism to ensure that countries get their just dues.”

In a November 24, 2024 article, Paul made the point that oil companies do not produce oil, nature does. The role of the oil companies is simply to extract the resource. Paul explained, “Nature blesses countries with it. Once the oil company removes it, that asset is gone forever. For this reason, countries should realise that they are not just innocent bystanders to the business venture of oil and gas.”

In fact, the Energy Expert described the role of countries as “active contributors,” providing their natural heritage as an asset in the business. This, he noted, makes countries co-investors with a contractor, so that both can make money. “An investor who brings money wants to make profit in proportion to the amount it invests. Similarly, countries should make a return on the investment of their asset, proportional to the value of that asset,” the International Consultant pointed out.

(PNC not interested in windfall taxes from oil companies)

 

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• bizarre, Elson Low, oil model, PNC, windfall taxes

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