One day after the contract between US oil giant ExxonMobil and the Government of Guyana was released, Opposition Leader Bharrat Jagdeo has flayed the administration for the less-than-favourable terms it negotiated on the country’s behalf.
Speaking at the Parliamentary Opposition’s end-of-year press conference on
Opposition Leader Bharrat Jagdeo
Friday, Jagdeo made it clear that although Guyana was holding all the cards when it sat down to negotiate with ExxonMobil, the end product is a contract heavily favouring ExxonMobil.
According to Jagdeo, the negotiating power had shifted in Guyana’s favour by 2016 having discovered oil and as such, a much more favourable contract for the country could have been garnered. With such advantage in hand, he added that Government failed in its negotiation with the oil giant, questioning the motive of the negotiating team when it agreed to the terms of new contract.
Jagdeo stressed that the party welcomes ExxonMobil’s investment, and in fact,
Natural Resources Minister Raphael Trotman
that party is responsible for bringing the oil company onboard.
However, the Opposition Leader added that while the oil company cannot be faulted, as its duty is to make profits, it is the GOevrnment of Guyana that had to have had proper negotiators
What Guyana got out of the agreement are “peanuts,” as compared to the oil reserves.
“As a country, we were desperate to get investors to come into Guyana to explore for oil and gas. So the 1999 contract has to be seen in that light. Jump to 2016, when this contract was renegotiated. At that time, the minister knew we had 3.2 billion barrels of recoverable oil, and that the exploration offshore was yielding positive results. So it was a very different situation to now. Now, we had more cards to play with and everyone wanted to come to Guyana. We had more strength to negotiate a better contract… the negotiating power shifted to us. So, what did we get?”
“The DPI has been touting the rental moving from $400,000 to US$1M. The training bonus is now US$300,000 (per year), and the royalty has moved from 1 to 2 per cent, and that $300,000 would be spent on environmental issues. If you add all of that together and you compare these, 2 billion barrels multiplied by US$50 a barrel, you would see its peanuts. And this is what we are told is a positive negotiation.”
In return, Jagdeo pointed out that ExxonMobil received an extension; a favourable clause for the company to retain its terms and relinquish blocks, among other things.
The former President compared the contract with the one that bound his Government to accept the Guyana Telephone and Telegraph (GT&T) monopoly, and expressed trepidation that Guyana would have to live with a contract negotiated by a possibly compromised team.
The contract
The contract was released on Thursday, after incessant public pressure. While it contains provisions for local content, there are a number of concessions. For instance, Article 15 of the contract states that Exxon is exempt from paying Corporation, Excise or Value Added Tax on its earnings from petroleum.
Article 15.4 also provides for the Government itself to pay the company’s income tax. To facilitate this, the oil company has to submit tax returns to the Government. That’s not all. Article 32 stipulates that Government cannot 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 Article 32.3 “If at any time after the signing of this agreement there is a change in the laws of Guyana… and such a change has a materially adverse effect on the economic benefits, including those resulting from the fiscal regime provided by this agreement… the Government shall promptly take any and all affirmative actions to restore the lost or impaired economic benefits to contractor, so that contractor receives the same economic benefit under the agreement that it would have received prior to the change in law or its interpretation, application or interpretation.”
The contract goes on to say: “The foregoing obligation shall include the obligation to resolve promptly, by whatever means may be necessary, any conflict or anomaly between this agreement and any such new or amended legislation, including by way of exemption, legislation, decree and/or authoritative acts.”
But there are provisions for Exxon to fulfil its corporate social responsibility. This includes a fund for social and environment projects. Exxon has to contribute US$300,000 per year to this fund. The sums roll over, and the company together with Government will determine which projects to fund.
The contract sets aside another US$300,000 per year to ensure Guyanese personnel are trained at local or overseas universities and conferences. There are also provisions for a continuous review of local content.
In defence of the contract, Natural Resources Minister Raphael Trotman has said that a decision was taken to make ExxonMobil a long term partner, rather than court other companies.
