2016 PSA: Guyana could be exposed to $$ billions in liabilities if Govt changes terms – VP

Vice President Bharrat Jagdeo

Even though the Government has maintained that its hands are tied when it comes to changing the 2016 Production Sharing Agreement (PSA) signed with ExxonMobil, calls continue to be mounted for the Government to push for more favourable terms.
According to Vice President Bharrat Jagdeo, however, if the Government goes down this road not only would it deal a blow to investor confidence and Guyana’s reputation as a country that respects contracts, it could also expose the state to billions of dollars in liabilities if the company takes Guyana to arbitration over any lost earnings.
“The possibility of exposing this country, the Government of Guyana and the people of Guyana to multi-billion US dollars of liabilities; money that we don’t have,” the Vice President highlighted during his recent press conference.
Jagdeo went on to reference an editorial that had claimed that the 2016 PSA contained provisions allowing for renegotiation of the contract. According to Jagdeo, however, this could not be farther from the truth.
“So why do I say that? It goes on to say, indeed, the 2016 PSA recognises the possibility that the two sides can negotiate. So, when I read this, I said really? Am I reading something else? In the PSA that Trotman signed, is there the possibility of renegotiating?
“And so where is this? And then I heard there was an editor’s comment, that it was Article 22 or 23 of the PSA. After a letter questioned it. So, guess what it’s titled. It’s called a stability clause. Imagine a stability clause preserves the benefits of the agreement.”
Article 32 of the PSA signed by the then A Partnership for National Unity/Alliance For Change (APNU/AFC) Government stipulates that Government could not modify the contract or increase any fiscal obligation the company has. This, therefore, puts a cap on the taxes, royalties, duties, fees or charges outlined in the contract. Government also has to compensate the operator if a change to existing laws causes loss of revenue for the company. According to Jagdeo, all Governments are bound by this clause.
“That is international law. Whether you like it or not, once you’re a part of this world, you have to go to arbitration. If you make any changes, if you pass a new law, that takes away any benefit, that is what Trotman signed unto in the stability clause. So, imagine, they’re saying that the stability clause is the basis for renegotiation. It’s the stupidest thing I’ve ever seen in my life.
“In fact, one of the most compelling reasons why you cannot renegotiate. Because Exxon, unless they agree with it voluntarily and they’ve made it clear they’re not going to agree with it. So, you’re gonna have a dispute. And the dispute ends up in any case… if we pass a law that takes away any benefit from them now, that stability clause says they can go to arbitration.”
Jagdeo pointed out that the arbitration panel not only has the right to ensure Exxon gets back the money it would have lost, but to also award damages. This would have massive financial implications for Guyana, in much the same way the parking meter fiasco, which is currently before an arbitration panel where US$100 million proceedings were filed by Mexican firm Smart City Solutions (SCS), could potentially have.
“We now have a demand for $100 million on the parking meter [matter]. It’s before an arbitration panel now. We were not part of the parking meter contract that was signed by the APNU Government and the City Council. We were not part of that. We’ve already spent over US$2 million in legal fees to fight that case.
“What if there’s a big award? The country has to pay that, for something that never worked, a bad decision there. Just imagine if they go and get a $10 billion award? Because that’s the magnitude of the scale. We collected under $2 billion the first two years. Last year, we collected about $1.5 billion. And they get a $10 billion award for damages and lost value?”
While the PPP/C Administration is not changing the 2016 PSA, it introduced a series of stringent terms and conditions last year for new oil deals that the country will sign. These include increasing the royalty from a mere two per cent to 10 per cent fixed rate; the imposition of a 10 per cent corporate tax, and the lowering of the cost recovery ceiling to 65 per cent from 75 per cent, while retaining the 50-50 profit sharing after cost recovery. (G3)