Guyanese losing millions from Govt. and Opposition’s failure to to manage oil sector

Dec 25, 2024 News

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Kaieteur News- The Government of Guyana (GoG) and the Opposition have failed to ensure Guyana’s oil wealth is prudently managed to maximize benefits to Guyanese.

This is evident in 12 glaring areas, which if implemented or enforced could have ensured the country receives a fair share of its resource. Notably, these actions do not require a renegotiation of the 2016 Production Sharing Agreement (PSA) with ExxonMobil and its partners.

Audits

Guyana has failed to conduct timely audits of ExxonMobil’s US-multibillion dollar expenses which the country ultimately pays for through its oil.

According to the PSA, government has a two-year timeline to complete audits, however the administration has not been able to ensure the financial reviews are conducted within this stipulated timeframe.

Additionally, government has been criticized for failing to publish the audit reports which expose the abuse of the country’s oil revenue by the multinational corporation.

To date, the final audit report of the second review is still to be published.

No penalties

Although there have been calls for Exxon to be penalized for misusing the country’s oil money, as have been demonstrated in previous audit findings, the government is not inclined to punish the operator for its actions.

The Opposition has effectively agreed with the government’s position on this.

Ring-fencing

A major provision that government has forced to implement has resulted in the loss of massive annual revenue.

A ring-fencing provision would ensure only costs related to one project are paid off from those revenues. In this way, more money would be available to share as profits between the government and Exxon, after the co-venturers recover the cost of the project. Presently, Guyana could have been receiving a greater share of profit from the three projects producing oil- Liza One, Liza Two and Payara. This, as Exxon has since recovered over US$19B from the Stabroek Block, well above the cost for the three projects.

Government has blatantly refused to implement this provision while the Opposition remains undecided over the issue.

Windfall taxes

Windfall taxes are special taxes levied by governments on companies or individuals that have unexpectedly gained substantial profits due to unforeseen circumstances.

Oil producing countries around the world, such as Canada, the United Kingdom and the United States among others had imposed this tax on the massive excess revenue being enjoyed by the oil companies as a result of higher oil prices.

Guyana’s leaders have however decided that this would not be pursued locally as it would constitute a breach of the PSA. The Opposition’s position however is that the circumstances are not bizarre enough presently to warrant the implementation of such a provision.

Only last week Kaieteur News reported that each household in Guyana lost $1.7M in 2024 through the Government’s refusal to implement a 65% windfall tax on the excess profits currently being earned by American super major, ExxonMobil.

No unlimited protection against oil spills

Guyana is currently exposed to grave financial danger in the event of an oil spill as the government has refused to pursue an unlimited parent company guarantee from the operator of the Stabroek Block.

In fact, the government has teamed up with Exxon, against the citizens of Guyana, to fight against an unlimited parent company guarantee from Exxon.

No independent meters

On December 19, Guyana reached a significant milestone, five years of oil production. The country has however not procured independent meters to verify the daily rate of production as reported by Exxon.

Presently, ExxonMobil reports the daily amount of oil produced on the three Floating Production Storage and Offloading (FPSO) vessels.

Exxon has also blatantly refused to provide auditors with the raw production data and how auditors the location of its oil meters, raising further concerns about the accuracy of data being reported to the GoG.

Contract awards

Although Guyana essentially pays for the products and services procured by ExxonMobil, through the cost recovery mechanism outlined in the PSA, the country has no say in the award of large contracts.

The absence of government’s involvement in the process means that can only verify whether it was overcharged after the contract has been granted. These costs can then be pursued in the audit which can take years to be returned to the state. In fact, if Exxon disagrees with government’s findings, it can trigger the provisions in the PSA to require settlement via arbitration- another lengthy process.

Cost recovery statements

Although Guyana’s oil is being used to fund the US-billion-dollar operations of ExxonMobil, the country is clueless as to what specifically its oil is being used for.

This is so as the government has refused to publish the cost recovery statements submitted by the company each quarter.

Each month, a massive 75% of the oil produced by Exxon is taken by the Contractor for its expenses.

Capping interest rates

Guyana has been repeatedly advised to cap the interest rates that can be recovered by Exxon. Notably the operator makes the investments in the Stabroek Block and is allowed to institute an interest rate on its investments.

The IMF had warned that Guyana could be taken for a ride with unfair interest rates that could further shorten the country’s already meager share of profits. It pointed out that Guyana not only allows the recovery of the interest but also sets no cap.

Rentals

Guyana has been paying massive sums to rent vessels, buildings and other equipment to support Exxon’s ongoing operations in the Stabroek Block.

It has been argued that these costs may not only be inflated in some instances but also lack significance. For instance, the country has been warned to pay specific attention to these costs as it is normal for oil companies to abuse this privilege and utilize the services of its shell companies to rent tools such as simple as hammers to justify its expenditure.

Lack of transparency in GTE project

Since 2022, the government signed a Heads of Agreement (HOA) with the Stabroek Co-ventures, ExxonMobil, Hess and CNOOC, that outlines the principles and conditions for the commercial and technical arrangements of the deal.

Despite a number of attempts by the Opposition to secure copies of the agreements relevant to the project, the government has refused to make the documents public.

In addition to these agreements, the country is also yet to access studies on the feasibility of the project and its plan, along with terms to repay for the various components of the project.

The GTE project includes a pipeline, to be built and financed by the Stabroek Block operator, ExxonMobil Guyana Limited (EMGL), while the other two components, a 300-megawatt power plant and a natural gas liquid (NGL) facility is being constructed by the government of Guyana.

Relinquishment

In 2023, ExxonMobil was required to hand back a 20% portion of the Stabroek Block back to the GoG.

The company had however written to the David Granger administration in 2020 seeking a grace period given the COVID-19 pandemic and its impact on its exploration campaign. The extension was granted by former President, Granger and later upheld by the Irfaan Ali government.

The relinquishment was then pushed back to October this year; however, there is still no confirmation on whether the process has been completed to date.

Exxon is required to hand back acreage where no commercial discoveries have been made, a condition that allows Guyana to auction the areas to attract greater fiscal benefits.

(Guyanese losing millions from Govt. and Opposition’s failure to to manage oil Sector)

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• benefits, Exxon, Guyanese, management, oil, renegotiation

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