Payara Development Agreement better than Lisa I

Dear Editor,
With regards to critics on Payara, the current Government is being chastised for not coercing Exxon into renegotiating the Production Sharing Agreement (PSA) of 2016 relating to the extraction of oil in the Stabroek Block before granting a license to develop Payara. I too would like to see the PSA modified for Guyana to get more revenues but not by violating the tenets of a contract unless it can be shown to be corrupted. A court has to decide such an issue but none of the critics has the courage to file a case. It is all huff and puff and bravado talk. PSA and Payara are not directly or conditionally related. Payara has to do with granting a license for development of the well.
The PSA was settled by the APNU-led coalition and never called for renegotiation, not even now and never claimed that it is an unjust contract. The coalition told its negotiator to accept what Exxon offered and signed it. Exxon is not willing to re-open negotiation on the PSA. That was a blunder by the preceding Government, tying the PPP Administration to it. National interests groups can challenge the PSA if they have evidence of bad faith negotiation.
The agreement gives Guyana a paltry 2 per cent in royalty and 12.5 per cent in profit, all in oil, after all expenses have been deducted. From that 14.5 per cent, Guyana pays the costs of marketing the oil and Exxon’s taxes and a number of other Exxon’s expenses, reducing Guyana’s intake from the production of oil to less than 10 per cent. It is an unfair, abusive contract.

But it is one signed by the preceding APNU/AFC coalition Government. The country’s rights to higher revenues were sold out in that 2016 agreement. There should have been royalty and revenue sharing of close to 30 per cent. Oil specialists and economists were not consulted on the contract. Public opinion was not sought. The quantity of local content should have been specified in the PSA and there should have been caveats inserted into the agreement. Higher penalty should have been specified for flaring and dumping of pollutants in the water. Exxon should have been made to pay its own taxes and liable for oil spill, among other requirements.
The PSA is not subject to renegotiation because the coalition failed to insert such a clause into the agreement. It is, therefore, almost impossible for the PPP Administration to renegotiate the PSA. The PPP Administration cannot be held accountable for the PSA or to get a higher royalty or profit-sharing. The coalition itself was unwilling to support a renegotiation of the PSA.
Those of us who study economics, international law, international relations, and business treaties would know that it is nearly possible to break an international agreement or treaty without serious consequences. Pressuring a multinational corporation is fraught with serious risks. Governments are known to face international sanctions and even removal from office for breaking investment treaties. How should the PPP Administration respond to this unfair, one-sided treaty? Breaking the sanctity of an agreement is not an option. The current Government can ask for some variance in and enforcement of local content (meaning greater input of Guyanese resources, and indeed we are told that the Government has gotten assurance that Exxon would honour local content commitment.
The PPP has found itself reluctantly having to honour a one-sided contract negotiated by its predecessor that refused to heed the advice of oil experts and specialists in investment treaties. In order for PPP to have credibility with other and future investors, it must honour agreements. It does not mean that the PPP should not try to improve or increase benefits to the country where practical and where it would not seem to violate the PSA that would incur the wroth of giant investors and their home countries.
The preceding coalition regime should have sought an agreement that was closer in line to international standards. Having failed to do so, critics cannot now expect PPP to break the agreement in order to renegotiate a better deal. It would be great to have an increase in percentage in royalty and profit-sharing to fall in line with international standards of 25 per cent to 30 per cent. But one has to be pragmatic. Exxon would not reopen the PSA, and the PPP’s hands are tied. The APNU/AFC should be held accountable for this blunder.
The PPP should be hailed for getting Exxon to agree to some new conditions. A report says that the PPP has managed to get Exxon to agree to shut down a well if there are at least five oil spills. Also, from news reports, it seems that the Government has been able to get Exxon to commit to greater local content; legislation is urgently needed so that this agreement can be enforced. Exxon has also agreed to provide US$400K annually to audit operating costs. The Government should try to get Exxon to agree to local Guyanese managers for its operations and for recruitment of trainees to work on the rigs and related operations. There is no doubt that this deal, while not ideal, is better than the one negotiated for the Lisa I project.

Yours truly,
Vishnu Bisram