Consent is not a veto

Dec 30, 2024 Features / Columnists, Peeping Tom

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Peeping Tom…

Kaieteur News- Bharrat Jagdeo, continues to muddle the discourse on the renegotiation of the Production Sharing Agreement (PSA) between the Government of Guyana and the oil companies. His oscillating justifications—ranging from the sanctity of contracts to fears of losing momentum, and now the claim that oil companies must consent to renegotiation—betray a lack of coherence and a failure to address the growing demand for fairness in the agreement. Yet, contrary to Jagdeo’s shifting rationales, renegotiation of the PSA remains both a contractual right and, given the glaring inequities in the current arrangement, a moral imperative.

The PSA’s Stability Clause has often been brandished as an immovable obstacle to renegotiation. This interpretation, however, is both legally and logically flawed. The Stability Clause does not outright prohibit amendments or renegotiations. Rather, it ensures that any modifications to the agreement are undertaken in a consensual and non-arbitrary manner. By its very design, the clause presumes the possibility of change—provided there is mutual agreement between the parties. This is a far cry from the narrative that the clause locks Guyana into perpetuity with an inherently unequal contract.

Jagdeo’s assertion that the oil companies must consent to any renegotiation is technically accurate but misses the broader point. Consent, in this context, is not a veto but a necessary step in collaborative negotiations. It is entirely within the government’s purview to initiate discussions, present compelling arguments, and apply pressure to achieve a more equitable arrangement. Stability clauses exist to safeguard against capricious governmental actions, not to perpetuate unjust contracts.

The current PSA, signed in 2016 under the previous administration, has been widely criticized for its lopsided terms. Guyana’s share of the profits—a mere 2% royalty and 50% of profit oil—is significantly lower than the global industry average. Additionally, the cost recovery ceiling of 75% allows oil companies to recoup their investments at an accelerated pace, further delaying substantial revenue flows to Guyana.

The agreement also includes provisions that excessively favour the oil companies, such as tax exemptions and unrestricted recovery of pre-contract costs. These terms have collectively deprived Guyana of billions of dollars in potential revenue. The inequities of the contract are not just financial; they extend to environmental liabilities and governance. There have been calls, for example for  greater safeguards to hold companies accountable for ecological damage.

Given these concerns, renegotiation is not merely desirable but necessary. It is untenable for a resource-rich developing nation like Guyana to accept terms that undermine its long-term economic and environmental interests.

Renegotiation of contracts is a common practice in the oil and gas industry, particularly when market conditions or national circumstances change. Several countries have successfully renegotiated agreements to secure better terms for their citizens. Stability clauses did not deter these nations from advocating for fairness and equity.

In Guyana’s case, the massive discoveries of oil reserves since 2016 have fundamentally altered the playing field. The original PSA was negotiated when the resource potential was largely speculative. Today, with proven reserves exceeding 11 billion barrels, the context has changed dramatically. This shift alone provides ample justification for revisiting the terms of the agreement.

Dispute settlement indeed is costly as Guyana is discovering in relation to the gas-to-energy project. But dispute settlement should not be cited as a deterrent to demanding renegotiation. Dispute settlement mechanisms are triggered under specific circumstances, such as disagreements over the interpretation of terms or unilateral actions that alter the agreement to the detriment of one party.

A simple request to renegotiate, initiated in good faith, does not fall into these categories. Renegotiation involves dialogue and voluntary engagement between the parties to revise terms that are no longer equitable, especially when conditions or circumstances have significantly changed. By conflating the act of requesting renegotiation with the possibility of initiating a dispute, Vice President Bharrat Jagdeo fundamentally misrepresents the purpose and scope of dispute resolution processes.

Stability clauses and dispute resolution mechanisms are designed to ensure fairness and protect against arbitrary amendments, not to prohibit renegotiation. The oil companies, as rational actors, would likely recognize the importance of maintaining a cooperative relationship with the government and may engage in renegotiation to preserve their operational stability and public image. By mischaracterizing renegotiation as a possible precursor to disputes, Jagdeo undermines the government’s leverage and risks discouraging necessary action to rectify the glaring inequities in the current agreement.

However, the argument for renegotiation also transcends legal and economic considerations; it is a matter of moral responsibility. The wealth generated from Guyana’s oil reserves belongs to its people. Yet the current PSA disproportionately benefits foreign corporations, and that alone should be cause for seeking better terms for Guyana.

Jagdeo needs to be edified that the oil companies’ right of consent to amendments, as outlined in the Production Sharing Agreement (PSA), does not equate to an absolute veto over renegotiation. This consent merely ensures that any changes to the agreement are mutually agreed upon, preventing unilateral modifications by either party.

Renegotiation is not a unilateral imposition. Rather it is a right to revisit the contract to address its inherent inequities or to adapt to changed circumstances.

(The views expressed in this article are those of the author and do not necessarily reflect the opinion of this newspaper.)

(Consent is not a veto)

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• Bharrat Jagdeo, consent, Government of Guyana, Production Sharing Agreement, The Stability Clause

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