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January 07,2018

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Economist Tarron Khemraj says his computations show that Guyana’s signing bonus from ExxonMobil should have been around US$238 million and not the US$18 million paid.

Khemraj, the current Sunday Stabroek business page columnist, has written extensively in this newspaper about development issues. In his column, which appears on page 12 in today’s edition, Khemraj said there appears to be no universal methodology for determining the fair value of the bonus and that it depends on the negotiating demands of the lessor versus the oil company.

He, however, said there are some general economic principles applicable and these include risk variables, such as a radical change in regulation, nationalization and regional conflict. The marginal cost of production, the time taken to recoup the initial investment, and the average cost thereafter can also determine the size of the signing bonus. Finally, the expected or long-term market price must also be taken into account.

Considering two important factors, he said that ExxonMobil spent an enormous amount of money to explore for oil and develop the production platform. He said that if consideration is taken of publicly available data, and those from the recent International Monetary Fund report, the cost of exploration and development from 2015 to 2020 is running at over US$5 billion.

“Second, we have a time value of money problem with the exploration costs occurring from 2015 to after 2020 given the `unrisk exploration upside’ to use industry lingo. Moreover, given the size of the Stabroek block, we can expect explorations and new developments after 2020, thereby incurring added costs for ExxonMobil. As with all time value problems, we need a suitable discount rate to find the present value of explorations and development as at 2015-16 when the Guyana government negotiated the updated production sharing agreement. The discount rate can be the risk-free rate of interest plus some opportunity cost associated with ExxonMobil’s next best explorations in some other part of the world. It should be noted, the ring-fencing of cost is not necessarily applicable here when determining the fair value of the bonus, but it is most relevant to determining the true average cost during the production stage,” Khemraj stated.

Given his calculation, he said that a signing bonus of around US$238 million seems appropriate. “This value imagines that I am in the latter months of 2015 to put myself in the shoes of the negotiators. If we consider new information released since November of 2017, the bonus is much higher. This amount of money can build a fantastic bridge across the Demerara River, freeing up funds which will be borrowed for the new bridge,” Khemraj said.

He added that in coming up with the number, he tried not to be unreasonable so as to adversely affect the publicly available internal rate of return of the project. He stated that one other methodology that Guyana could have used was to consider a percentage of the present value of expected revenues projected.

“Unfortunately, it does not appear that financial economists and managerial accountants were on the government’s negotiating team. These kinds of problems are not only legal and geological in nature, but also economic. As a matter of fact, it appears as though the Guyana government does not even know – under some reasonable assumptions – what’s the net present value of the project or the present value of all revenues. The government relies on the IMF and IDB, which no doubt have some fine technicians outside of the macroeconomics of developing countries. However, unless you can get the IMF and IDB people in the negotiating room, their help is limited,” he stated.

Further, Khemraj argued that having access to the IMF or IDB is no excuse for not having this kind of multidisciplinary capacity in government on a daily basis.

“In a sense, the sacrifice to date of failing to have a multidisciplinary and more diverse team in government is that bridge across the Demerara River!,” he declared.

Khemraj’s assertion will add to the growing concern that the government was overwhelmed in the negotiations by ExxonMobil.

Yesterday, the Private Sector Commission pointed to deficiencies in the petroleum agreement and called for better negotiators for future contracts.  (See story on page 11)

Replies sorted oldest to newest

Prashad posted:

Looks like Tarron may want a cut also. 

Correct, in fact slow boy TK firing a warning shot at Exxon, they will grease him soon enough and he will go back to being quiet. Everyone else in the Granger administration got their share, why not TK? 

FM

The way this government is handling this matter makes everyone suspicious that they are involved in serious corruption.  Why should the people of Guyana be kept in the dark about this oil deal if there is nothing to hide? Why Exxon's spokesman hurriedly made a public statement about the oil bonus just after it was exposed to the press?  Exxon was obviously trying to do some damage control since the government they are dealing with keeps getting  F grades on everything they do at home.

Billy Ram Balgobin
Last edited by Billy Ram Balgobin
Mitwah posted:

If Jagdeo and his esteemed qualified disciples were overwhelmed in the negotiations by ExxonMobil, how about the current bunch of hapless less qualified minions of  the PNC?

I'm waiting for a calypso song about Guyana's great oil find. 

 

Billy Ram Balgobin
Riff posted:
Nehru posted:

TK just pulling numbers from his ass. However, we know that Exxon suckerpunch Guyana.

how you know the man pulling numbers from his ass?

Did he show a computation?/ And is TK we talkin Bout, where else will he get numbers??):

Nehru
Demerara_Guy posted:
Nehru posted:

TK just pulling numbers from his ass. However, we know that Exxon suckerpunch Guyana.

Seems to be the usual approach, Nehru.

Absolutely, throw numbers around and pray one stick.):

Nehru
antabanta posted:

Too late to renegotiate now. The deal was already signed by the Rat.

nonsense, Janet your blue eye bougie signed the first deal and the one in question with 18m is the work of your new masters jackass Granger et al dunces. 

FM
Last edited by Former Member
Nehru posted:
Riff posted:
Nehru posted:

TK just pulling numbers from his ass. However, we know that Exxon suckerpunch Guyana.

how you know the man pulling numbers from his ass?

Did he show a computation?/ And is TK we talkin Bout, where else will he get numbers??):

Correct, another jackass who come up with numbers without the requisite computation given. 

FM
Drugb posted:
Nehru posted:
Riff posted:
Nehru posted:

TK just pulling numbers from his ass. However, we know that Exxon suckerpunch Guyana.

how you know the man pulling numbers from his ass?

Did he show a computation?/ And is TK we talkin Bout, where else will he get numbers??):

Correct, another jackass who come up with numbers without the requisite computation given. 

TK is a professor, that’s what they do.  Hardly are the ever held accountable for real results!!

FM
Last edited by Former Member
Drugb posted:
antabanta posted:

Too late to renegotiate now. The deal was already signed by the Rat.

nonsense, Janet your blue eye bougie signed the first deal and the one in question with 18m is the work of your new masters jackass Granger et al dunces. 

BS.... the bonus was already in the deal to be paid upon discovery. But you probably know that only too well. Keep on with the deceit. Y'all not fooling anybody.

A
Baseman posted:

TK is a professor, that’s what they do.  Hardly are the ever held accountable for real results!!

It is more than likely de bai sussing out a raise from exxon. He just might get it if they have it in mind to shut him up by putting some bread in his mouth. 

FM
antabanta posted:
Drugb posted:
antabanta posted:

Too late to renegotiate now. The deal was already signed by the Rat.

nonsense, Janet your blue eye bougie signed the first deal and the one in question with 18m is the work of your new masters jackass Granger et al dunces. 

BS.... the bonus was already in the deal to be paid upon discovery. But you probably know that only too well. Keep on with the deceit. Y'all not fooling anybody.

Show us the rat's signature nah.  pnc slop can carrier posted a document on another thread. 

FM

Signing bonus was received from ExxonMobil

-gov’t silence raises doubts over openness, probity

US oil company ExxonMobil did pay a signing bonus following the new agreement it clinched with the government on June 27, 2016 and why this was kept secret will pile pressure on the Granger administration over its claims to transparency particularly given concerns over accounting for revenue from the petroleum sector.

Stabroek News has seen correspondence (reproduced on this page) dated September 20, 2016 from the Ministry of Finance to the Bank of Guyana (BoG) pertaining to arrangements for the signing bonus. The letter did not specify the quantum of the bonus but commentator Christopher Ram said in October that he was told that US$20M was paid. This statement was not contradicted by the government. Pressed for answers, Minister of Natural Resources Raphael Trotman would only say that that Cabinet would deliberate on the question of making the June 27 contract available to the public. On November 30, Minister of State Joseph Harmon said that the contract and presumably any information on the signing bonus would be made available sometime this month.

Aside from the secrecy over the bonus, the depositing of the funds at the BoG and outside of the Consolidated Fund would raise grave concern as this government when in opposition had been critical of monies kept outside of the Consolidated Fund and the accountability framework.

In the correspondence seen by Stabroek News, Finance Secretary in the Ministry of Finance, Dr Hector Butts wrote to the Governor of the BoG, Dr Gobind Ganga with the reference line ‘Signing bonus granted by ExxonMobil – Request to open bank account’.

Butts said in the letter “I shall be grateful if you would arrange for the under-mentioned Foreign Currency Account to be opened at Bank of Guyana, in order to receive a deposit in the form of a signing bonus to be given by ExxonMobil. This account should not be treated as part of the Bank’s reserves. Instead, the proceeds should be held in the currency of the deposit, that is, United States dollars, and invested in secured interest-bearing securities”.

Butts went on to say that the authorized signatories to the account were himself, his deputy, Louise Bouyea, Accountant General Jawahar Persaud and his deputy Jennifer Chapman.

The letter was copied to the Minister of Natural Resources, Raphael Trotman.

Who negotiated the signing bonus, the terms of such a payment and what has since become of the money are questions the government will likely face pressure over.

In February of this year, Trotman informed that  minor modifications to the original contract with ExxonMobil subsidiary Esso Exploration and Production Guyana Limited (EEGPL) were made and had justified the non-disclosure by saying that only  “salient points” of the contract agreement will be made public for security and other reasons.

“In so far as full disclosure at this point in time, I think government is of the view that full disclosure would not be to the best of the national benefit or national interest,” Trotman had told a media breakfast where his ministry and ExxonMobil provided updates on the nascent oil and gas sector.

The issue attracted additional public scrutiny when columnist Ram stated in October this year  in Stabroek News that he understood that some US$20M was paid to the government as a signing bonus.

With  Stabroek News consistently probing as to why the contract could not be made public, Trotman then said in October that he would take the issue of disclosure to Cabinet for discussion and guidance on the way forward.

“Nothing on the contract I am discussing. I would like to take this whole issue of the publication of the contract to Cabinet for guidance because it is not a Trotman issue it is a government position and I won’t be able to discuss it,” he said when asked about whether government had collected a signature bonus from ExxonMobil when a new agreement was signed with it.

Following Trotman’s position, in early November, Government’s Petroleum Advisor, Jan Mangal, said that he had advised government to make the contract public but believed with public pressure the contract would be released quicker.

“My terms of reference with the President, I had transparency as the number one item. So I constantly push for transparency. I believe that all contracts should be made public. Not only petroleum, Diamonds gold, timber these are all resources of the people and all of these contracts should be made public. That is my objective. I am an advisor and I obviously can only advise. That is continually my advice that these contracts be made public because in the long term that is what would help Guyana,” he stated.

“Of course the signing bonus (if paid) needs to be made public. It needs to be auditable. People need to have confidence in their representatives and the way to do that is by having transparency,” he added.

Mangal said that heightened demand from citizens for the release of the contract and answers as to whether a US$20M signature bonus was paid here could see a faster release of information and felt that if the people believe it was important enough they should press the issue.

“I believe the civil society and the people have a large role to play and it would probably be quicker if civil society and the people believe it was important and voiced their beliefs,” Mangal posited.

Further, he added, “Ultimately they will publish it but it might be quicker if there is some pressure.”

On the same day Mangal spoke, Trotman, via a statement through the Ministry of the Presidency, reiterated his earlier position.

“The Government has taken a decision at this point in time not to release the full contract. We have released quite a few details in fact and if persons are wise enough, and many are, you can put pieces together to get a sense of what is the contract but there are a number of extenuating and external issues which are being attended to, some of them have foreign affairs implications, some of them have sovereignty implications, some have national security implications and Government has been advised by external advisors and lawyers that at this point in time, that we should not bare all,” the release quoted him as saying.

“It is perhaps not palatable to everyone to accept that and sometimes advice is not always what you want to hear but it is important that if you have retained experts and others to advise you that you abide by their advice. I am confident that in due course Cabinet will lift that injunction … and that everything will be opened. There is nothing in there that could sink anyone or sink a Government. As a matter of fact, I have said that often times, it is really a continuation of a 1999 contract and it was tweaked in just a few places and so there is nothing to hide”, the release added.

‘Greater Inclusiveness’

When Harmon was asked on November 30 if it was the government yielding to public pressure, he said that his government was one that listens to its people and in so doing reflects it by their actions.

“We have taken all of those issues into consideration. Cabinet has had a fulsome discussion on the matter and we also recognize that there is a need expressed by our population for greater inclusiveness, for more information to be provided and we take those into consideration as well,” he said.

“I said here at one of the press conferences that we listen to the people and we are not deaf to the concerns that have been expressed by various sections of our community, and we believe that it is important that we take the public into our confidence, with respect to not only this contract, but other contracts which might affect our dealings with other companies in relation to the natural resources, the national patrimony of Guyana,” he added.

He also pointed out that checks were made with Exxon before a decision to have the contract released publicly.  “There are background checks which a government has to do when it is going to make certain decisions so I have given you a framework a timeline when the contract will be made available [ and that is in] the month of December,” Harmon said.

Ram had also questioned repeatedly why it was necessary for a new agreement to be signed by Trotman with EEGPL when only minor modifications were being made. It was surmised that a signing bonus from Exxon was the impetus towards a new agreement.

FM

I believe this 18 million bonus that was kept hidden from people is just the tip of the iceberg. There could very well more hidden accounts that this regime is not talking about.  The Accounting General and the ministry of finance went along with the president and lied to the people of Guyana about this bonus from Exxon.  Exxon stated accurately that the ministry of finance was involved in the signing of this deal. I think the AG and others have compromised their integrity by being in cahoots with the government in this corrupt deal. 

Billy Ram Balgobin
Drugb posted:
antabanta posted:
Drugb posted:
antabanta posted:

Too late to renegotiate now. The deal was already signed by the Rat.

nonsense, Janet your blue eye bougie signed the first deal and the one in question with 18m is the work of your new masters jackass Granger et al dunces. 

BS.... the bonus was already in the deal to be paid upon discovery. But you probably know that only too well. Keep on with the deceit. Y'all not fooling anybody.

Show us the rat's signature nah.  pnc slop can carrier posted a document on another thread. 

In that case, perhaps you, a PPP slop can carrier can post a document also.

A
Billy Ram Balgobin posted:

I believe this 18 million bonus that was kept hidden from people is just the tip of the iceberg. There could very well more hidden accounts that this regime is not talking about.  The Accounting General and the ministry of finance went along with the president and lied to the people of Guyana about this bonus from Exxon.  Exxon stated accurately that the ministry of finance was involved in the signing of this deal. I think the AG and others have compromised their integrity by being in cahoots with the government in this corrupt deal. 

Most of the Guyanese Politicians are crooks and can't be trusted.

Django

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