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Column # 178
Column Title: The Exxon Audit Dispute: Two Fundamental Errors
One of the last substantive reports carried by Stabroek News before the company entered liquidation dealt with the continuing dispute between the Government of Guyana and ExxonMobil over the appointment of a Sole Expert to determine the US$214 million in costs questioned in the IHS Markit audit. Normally, this is precisely the type of issue I would address in my regular column in that newspaper. Two fundamental issues arise from the report: how disputed audit issues are to be resolved in the absence of agreement, and where responsibility lies for the audit provided for in the Agreement.
With Stabroek News no longer available, I will address these and future matters in this personal blog, available for free use by any person with due attribution. For purposes of continuity, I will treat this as column 178.
Resolving audit issues
The Agreement itself sets out a clear process for dealing with disputes arising from the audit allowed under the 2016 Agreement. The audit is conducted on behalf of the Government under the authority of the Minister responsible for petroleum. Once the audit is completed, the Minister communicates its findings to the Contractor, identifying those costs that are questioned or disallowed and inviting a response within the prescribed time frame. During that period the parties exchange correspondence and attempt to reconcile any differences. Only if those efforts fail does the dispute move to the next stage.
That stage is the appointment of a Sole Expert.
The report suggests that ExxonMobil is insisting on the appointment of a particular expert. The Agreement simply does not allow this. The Sole Expert must be appointed by agreement between the parties, and if the parties cannot agree within the specified period after notice proposing the appointment, the appointment is to be made by the International Chamber of Commerce in accordance with its Rules for the Appointment of Experts and Neutrals.
In other words, neither party has the right to impose its own nominee. The requirement that the expert be independent and impartial makes it all the more troubling if the individual proposed by one side has previously carried out assignments for that same party.
The second error is the Government’s apparent decision to place responsibility for the audit in the hands of the Guyana Revenue Authority. That approach conflates two entirely different legal regimes.
The GRA is by statute required to administer the tax laws, including carrying out a tax audit. The audit under the Agreement is not a tax audit. It is a contractual audit carried out under the Petroleum Agreement. Article 23 expressly gives the Minister the right to audit the accounting records of the Contractor relating to petroleum operations in accordance with the Accounting Procedure set out in the Agreement.
To place the GRA at the centre of the present dispute blurs a distinction that should be obvious. The audit under the Agreement is the responsibility of the Government acting through the Minister responsible for petroleum. It is that authority which must assert the Government’s position and defend its findings under the Agreement.
But the Government and President Ali seem afraid to speak to Exxon as a sovereign power. President Irfaan Ali recently hosted senior ExxonMobil executives at State House at public expense. President Ali must understand that the company is frustrating the audit process by attempting to dictate the choice of Sole Expert. He should have used the opportunity to state Government’s position plainly: that ExxonMobil must respect and conform with the terms of the 2016 Petroleum Agreement.
The two issues ultimately are ultimately one of institutional responsibility. The State signed the Petroleum Agreement. It the State, acting through the Minister responsible for petroleum, that must assert and defend its rights under that Agreement. Those responsibilities cannot be outsourced or quietly shifted to another agency simply because the Government is afraid to displease Exxon.
The Government must use the provisions of the Agreement without fear or favour. Anything less risks reinforcing the perception that the Ali Administration is too weak and scared to represent the national interest.