Review of Draft Model PSA (Pt 2)

Dear Editor,
Section 3 of the Draft Model PSA focuses on the costs, expenses, expenditures and credits of the contractor. There are several items in this section that would benefit from further review and consultation with the Audit Office of Guyana. Some examples are the following:
* In section 3.1 (Costs Recoverable Without Further Approval of the Minister)
o Income tax is recoverable for permanent employees (section 3.1) (b) (vi). With the establishment of a local Exxon Head Office, we should revisit this benefit for the inclusion of taxes. Especially if expatriate status is no longer in place and the company is no longer providing tax equalization for their employees in Guyana.
o In section 3.1 (e) (g) Insurance and Losses, “Costs, losses and damages incurred to the extent not made good by insurance are recoverable”. If this section is allowed to remain as is while inadequate insurance coverage is in place, the country will be exposed to significant financial loss in the event of a major oil spill. The PSA must ensure very stringent and extensive insurance coverage to prevent the financial downside that this section allows.
o In section 3.1 (e) (i) training costs are recoverable. This is counterintuitive, and reduces the benefit of what had been stated earlier in the PSA, where the funding of training is provided by the Contractor. This essentially makes the training costs borrowed funds that will have an interest rate associated with it, whether it is the market rate or the internal rate for the Contractor. Making these funds non-recoverable in the PSA would be a better approach in support of the development of local content.
* In section 3.2 (Costs Recoverable only with Approval of the Minister)
o Donations and contributions to organisations in Guyana (section 3.2) (b) are recoverable. This should not be recoverable, but instead be tax exempt.

Best regards,
Jamil Changlee