The Messy Business of Exxon’s Ogle Head Office  

Introduction

Today I return to the matter of Esso’s new head office at Ogle, first addressed in Part 104 on 9th. March. The story of this mega building is rife with misrepresentation, secrecy, complicity, abuse of power, possible illegality, and a touch of mystery. It involves Ogle Airport Inc. (OAI); Ogle Airport, a privately owned public facility; Exxon’s Guyana operations; the Ministry of Public Works; and the once all-powerful former Minister of State, Mr. Joseph Harmon. It is also one of how state resources are transferred into private hands, and a mix of business, an oil giant and a strategic, national asset of security importance.  

Ogle Airport Inc.

This company traces its beginnings to a 2001 Lease Agreement signed by then Prime Minister Samuel Hinds for the Government of Guyana, and newly incorporated Ogle Airport Inc., for the development of Ogle Aerodrome, previously owned by the Guyana Sugar Corporation. The Agreement was sweetened in 2004 when the company was granted a series of concessions by Mr. Anthony Xavier, Minister of Works including a five year waiver of duties and Consumption Tax on capital goods and spares; waiver of duty on share capital; accelerated depreciation; unrestricted loss relief; and a 50% reduction of the Minimum Rent payable to the Government under the original agreement.

Ogle Airport Inc. was formed one year earlier with five equal shareholders: Trans Guyana Limited, Air Services Limited, Roraima Airways Inc., Kayman Sankar Aviation Ltd. and Hinterland Tours Ltd., each holding 100,000 shares. That equality has changed dramatically. According to the company’s latest annual report, there are 747,200,364 shares in issue with the Correia Group, comprising Trans Guyana Ltd, Correia Mining Ltd. and Caribbean Aviation Maintenance Services Ltd., holding a dominant 60% of the shares while Air Services (16%), Roraima (2%) and some newbies holding the rest. Among the new shareholders are a foreign owned company PFHG PLC (6%) and F. J. Comacho (Guyana) Inc. (9.4%).

Mr. Michael Correia, Executive Chairman of OAI from its inception, is also chairman of the Correia Group which controls all organs of OAI. There is provision for an no participatory role for the Government in the airport, the second largest in the country and for which the Government provides immigration, customs, weather, security, and air traffic control services.

The only obvious relationship between the Company and Correia Mining Services Ltd. is the name Correia, while it is unclear why the directors would have issued 45 million shares to PFHG PLC, a foreign company. Former directors included Messrs Yacoob Ally, Mazahar Ally and Beni Sankar but these too have been replaced over the years.  

OAI and Exxon/EEPGL 

Fast forward to 2017 to 27^th July to be exact, a rather significant day for OAI which on that day, signed a Memorandum of Understanding (MOU) with Esso for a 30-year lease of 435,700 sq. ft. of land. It was no ordinary MOU, but one which was binding and so drawn up, only because such a sub-lease required governmental approval. Unlike a typical non-binding MOU, this one provided for disputes to be referred to arbitration before three arbitrators in accordance with the arbitration rules of the International Chamber of Commerce.

So, on the same day, chairman Correia wrote Mr. David Patterson Minister of Public Infrastructure (MOPI) that Exxon, not Esso, had identified the airport as an ideal location to “establish their main administrative offices”. Emphasising the importance of the matter, Correia confidently sought an early “no objection” to what he presented to the Minister as a fait accompli, a done deal.

I am not aware how Mr. Trevor Benn, CEO of the Lands and Survey Commission became involved, but on August 29, 2017, he wrote to the Permanent Secretary of MOPI on OAI’s application and the renewal of the 2001 Lease, identifying some issues and requesting a meeting. The clear impression was that ESSO and OAI were attempting to exert both direct and indirect pressure through the malleable Ministry of the Presidency, to achieve the early “no objection” response which ESSO and OAI assumed would be a mere formality.

Patterson tries caution

To his credit, Patterson was commendably professional, instructing his PS to seek legal advice on the request. On 27 October 2017, the Permanent Secretary responded to Mr. Benn advising him that the Government lease runs until 2028 and that it would be premature to address an extension “at this time”. Someone, it seemed, did not take no for an answer and so on 8 January 2018, Patterson followed up the PS’s letter with his own, addressed to Harmon’s Political Advisor, highlighting several issues, including a number of provisions that were “manifestly unsuitable for inclusion in the land lease.”

Patterson, in polished and polite language, assured the political adviser that his Ministry would keep the request for a renewal of the Government lease and for a meeting “in its purview”, and promised to address them later.

If Patterson thought that was the end of the matter, he clearly misjudged OAI, Esso and Harmon. On 5 April, Harmon replaced Patterson as the competent Minister in respect of the Airport, prematurely substituting the 2001 Agreement with a new 5 April 2018 Agreement but backdating certain provisions to 1^st. January 2018. Poor Guyana will have to live with that for another thirty years at least. Thanks Joe, your legacy lives on.

Like it did with the infamous Bridging Deed of 2016, Exxon was once again, and not for the last time, able to subvert our politicians, our laws, our people and our resources. There are issues arising from Correia’s letter, Harmon’s arrogation of Patterson’s authority, the security issues regarding the use of the ten acres, the role of the current Administration and the financial operations of the Airport. I will conclude with these in my next column.

The 2016 Petroleum Agreement and Foreign Currency – Part 2

Introduction

In Guyana’s fast changing news cycle, the issue of whether or not there is a shortage of foreign currency appears to have receded into the background. That of course does not mean that the temporary problem has been permanently solved. Official sources maintain the line that there was never a general shortage, that if anything, the problem was restricted to a few of the commercial banks. The rest have their foreign exchange niches – Scotia from petroleum, Demerara Bank from DDL and Agriculture, and  GBTI from Agriculture and Gold. That’s from the supply side. The shortage, if any, comes from several factors on the demand side, including what is perceived in some quarters as Guyana becoming the Cambio and main source of foreign currency for our Caribbean partners, to borrow from a claim made by Ms. Kamala Persad-Bissessar as Prime Minister of Trinidad and Tobago in respect of her own country.   

The Petroleum Sector

As column # 105 showed, the paradox of any shortage in the midst of a petroleum boom is partly explained by the liberal Foreign Exchange Control provisions of the 2016 Petroleum Agreement which allows the oil companies to run their own exchange regime, outside of the national framework. And here it is worth noting that the regime is enjoyed not only by Exxon’s indirect subsidiary, Esso Exploration and Production Limited (EEPGL) but also by Hess and CNOOC which have a 55% share in the oil consortium with Esso the remaining 45%.

Apart from being the Operator of the Stabroek Block, EEGPL appears to have taken on the role of representative and spokesperson for the other two. It is a member of the Private Sector Commission, represented at the meeting between the PSC and the Bank of Guyana. EEPGL’s representative however, made no admission, suggestion or undertaking to contributing to any solution. Indeed, the representative was totally silent, taking in all that was said, no doubt relaying the discussions to his principals. We need to remind ourselves that EEPGL holds a minority interest (45%) in the Stabroek Block with Hess owning 30% and CNOOC the remaining 25%.

Government failure

Guyanese should note that the much-vaunted Model PSA put out recently for discussion and comments within a brief 14-day period, essentially retains the old foreign exchange framework. So much for a progressive, nationalistic model promised by the Government. While I intend to address the Model over the coming weeks, I urge the Government not only to extend the 14-day consultation period but to engage the public in a public forum for broad, general consultations. The draft does have some positive features but repeats some of the major weaknesses of the existing regime.

In returning to the foreign exchange issue, we must not make the mistake that it is all down to the oil companies, that the Agreement is the sole cause of the problem or that any fixing of the Agreement would solve all the problem. Rather, if the Model PSA is a signal, it is safe to assume that  the Government does not intend to address the issue of foreign exchange – surplus or shortage – but to leave it to the Bank of Guyana and the so-called market. Perhaps the Government has to be reminded that the Bank of Guyana is a statutory creation, bound to act within the policies set by the Government. The central bank does not make policy but only carries out policies set by the Government. Since neither the Governor of the Bank nor the Government has indicated any change in policy on foreign exchange in response to oil, one has to assume that the Government is comfortable with the status quo.

Such continued inaction on the part of the Government has grave consequences. It has become the victim of the Cambios, the tax evaders, the money launderers and the illegal export of the country’s foreign exchange resources, transfer (under)pricing and the faithful adherence to the foreign exchange rules, already limited as they are.

Dr. King’s prediction of the resource curse

This Government has to get around to managing the economy and to address the problems with the economy and the country. Unless it acts soon, the condition can potentially become totally unmanageable and insoluble. Maybe the Government fears that necessary action will not be welcome by their friends and supporters but it must surely realise that it has to act in the best interest of the country rather than in the Party’s electoral interest. The Government is right to be offended by the dire predictions of Dr. Damien King, the Jamaican economist. The paradox is that by its delay or unwillingness to act responsibly and decisively, the Government is actually sowing the seed of the resource curse threatened by Dr. King.

Here are some matters requiring immediate attention, outside of the increasing and self-serving weaknesses in public financial management.

1. Repeal of the Dealers in Foreign Currency (Licensing) Act by excluding the non-bank cambios which are almost universally personal cambios, impervious to audit or adequate supervision and regulation. These were created for a different era and purpose and have no place in this society.

• The Issue of more banking licences, thereby increasing competition among the banks.

• The need for strengthening and enforcing the only semblance of transfer pricing rules under the Income Tax Act.

• Rigorous enforcement of the laws against those communities of foreigners – regional and international – that rob the revenue of taxes, underpay our workers and take out foreign currency under all forms of guises. We must not hesitate to place the law breakers before the Courts and to apply our extradition laws in appropriate cases.

• Addressing the large scale smuggling across the extractive sector and not hesitating to make it possible to revoke leases and licences.  

• Dealing with the gaping weaknesses in the Local Content Act.

• The review and amendment of the Bank of Guyana Act and the Immigration Act.

• Strengthening and depoliticising of the Financial Intelligent Unit and the SOCU.

• Ensuring that foreign investment means what it says. Afterall, if the local economy finances the investment, directly or indirectly, allowing the investor to repatriate both capital and profits, the gains to the economy are significantly reduced.

1. Liberalising the rules for foreign borrowings but subject to thin capitalisation rules.  

  Conclusion

To state the obvious, managing an economy cannot be only about big spending, sometimes without regard for the Procurement Act, the Appropriation Act or the Fiscal Management and Accountability Act, responsible and accountable spending, and good governance. What kind of democracy is it that the National Assembly has not met since the passage of the 2023 Budget? Is it that the Government is waiting until it needs parliamentary Supplementary cover for unauthorised spending?  Despite all the evidence, I remain optimistic that the government will carry out its functions and duties to address the grave problems and threats facing the country. I would hate ever to have to concede that Dr. King’s predictions were more prescience than theory.

The 2016 Petroleum Agreement and Foreign Currency

Introduction

It is surely a contradiction that even as Guyana has the fastest growing economy in the world, and amid a phenomenal expansion in oil production and export, the issue of the availability of foreign exchange is now a major topic, a running debate on facts among the Government, the Bank of Guyana, segments of the Private Sector Commission and of the banking sector and privately owned businesses.

Keeping to a promise in last week’s column, this Column looks at the foreign exchange issue in the context of the 2016 Petroleum Agreement, the only such agreement which has yielded oil, vast quantities of it. A separate and comprehensive Article of that Agreement deals with Foreign Exchange which unsurprisingly, is as permissive and generous to the oil companies as are the provisions on taxation, the number of blocks, relinquishments and royalties. Before examining that Article, a look at the legislative framework for foreign exchange controls in Guyana. 

The laws on foreign exchange

Contrary to popular belief and while the Exchange Control Act was repealed in 1996 under the Cheddi Jagan presidency, there still exist some exchange controls under the Customs Act, the Foreign Exchange Miscellaneous Provisions Act and tangentially, the Bank of Guyana Act which finds itself at the centre of a problem not of its own making. And for the record, the Bank of Guyana does not set exchange rate policies: it simply acts “[w]ithin the context of the economic policy of the Government”.

On the exchange rate, the Bank is required to act in accordance with the country’s commitment to the IMF that the rate should be market determined. Economists prefer the description of a “managed rate”, pointing to the Bank’s prescription of a G$3 cap in the spread between the rate at which commercial banks buy and sell the US Dollar, and an artificial official exchange rate of G$208.5 to US$1. The Bank of Guyana Act prescribes the Guyana Dollar as the country’s currency, and that, except with the approval of the Bank of Guyana after consultation with the Minister of Finance, all transactions in Guyana must be expressed, recorded and settled in Guyana Dollars, a requirement which is openly and routinely violated with complete immunity. 

The Customs Act requires a declaration by passengers of currency in excess of ten thousand US Dollars, or its equivalent, being taken out of or brought into Guyana, a provision which is at best, self-regulated and generally ignored, to the detriment of the country’s money laundering reputation.

The Foreign Exchange Miscellaneous Provisions Act which repealed the Exchange Control Act, seeks to regulate foreign borrowings by requiring the permission of the Bank of Guyana for foreign borrowings by domestic operators, or borrowings in Guyana by companies controlled by non-resident companies. Our weak Local Content Act also means that those companies which have paid their way into buying Guyanese status, have as a direct consequence, also bought their way around this Act as well. It is mind-boggling that the Government has not moved to address this glaring deficiency.  

It only gets worse.        

Exchange rate and the oil contract 

The above represents the statutory framework regarding foreign currency within which the Minister responsible for petroleum may enter into petroleum agreements. That framework was completely ignored in the 1999 Agreement signed by Janet Jagan, the 2005 and 2012 Model Agreements under then Presidents Jagdeo and Ramotar respectively, and of course, the universally maligned 2016 Agreement signed by Raphael Trotman. A review of the Foreign Exchange provisions in each of the four documents (all framed as Article 22) shows an abominable lack of understanding of or interest in ensuring compliance with the law.   

 

Here are the benefits enjoyed by the oil companies and their expatriate employees. 

1. The right to retain abroad all foreign exchange obtained from the export sales of Contractor’s Petroleum and to remit and retain abroad all foreign exchange earned from sales of Petroleum or assets in Guyana.

• The right to open and maintain bank accounts in any foreign currency outside Guyana and to dispose of any sums deposited therein without any obligation to convert into Guyana currency any part of the said amounts.

• The right to finance Petroleum Operations in any currency through any combination of equity, inter-affiliate or third-party loans, inter-company open accounts, or production payments.

• The right to place foreign currency into both Guyanese and United States dollars bank accounts in Guyana and to dispose of the sums deposited therein without any restriction.

• With the approval of the Bank of Guyana, the right to purchase and to sell Guyanese currency through local banks, obviously for foreign currency.  

• The right of expatriate Employees of the oil companies, Affiliated Companies Sub-Contractors engaged in Petroleum Operations to remit anywhere any portion of their salaries paid in Guyana and investment income earned in Guyana or to be paid their entire salary in their home countries.

• The 2016 Agreement stipulates that the oil companies can maintain accounts in Guyana and United States Dollars and that the US Dollar accounts “will prevail in case of conflict”.

Agreement trumps Guyana’s laws

It is a well-established principle, that an agreement made under any law must comply with that law. Yet, the 2016 Agreement violates this principle in providing that any conflict is resolved in favour of the Agreement rather than the law.

The generous tax provisions mean that no foreign currency must be brought back to pay any taxes for the oil companies, branch profit tax of subcontractors or the personal income tax of expatriates of the oil companies, their affiliates and their subcontractors working in Guyana for less than 183 days.

For good measure, the total revenue earned by the oil companies in 2021 was G$545,086 Mn. while the taxes which we the Guyanese people paid for them is $78,638 Mn. CNOOC immorally benefitted to the tune of $21,118 Mn. of that sum, and  now generously donates $4 million of that to assist Christ Church Secondary School. It is like giving back to Guyana $1 out of every few thousands of dollars of the taxes we pay for them. What a deal!

CNOOC may be cut from a different cloth from Exxon and Hess but there is clearly no difference when it comes to exploiting the vulnerability of poor countries or their attempts at salving their bleeding conscience.

Next week: We return to the Head Office business.