Author: ChrisRam

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Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 43)

One feature of the Esso/Hess/CNOOC 2016 Agreement – as indeed the 1999 Esso Agreement signed by President Janet Jagan – which has received little public attention is Gas which is addressed in Article 12 of both Agreements. In both Agreements “gas” or “natural gas” are defined in Article 1 – Definition. Additionally, both agreements have definitions of “associated gas” which is all Natural Gas produced from any Reservoir producing predominantly Crude Oil; and “non-associated gas which is defined as natural gas or gas other than associated gas.

Gas is considered a quite distinct product since the non-liquid physical character of natural gas at ordinary temperatures and pressure imposes economic and practical limits on its use. Gas generally is transported by pipeline while oil can be transported by pipeline, road or rail. In the offshore environment, underwater pipelines can transport either oil or gas but ships can only economically transport liquids. Of course, with development and technology, it is now possible for natural gas to be liquidified under particular temperature and pressure into liquefied natural gas (LNG) and transported by ships.

According to William Hughes in the 2016 publication Fundamentals of International Oil and Gas Law, the LNG industry has been characterised by high capital costs, even exceeding the usual high costs of the oil and gas industry generally, due to costs of constructing specialised facilities to liquefy and load the gas, constructing specialised tankers to transport the LNG, and constructing facilities to receive and regasify LNG at the port of destination. Coupled with this is the comparatively thin market for the product. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 43)”

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Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 42)

Introduction

Column 41 which appeared two weeks ago looked at the paltry share capital of the three foreign oil companies which signed the 2016 Petroleum Agreement for the Stabroek Block. The annual returns of two of the three companies showed that their exploration costs were financed by loans from their parent companies. Since one of those companies – Hess Guyana Exploration Guyana Limited (Hess) – had not filed annual returns since its registration in 2014, it is not possible to determine the source of its financing. Still, it would be a safe bet that it too will finance its operations by inter-company borrowings.

This column has not been the only expression of concerns about this strategy of low equity injection and high borrowings being pursued by the three contractors. Mr. Godfrey Statia, Commissioner General has indicated that the Revenue Authority would be paying particular interest in the practice and will no doubt seek to use his discretionary powers to disallow some of those costs. Other countries discourage such practices by what are called thin-capitalisation rules (see column 41).

The challenge for the Commissioner General are not insignificant: no thin-capitalisation rules; a court system that generally avoids getting involved on how companies structure their finances; the tax exempt status of the oil companies; and the jurisdictional overlap between the Revenue Authority and the Petroleum Commission whenever that Bill is pursued in the National Assembly. Of course, inter-company loans are only one tool used by businesses to shift profits from high tax to no/low tax jurisdictions since there is an infinite number of ways to shift income or charge or shift expenses. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 42)”

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AFC has exhibited duplicitous leadership

I find the report by Mr. Raphael Trotman, leader of the key coalition party Alliance For Change (AFC) that his party will not support the Sedition Clause (clause 18) in the Cybercrime Bill of 2016 most astonishing. Mr. Trotman must be aware that Chairman and immediate past leader of the AFC and Vice-President of Guyana Khemraj Ramjattan and AFC MP Mr. Michael Carrington were members of the Committee and that both were present and voted to retain the dangerously offensive clause 18.

In fact, Mr. Ramjattan played a key role in the Committee, including referring the Bill to a lecturer at a meeting of the Commonwealth Parliamentary Association which he attended and also in offering guidance to the Select Committee that the “Commonwealth has a standard Legislation/Model Act and the Cybercrime Bill emanated from that Act.” At best, Mr. Ramjattan could only have been referring to the 2002 Commonwealth Computer and Computer Related Crimes Model Law. Incidentally, a 2014 Discussion Paper on Cybercrime Model Laws prepared for the Cybercrime Convention Committee (T – CY) reports that the Commonwealth Model Law could not be found on the Commonwealth Secretariat’s website and has “been of little relevance in terms of impact upon Commonwealth countries or even generally.”

The reason that I find Trotman’s statement so offensive is that it represents a pattern of conduct in which Trotman and the leadership of the AFC seek to distance the Party whenever questions arise in the public over odious matters supported by the Party in private. Under the Party’s duplicitous leadership, the policy is to support even the most reprehensible and outrageous acts of the Coalition and in the event there is public outrage, the reaction is distance, deny and disown. They did so in relation to VAT on education, the parking meter contract and the Esso/Hess and CNOOC/NEXEN petroleum contract.

Having played a leading role in the formation of the AFC, including hosting and chairing pre-formation meetings, the writing of the party’s constitution, the selection of the party’s logo, and participation in almost every single meeting of the parliamentary party to plan strategies and responses to the annual budgets under the PPP/C, I am shocked to see what the party has become – opportunistic, self-serving and dishonest – seeking only to promote the interests and comforts of a few leading members.

Having read the Report and the Minutes of the Select Committee and the Bill as recommended to the National Assembly, it is clear to me that the high-powered Select Committee did a rather superficial and poor job under the chairmanship of the Attorney General Basil Williams. The APNU and the AFC have used the ruse of a Cybercrime Bill to reintroduce Sedition Legislation nakedly seeking to protect not the State but the Government. That is not what cybercrime laws are about.

My recommendation is that the entire Bill be scrapped and replaced by a Bill based on the Budapest Convention.

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Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 41)

Introduction

Regulations made under the Petroleum Exploration and Production Act require the application for a prospecting licence to be accompanied by a statement giving particulars of the applicant’s financial status while in the case of a production licence, the application must give full information as to the applicant’s financial status. The Minister has extensive powers under the Act and the Regulations to request such additional information as he thinks necessary or to issue licences with conditions attached.

The applications are not published documents but the Act requires the Minister to cause notice of the grant of a licence stating the name of the licensee and the situation of the land (sic) in respect of which the licence has been granted. Whether the framers of the 1986 legislation did not consider that licences may be granted for off-shore exploration is unclear but it cannot be that only land-based licences require publication. Let us leave that technical matter for a while and return to the financial capacity of the licence holders.

We know that what our local media continue to dub the ExxonMobil Petroleum Agreement of 2016 actually has three contractors – Esso Exploration and Production Guyana Limited (Esso), CNOOC Nexen Petroleum Guyana Limited (CNOOC) and Hess Guyana Exploration Guyana Limited (Hess) – all incorporated in offshore tax havens and operating in Guyana as branches of the offshore companies. We know too that the two non-Esso companies which hold 55% of the interest have appointed Esso as the Operator. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 41)”

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Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 40)

Introduction

In the course of his presentation of Budget Speech 2018 delivered on November 27, 2017, the Minister of Finance announced that the Government of Guyana would be partnering with the Islamic Development Bank (IsDB/the Bank), through the Malaysia Agricultural Research and Development Institute (MARDI), to update the expertise and technology in rice production through a Reverse Linkage Project to the tune of US$863,000. The Bank did not feature in the exchanges in the Budget debate so it was with more than a little surprise that the local media, citing a speech by the Minister to the annual meeting of the Bank, reported that the Bank would be lending roughly US$900 million to Guyana, its newest member.

It would have been, after all, the largest single loan ever taken by this country, and on a per capita basis, the largest loan ever extended to a member country by the Islamic Development Bank. The Ministry of Finance later walked back on that statement, clarifying that it was rather a “resource envelope of US900M that is potentially available from which the Government of the Cooperative Republic of Guyana can borrow.” The ministry’s clarification said that during the period 27-29 November 2017, the IsDB mounted a mission to Guyana to develop a medium term work plan for the period 2018- 2022, setting out a pipeline of projects that the Bank can support over the next five years.

As Guyana moves to First Oil – and let us face it, into general and regional elections – the temptation to spend will be almost irresistible, posing a risk to the much anticipated Sovereign Wealth Fund (SWF). That risk is real and cannot be discounted. So far, the discussion on the SWF has largely been theoretical and centred on possible models. In practice, the SWF has to take a whole host of factors into account, including the country’s recurring deficits which are financed by loans; the deficit in its infrastructure; future revenue gains and losses; commodity prices including that of oil; and citizens’ expectations which continue to rise. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 40)”