Government must tell the people how it will treat with ExxonMobil if it is found to be overstating its pre-contract costs, says Chartered Accountant and Attorney-at-Law Christopher Ram.
There appears to be no procedure detailing how Government will respond if this turns out to be the case. According to Ram, the pre-2015 US$460M costs are already stated in the signed Production Sharing Agreement (PSA) with Exxon’s subsidiary, Esso Exploration and P
Attorney-at-Law and Chartered Accountant, Christopher Ram
roduction Guyana Limited (EEPGL). That means, he told Kaieteur News, that Government has effectively already agreed to pay the cost. And since that contract can’t be revisited without Exxon’s consent, there seems to be no way to address any overstatements.
Kaieteur News posed the question to Minister of Finance, Winston Jordan and Commissioner-General of the Guyana Revenue Authority (GRA), Godfrey Statia. Both neglected to comment.
Ram had said, last year, that Exxon’s claim of US$460M is overstated by at least US$92M. He had challenged the Government to justify the figure it agreed to pay. His calculation found that all figures supplied by the companies, even when one allows for all expenses and expenditures, amount to a far cry from the US$460,237,918 that Exxon and its partners, Hess and CNOOC Nexen, are claiming. Even then, Ram’s assessment was generous. He had said that it is overstated by “at least” US$92M, because not all expenditure is recoverable as pre-contract costs.
The PSA states that the pre-contract cost “shall include four hundred and sixty million, two hundred and thirty seven hundred thousand and nine hundred and eighteen United States Dollars (USS 460,237,918) in respect of all such costs incurred under the 1999 Petroleum Agreement prior to the year ended 2015, “and … such cost as incurred under the 1999 Petroleum between January 1, 2016 and effective date which shall be provided to the Minister on or before October 3, 2016 and such number agreed on or before April 30, 2017. For purposes of this paragraph, the term pre-contract cost includes contract costs, exploration costs, operating costs, service costs, and general and administrative costs and annual overhead charge as those terms are defined in the 1999 Petroleum agreement.”
GUYANA WILL NOT PAY OVERSTATED COSTS
Earlier this year, Petroleum Advisor to the Government, Matthew Wilks, categorically stated that if oil companies rack up costs which are exorbitant and unjustifiable, Guyana will not be paying those costs, while noting that the power of the government is in cost recovery audits. He had said that this is the case whether it is for the controversial US$960M pre-contract costs and any costs going forward.
He had added, “If anything is excessive and there is no good reason for it being done, it will be disallowed, and that is a risk to any operator. If an operator spends too much on gold plates or doesn’t seek cost efficiency, it might be spending its own money and not the government’s because we will disallow it, pure and simple!”
US$960M PRE-CONTRACT COSTS
International lawyer, Melinda Janki, was one of the first persons to note that the country is neck-deep in US$960M worth of pre-contract costs.
During a panel discussion that was held on Guyana’s oil contract with ExxonMobil at Moray House, Janki reminded that the country has to pay US$460M in pre-contract costs. This covers the period 1999 to 2015. But there is a second lot.
Janki noted that the contract specifically states that Guyana is to pay contract costs from January 2016 to when the deal was signed on October 7, 2016.
The international lawyer had said, “The costs for the whole of 2016 were about US$583M and if you apportion it to October, you get roughly US$400M. Again, Minister of Natural Resources, Raphael Trotman has agreed for Guyana to pay this. As at October 7, 2016, Government’s attempt to sell our oil costs us US$960M.”
She had also said that there is no law that allows the Minister the authority to burden the nation with this cost, and that it is quite possible he acted illegally.
