Serious concerns about Govt.’s arrangement with ExxonMobil need urgent answers – Nigel Hughes
Jul 03, 2017 , http://www.kaieteurnewsonline....nswers-nigel-hughes/
• Is there a ceiling for cost recovery in any given year?
• How does the Govt. of Guyana intend to validate the costs?
• What were the duties and tax concessions granted?
By Abena Rockcliffe- Campbell
There are many questions that remain unanswered about Guyana’s arrangement with oil giant ExxonMobil and some of the country’s leading minds are becoming antsy about what this really means.
Prominent Attorney Nigel Hughes, who is also a Director of Guyana Oil and Gas Association (GOGA), recently delivered a presentation at an international academic conference hosted by the University of West Indies Law faculty. Hughes’ presentation was titled “Guyana’s new frontier.”
At that forum, Hughes highlighted that there is a deficit of information in the public domain about key issues regarding Guyana’s arrangement with ExxonMobil.
Hughes gave the attendees a synopsis of Guyana’s journey to where it is at present. He went as far back as to Independence and travelled all the way to the announcement of the oil discovery in 2015 – then to government’s announcement of the two percent royalty Guyana is to receive form ExxonMobil when oil production begins.
Hughes told the conference that after the initial announcement of the Liza-1 find, locals began voicing concerns about the management of the oil resource.
“Some chatter began locally about the management of this resource. What shape the developmental plans for the country will take and exactly what part of the newly discovered resource would Guyana benefit from?”
The Attorney noted that on June 1 this year, government announced that it is expected to grant a production licence to Exxon.
“The release stated, the production licence is required to be finalized before the developers make their final investment decision for the project in June 2017.” The production licence has since been granted.
Hughes continued, “Extraction from the Liza field is expected to commence in 2020 at an initial rate of 100,000 barrels per day in the first phase. Not only an ambitious schedule to production but perhaps unprecedented.”
He said that the government also announced that Guyana will receive a royalty of two percent of the gross earnings and benefit from 50 percent of the profits from the sale of petroleum once production commences.
Hughes noted that what was not announced, however, was whether there was a ceiling for cost recovery in any given year. Yearly cost recovery ceiling would refer to the amount of money which government and ExxonMobil agree that the company will take out from the yearly revenues generated in order to recover its investment. The amount of money agreed on will reflect in Guyana’s yearly piece of the pie. It has already been established that Guyana is supposed to get 50 percent of the profit and two percent royalty.
Case study: If ExxonMobil receives $100 per year and takes out $70 for cost recovery purposes that would leave only $30. Two percent will then have to be taken out for royalty and the remainder is to be divided 50-50. Therefore, cost recovery ceiling is an important factor in getting to understanding just how much Guyana will benefit yearly.
Hughes also pointed out that there has been no indication whether cost recovery is a percentage of revenue.
The Attorney at Law also told the conference that Guyanese are yet to be told how the government intends to validate the costs ExxonMobil has incurred. This is important, as the possibility of inflated cost cannot be ruled out.
Hughes said too that “there is also an absence of any information on key variables including life of the project in years, the total investment, the annual fixed cost per year, estimated cost of a barrel of oil for the project, and whether any duties, tax concessions were granted.”
Guyana has had a history of granting huge tax concessions. This practice was notorious under the rule of the People’s Progressive Party/Civic government. Of course, it is a practice around the world for investors to be granted concessions. But the level of concessions usually matches the benefits that the country is expected to receive. Assessments are usually done in this regard. But that is not usually the case in Guyana. There has since been proof in some cases that companies imported items that had nothing to do with the projects they proposed.
Hughes, during his presentation also told the students about the call made by the Working People’s Alliance (WPA) for more information to be put in the public domain
He said, “One of the parties in the Governing Coalition called on the Government to publish the contract.”
He noted too that the Chairman of the WPA, in a letter to President David Granger said, “There is no justifiable reason for not publishing this contract. Seeking public comment on it is our democratic obligation. And engaging the widest possible sharing of views can only help the coalition government to make wiser decisions.”
