Home Features ExxonMobil is neither Guyana’s enemy nor the solution to all of Guyana’s...
Readers might have observed that this author was featured in the letters’ section of several media houses during the course of last week – challenging the writings of two retired professors on certain aspects of the Production Sharing Agreement (PSA) between ExxonMobil and the Government of Guyana.
The argument put forward by the professor(s) is that Guyana is losing revenues to ExxonMobil because ExxonMobil is exempted from paying corporate taxes. These proponents went on to argue that the oil companies are using our airports and roads etc., for free by virtue of being exempted from paying corporate taxes.
This author argued in response that this view is very misleading and is a non-contextual reasoning. The PSA contains a special fiscal framework which is outside of the normal national fiscal framework – that is, it constates a hybrid of a royalty and profit share model which is 2% royalty plus 50% profit share.
The proponents, however, failed to comprehend that this fiscal framework is effectively equivalent to taxes. A basic understanding of taxes is such that taxes are paid to the Government by both individuals and firms from their earnings. The purpose of taxes is essentially to finance the Government so that the Government, in turn, can manage the affairs of the country and spend and/or invest on public goods and services for the utilisation and benefit of the people and firms. And so the taxes paid by firms essentially come from profit, wherein a percentage (whether it’s a rate of 25% or 35%) is applied. This is the fundamental basics, to put it simply; and therefore, the royalty and profit share derived from the productive activities of the oil companies, which are paid over to the Government, is also a tax, or is equivalent to paying taxes. Hence, it is incorrect to assume or tell an entire nation that ExxonMobil is benefiting from a perpetual exemption of paying taxes. This view is technically and contextually flawed, and is incorrect.
There is another popular argument by commentators, wherein they are comparing the Guyana PSA model with that of Suriname; but, again, this is an inappropriate comparison. Suriname, unlike Guyana, had a fiscal framework in place long before Guyana found oil (more than half of a century ago). Suriname began onshore oil production since 1982. The period 1982 cannot be compared to now, because they are two completely different eras in which the dynamics have changed significantly with respect to the global energy industry.
The proponents are also seemingly treating ExxonMobil and oil companies as though they are enemies of Guyana. This is a dangerous and unfair premise. ExxonMobil is not an enemy to Guyana; rather, ExxonMobil is Guyana’s development partner. Were it not for ExxonMobil, the oil resource would have remained in the ground. The oil company is not the solution to all of Guyana’s problems.
While the current PSA may not be renegotiated by the Government, it can certainly be leveraged to negotiate a better PSA for new contracts. In other words, the Government now has greater bargaining power when it comes to securing new deals in the sector.
Moreover, it should also be acknowledged that the indirect benefits may far outweigh the direct benefits to Guyana as a result of Exxon’s operations in Guyana and the new emerging oil and gas sector altogether.
(The author will conduct next week’s article on the indirect benefits).
About the Author: JC. Bhagwandin is a financial and economic analyst and an Adjunct Professor at Texila American University, Business College. The views expressed are exclusively his own, and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to [email protected]