US EXIM Bank loan for Gas-to-Energy project exposes institution to political, financial and litigation risks – Int’l lawyer

Dec 15, 2024 News

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Kaieteur News – International award-winning lawyer, Melinda Janki, has warned the United States Export Import (US EXIM) Bank that approving Guyana’s application for a loan to support the Gas-to-Energy (GTE) Project exposes the financial institution to political, financial and litigation risks.

In a submission to the Bank, dated December 6, 2024, Janki lobbied the Board to refuse Guyana’s US$656M loan application, pointing out the risks for the Bank as well as potential breaches of fiduciary duties and the resulting harm to the American people and American economy.

Political risk

The lawyer explained that the main political risk to the United States of America arises from the threat to Venezuela and the Caribbean islands as a result of petroleum operations being carried out by ExxonMobil Corporation through its subsidiary, ExxonMobil Guyana Limited.

“Exxon’s petroleum operations are an integral part of the proposed gas plan; the gas plant cannot function unless Exxon produces oil. Exxon’s Liza Phase One and Two Projects will provide ‘associated gas’ for the gas plant. An EXIM Bank loan for the gas project cannot be detached from Exxon’s operations and would therefore be tainted by the risks and any ensuing harm from Exxon’s operations,” Janki stated in her submission.

She therefore noted that if there is an ‘unplanned event’ such as a well blowout, the resulting oil will impact a number of Caribbean states. Janki attached a map from Exxon’s environmental impact assessment depicting one spill scenario.

The lawyer pointed out, “The United States risks international censure for supporting unsafe operations and could face international pressure for compensation in the event of an oil spill.”

Financial risk

Meanwhile, Janki went on to highlight that the Board has a fiduciary duty of care which requires members to be good stewards of the public treasury. “In deciding whether to make this loan the Board must at a minimum consider whether the loan is the best use of the tax dollars of hardworking Americans. There are two reasons for concluding that it is not. The first is the requirement for American jobs. The second is that the gas project is not financially viable,” the lawyer stated.

She recalled that Section 2(a)(1) of EXIM Bank’s charter states that, “The objects and purposes of the Bank shall be to aid in financing and to facilitate exports of goods and services, imports … and in so doing to contribute to the employment of United States workers.”

To this end, Janki argued that oil and gas are outdated technology, reflected in a declining market and increased risks of stranded assets. On the other hand, she said new technology for clean renewable energy is already taking over with the market set to grow massively.

Janki told the US EXIM Bank that investment in renewable energy brings greater returns than supporting fossil fuels. In fact, it brings more jobs, cheaper energy which stimulates industry and is better for the economy, she said.

“The choice before this Board is whether to make a loan for an overseas gas plant in a declining sector or whether to assign this funding for clean energy thereby creating more (and better) jobs for Americans and enabling the United States to capture a bigger share of a growing renewable energy market,” the lawyer stated.

Importantly, Janki flagged the lack of any financial analysis to justify using gas for energy in the country. She was keen to note the conclusion of the Institute for Energy Economics and Financial Analysis (IEEFA) which assessed the gas project and found that it is, “…unnecessary and financially unsustainable”, “an example of money badly spent” and that the planned investments “are based on unrealistic assumptions about future electricity sales” which would result in “underutilized infrastructure and stranded costs for the government of Guyana.”

Litigation risks

The international lawyer told the US EXIM Bank that Exxon’s petroleum operations have so far resulted in eight court cases brought by Guyanese. “These cases have resulted in numerous wins for the people including an order for Exxon to produce a parent company guarantee from Exxon Corporation, an order to provide proper insurance, an order cutting Exxon’s environmental permits down from 25 years to five years, and declarations of law that Exxon was in breach of its legal obligations,” she highlighted.

Janki further noted that the Caribbean Court of Justice has said that Exxon’s co-venturers Hess and CNOOC cannot carry out petroleum operations under their petroleum production licences. She added that the Court also said that Exxon must abide by international conventions and protocols on the environment. As such, the lawyer warned of the possibility of delays to the gas project by future cases or even a halt to the venture.

Moreover, she cautioned that the US EXIM Bank is also exposed to legal risks. “EXIM Bank has been sued before in the United States. If this loan is approved, it is entirely possible that there may be grounds for other lawsuits based on non-compliance with the law,” Janki said.

The lawyer explained that section 11(a)(1) of the EXIM Bank Charter requires the institution to “establish procedures to take into account the potential beneficial and adverse environmental effects of goods and services for which support is requested under its direct lending and guarantee programs. Such procedures shall provide for the public disclosure of environmental assessments and supplemental environmental reports required to be submitted to the Bank, including remediation or mitigation plans and procedures, and related monitoring reports.”

Additionally, Janki said Section 11(a)(1) applies to projects which “(C) may have significant environmental effects upon the global commons or any country not participating in the project, or may produce an emission, an effluent, or a principal product that is prohibited or strictly regulated pursuant to Federal environmental law.”

To this end, the Guyanese Lawyer noted that the proposed 300-megawatt gas plant would produce over 980,000 tons of carbon dioxide per year and therefore would have significant environmental effects on the global commons.

She contended that the gas plant requires an environmental assessment which has not been carried out.

Harm to Americans

The award-winning environmental lawyer, in her comments to the Bank, highlighted the harm to Americans from the project. She reasoned that greenhouse gas pollution from the proposed gas plant has not been assessed for its impacts on the global commons as required by S11(1)(C).

“These impacts include radiative forcing which affects the global energy balance leading to global warming and its knock-on effects such as a breakdown of the global climate system, rising sea levels and a hotter ocean,” she said.

Additionally, Janki noted that Greenhouse gas pollution also causes ocean acidification and death to marine life. “Greenhouse gas pollution knows no boundaries. The impacts will affect the American people. Thus, Board approval of loan will cause harm to the American people,” the Lawyer warned.

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• bank, financial, Janki, lawyer, loan, risks, US-EXIM

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